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Farmer Mac Reports Strong First Quarter 2012 Results

May 10, 2012

WASHINGTON, May 10, 2012 /PRNewswire/ — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today reported strong first quarter 2012 results, as increased earnings benefited from growth in program assets and credit quality remained high. Farmer Mac’s core earnings, a non-GAAP measure, for first quarter 2012 were $11.8 million ($1.08 per diluted common share), up from $9.1 million ($0.85 per diluted common share) in first quarter 2011. Core earnings for first quarter 2012 benefited from higher net interest income of $34.2 million, compared to $27.0 million in first quarter 2011. That increase in income was partially offset by net provisions for losses of $0.5 million in first quarter 2012, compared to a release from the allowance for losses of $0.7 million in the same period in 2011.

Farmer Mac’s GAAP net income attributable to common stockholders was $22.2 million ($2.04 per diluted common share) for the three months ended March 31, 2012, compared to $18.3 million ($1.72 per diluted common share) for the same period in 2011. The increase in GAAP net income was primarily attributable to higher net interest income. GAAP net income exceeded core earnings in both periods due to periodic increases in the fair values of financial derivatives. Farmer Mac uses financial derivatives, primarily interest rate swaps, to mitigate its exposure to interest rate risk and achieve an overall lower effective cost of borrowing. These financial derivatives are not designated in hedge relationships for accounting purposes. Therefore, as changes in long-term interest rates affect the fair values of the financial derivatives, those fair value changes are recorded in earnings, while much of the offsetting changes in the fair values of related assets and liabilities are not recorded in earnings. Farmer Mac excludes these fair value fluctuations from its core earnings.

Farmer Mac President and Chief Executive Officer Michael Gerber stated, “Our first quarter results continued the momentum Farmer Mac has built over the past several years. GAAP and core earnings were strong, portfolio assets increased, and we doubled the quarterly dividend on our common stock. Solid new business volume across all product lines raised the aggregate outstanding program volume to $12.1 billion as of March 31, 2012. Portfolio credit quality also remains high, supported by a generally healthy agricultural economy, as 90-day delinquencies at quarter-end were down compared to first quarter 2011. Farmer Mac is well-positioned to continue to help meet the credit needs of Rural America and to build value for shareholders.”

Business Results

For first quarter 2012, Farmer Mac’s net effective interest spread was $25.6 million (94 basis points), compared to $19.6 million (94 basis points) in the same quarter 2011. This increase in dollars was a result of net interest income earned on new on-balance sheet program assets added throughout 2011 and first quarter 2012.

Farmer Mac’s guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac Guaranteed Securities and long term standby purchase commitments (LTSPCs) were $5.9 million for first quarter 2012, compared to $6.4 million for first quarter 2011. The decrease in guarantee and commitment fees was primarily attributable to the maturity of a $475.0 million AgVantage security during 2011 that was not replaced with new business last year.

Program Activity

During first quarter 2012, Farmer Mac added $616.2 million of new program volume. Specifically, Farmer Mac:

  • purchased $110.5 million of newly originated Farmer Mac I eligible loans;
  • added $179.6 million of Farmer Mac I eligible loans under LTSPCs;
  • purchased $200.0 million of Farmer Mac I AgVantage securities;
  • purchased $24.4 million of loans under the Rural Utilities program; and
  • purchased $101.7 million of Farmer Mac II USDA-guaranteed portions.

Farmer Mac’s outstanding program volume was $12.1 billion as of March 31, 2012, an increase of $153.1 million from December 31, 2011, as new volume exceeded maturities and principal paydowns on existing program assets.

Credit Quality

In the Farmer Mac I agricultural portfolio (excluding AgVantage securities), 90-day delinquencies were $53.1 million (1.21 percent of the portfolio) as of March 31, 2012, compared to $40.6 million (0.93 percent of the portfolio) as of December 31, 2011, and $57.3 million (1.33 percent of the portfolio) as of March 31, 2011. The increase in delinquencies from year-end is consistent with the historical trend of Farmer Mac’s 90-day delinquencies fluctuating from quarter to quarter, with higher levels generally observed at the end of the first and third quarters of each year. As of March 31, 2012 and 2011, there were no ethanol loans in the 90-day delinquencies. Farmer Mac recorded provisions of $0.5 million to the allowance for losses during the three months ended March 31, 2012, compared to a net release of $0.7 million for the same period 2011.

When analyzing the overall risk profile of its program business, Farmer Mac takes into account more than the Farmer Mac I agricultural loan delinquency percentages provided above. The total program business also includes AgVantage securities and rural utilities loans, neither of which have any delinquencies, and the USDA Guaranteed Securities and USDA-guaranteed portions underlying Farmer Mac II Guaranteed Securities, which are backed by the full faith and credit of the United States. Across Farmer Mac’s entire program business, the 90-day delinquencies represented 0.44 percent of total program business as of March 31, 2012, compared to 0.34 percent as of December 31, 2011 and 0.48 percent as of March 31, 2011.

