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Farmer Mac Achieves Record Core Earnings for Third Quarter 2012

November 8, 2012

WASHINGTON, Nov. 8, 2012 /PRNewswire/ — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced that it achieved record core earnings and program volume for the quarter ended September 30, 2012. Core earnings, a non-GAAP measure, was $13.4 million ($1.22 per diluted common share) for third quarter 2012, up from $11.2 million ($1.04 per diluted common share) for third quarter 2011. Core earnings for third quarter 2012 benefited from higher net effective spread of $27.3 million, compared to $22.8 million in third quarter 2011. This higher net effective spread was partially offset by net provisions to the allowance for losses of $0.1 million, compared to net releases of $0.8 million for the prior year’s third quarter.

Farmer Mac had GAAP net income attributable to common stockholders for third quarter 2012 of $16.4 million ($1.49 per diluted common share), compared to net loss of $23.0 million ($2.22 per diluted common share) for the same period in 2011. The increase in Farmer Mac’s GAAP net income compared to the previous quarter was almost entirely attributable to the effects of fair value changes on financial derivatives.

Farmer Mac President and Chief Executive Officer Timothy Buzby stated, “We are pleased to report all-time highs this quarter for core earnings and outstanding program volume. New business from all of our product lines raised the aggregate outstanding program volume to $12.5 billion. Portfolio credit quality also remained high with 90-day delinquencies down in both dollar and percentage terms. The recent drought has not negatively affected the credit quality of Farmer Mac’s portfolio, and we believe that we are well-positioned to handle any future stress in the agricultural economy.”

Business Results

For third quarter 2012, Farmer Mac’s net effective interest spread was $27.3 million (95 basis points), compared to $22.8 million (93 basis points) for third quarter 2011. This higher net effective spread was driven by increased levels of interest earning assets held on balance sheet combined with the retirement of long-term callable debt and the simultaneous refinancing at lower rates.

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 $6.4 million for third quarter 2012, compared to $6.1 million for third quarter 2011.

Program Activity

During third quarter 2012, Farmer Mac added $841.5 million of new program volume from a broad range of sources. Specifically, Farmer Mac:

  • purchased $132.9 million of newly originated Farmer Mac I eligible loans;
  • added $115.8 million of Farmer Mac I eligible loans under LTSPCs;
  • purchased $201.0 million of Farmer Mac I AgVantage securities;