Capital and Liquidity

Farmer Mac is required to hold capital at the higher of its statutory minimum capital requirement and the amount required by the risk-based capital stress test prescribed by Farm Credit Administration (FCA) regulations. As of March 31, 2012, Farmer Mac’s core capital totaled $497.7 million and exceeded its statutory minimum capital requirement of $360.6 million by $137.1 million. As of March 31, 2012, Farmer Mac’s risk-based capital stress test generated a risk-based capital requirement of $34.7 million. Farmer Mac’s regulatory capital of $515.7 million exceeded that amount by approximately $481.0 million.

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 60 days of liquidity. As of March 31, 2012, Farmer Mac had 131 days of liquidity, as calculated in accordance with FCA regulations.

Reconciliation of Core and GAAP Earnings

Farmer Mac uses core earnings, a non-GAAP financial measure, to measure corporate economic performance and develop financial plans because, in management’s view, core earnings is a useful alternative measure in understanding Farmer Mac’s economic performance, transaction economics and business trends. Core earnings differs from GAAP net income by excluding the effects of fair value accounting guidance. Core earnings also differs from GAAP net income by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of the Corporation’s core business. This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac’s disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.

A reconciliation of Farmer Mac’s GAAP net income attributable to common stockholders to core earnings is presented in the following table.

              Reconciliation of GAAP Net Income Attributable to Common Stockholders to Core Earnings
              --------------------------------------------------------------------------------------
                                                  For the Three Months Ended
                                                  --------------------------
                                           March 31, 2012            March 31, 2011
                                           --------------            --------------
                                               (in thousands, except per share
                                                           amounts)
    GAAP net income
     attributable to
     common stockholders                                    $22,203                                  $18,323
    Less the after-tax
     effects of:
    Unrealized gains on
     financial derivatives                         10,185                                8,980
    Unrealized gains on
     trading assets                                   714                                  852
    Amortization of
     premiums and deferred
     gains on assets
     consolidated at fair
     value                                           (958)                                 300
    Net effects of
     settlements on agency
     forward contracts                                509                                 (346)
    Lower of cost or fair
     value adjustment on
     loans held for sale                                -                                 (525)
                                                      ---                                 ----
    Sub-total                                      10,450                                9,261
    Core earnings                                           $11,753                                   $9,062
                                                            =======                                   ======

    Core earnings per
     share:
    Basic                                                     $1.13                                    $0.88
    Diluted                                                   $1.08                                    $0.85
    Weighted-average
     shares:
    Basic                                          10,365                               10,285
    Diluted                                        10,903                               10,664

More complete information on Farmer Mac’s performance for first quarter 2012 is set forth in the Form 10-Q filed by Farmer Mac earlier today with the Securities and Exchange Commission (SEC).

Forward-Looking Statements

In addition to historical information, this release includes forward-looking statements that reflect management’s current expectations for Farmer Mac’s future financial results, business prospects and business developments. Management’s expectations for Farmer Mac’s future necessarily involve a number of assumptions and estimates and the evaluation of risks and uncertainties. Various factors or events could cause Farmer Mac’s actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including uncertainties regarding: (1) the availability to Farmer Mac and Farmer Mac II LLC of debt financing and, if available, the reasonableness of rates and terms; (2) legislative or regulatory developments that could affect Farmer Mac, including those related to the Dodd-Frank Act; (3) fluctuations in the fair value of assets held by Farmer Mac and Farmer Mac II LLC; (4) the rate and direction of development of the secondary market for agricultural mortgage and rural utilities loans, including lender interest in Farmer Mac credit products and the Farmer Mac secondary market; (5) the general rate of growth in agricultural mortgage and rural utilities indebtedness; (6) the impact of economic conditions and real estate values on agricultural mortgage lending; (7) developments in the financial markets, including possible investor, analyst and rating agency reactions to events involving GSEs, including Farmer Mac; and (8) financial market volatility, including the future level and direction of interest rates, commodity prices, and export demand for U.S. agricultural products. Other risk factors are discussed in Farmer Mac’s Annual Report on Form 10?K for the year ended December 31, 2011, as filed with the SEC on March 15, 2012, and in Farmer Mac’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, as filed with the SEC earlier today. The forward-looking statements contained in this release represent management’s expectations as of the date of this release. Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements included in this release to reflect new information or any future events or circumstances, except as otherwise mandated by the SEC.

Farmer Mac is a stockholder-owned instrumentality of the United States chartered by Congress to establish a secondary market for agricultural real estate and rural housing mortgage loans, rural utilities loans, and USDA-guaranteed farm program and rural development loans. Farmer Mac’s Class C non-voting and Class A voting common stocks are listed on the New York Stock Exchange under the symbols AGM and AGM.A, respectively. Additional information about Farmer Mac (as well as the Annual Report on Form 10-K and Quarterly Report on Form 10-Q referenced above) is available on Farmer Mac’s website at www.farmermac.com. Farmer Mac II LLC is a subsidiary of Farmer Mac that operates the Farmer Mac II business of purchasing and holding USDA-guaranteed loans. Additional information about Farmer Mac II LLC is available on its website at www.farmermac2.com.

The conference call to discuss Farmer Mac’s first quarter 2012 financial results and the Corporation’s Form 10-Q for first quarter 2012 will be webcast on Farmer Mac’s website beginning at 11:00 a.m. eastern time on Friday, May 11, 2012. An audio recording of that call will be available on Farmer Mac’s website for two weeks after the call is concluded.

                               FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
                                          CONDENSED CONSOLIDATED BALANCE SHEET
                                                       (unaudited)

                                             March 31,                      December 31,
                                                   2012                                 2011
                                                   ----                                 ----
                                                              (in thousands)
    Cash and cash equivalents                                $974,963                            $817,046
    Investment securities                     2,375,088                            2,184,490
    Farmer Mac Guaranteed
     Securities                               4,389,861                            4,289,272
    USDA Guaranteed Securities                1,513,099                            1,491,905
    Loans:
    Loans                                     1,833,199                            1,782,758
    Loans held in consolidated
     trusts                                   1,073,367                            1,121,559
    Allowance for loan losses                   (10,581)                             (10,161)
    Total loans, net of
     allowance                                2,895,985                            2,894,156
                                              ---------                            ---------
    Other Assets                                162,415                              206,639
    Total Assets                                          $12,311,411                         $11,883,508
                                                          ===========                         ===========
    Notes Payable:
    Due within one year                                    $6,493,888                          $6,087,879
    Due after one year                        4,334,977                            4,104,882
                                              ---------                            ---------
    Total notes payable                      10,828,865                           10,192,761
    Debt securities of
     consolidated trusts held
     by third parties                           656,801                              701,583
    Reserve for losses                            7,385                                7,355
    Other liabilities                           241,504                              427,276
                                                -------                              -------
    Total Liabilities                        11,734,555                           11,328,975
    Preferred stock                              57,578                               57,578
    Common stock                                 10,373                               10,357
    Additional paid-in capital                  104,210                              102,821
    Accumulated other
     comprehensive income                        79,123                               79,370
    Retained earnings                            83,719                               62,554
    Non-controlling interest -
      preferred stock                           241,853                              241,853
                                                -------                              -------
    Total Equity                                576,856                              554,533
    Total Liabilities and
     Equity                                               $12,311,411                         $11,883,508
                                                          ===========                         ===========

                                 FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
                                      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (unaudited)

                                                            For the Three Months Ended
                                                     March 31, 2012            March 31, 2011
                                                     --------------            --------------
                                                         (in thousands, except per share
                                                                     amounts)
    Interest income:
    Net interest income                                               $34,208                         $27,019
    Provision for loan losses                                  (420)                          (1,281)
    Net interest income after
     provision for loan losses                               33,788                           25,738
                                                             ------                           ------
    Non-interest income:
    Guarantee and commitment fees                             5,930                            6,387
    Gains on financial derivatives                            6,400                            4,005
    Gains on trading assets                                   1,099                            1,311
    Gains on sale of available-for-
     sale investment securities                                  28                              157
    Gains on sale of real estate
     owned                                                        -                               97
    Lower of cost or fair value
     adjustment on loans held for
     sale                                                         -                             (808)
    Other income                                                721                            3,898
                                                                ---                            -----
    Non-interest income                                      14,178                           15,047
    Non-interest expense:
    Compensation and employee
     benefits                                                 4,485                            4,497
    General and administrative                                2,758                            2,256
    Provision for/(release of)
     losses                                                      30                           (1,934)
    Other non-interest expense                                  569                            1,859
                                                                ---                            -----
    Non-interest expense                                      7,842                            6,678
                                                              -----                            -----
    Income before income taxes                               40,124                           34,107
    Income tax expense                                       11,654                            9,517
                                                             ------                            -----
    Net income                                               28,470                           24,590
    Less: Net income attributable to
     non-controlling interest -
     preferred stock dividends                               (5,547)                          (5,547)
                                                             ------                           ------
    Net income attributable to
     Farmer Mac                                              22,923                           19,043
    Preferred stock dividends                                  (720)                            (720)
    Net income attributable to
     common stockholders                                              $22,203                         $18,323
                                                                      =======                         =======

    Earnings per common share and
     dividends:
    Basic earnings per common share                                     $2.14                           $1.78
    Diluted earnings per common
     share                                                              $2.04                           $1.72
    Common stock dividends per
     common share                                                       $0.10                           $0.05

SOURCE Farmer Mac


Source: PR Newswire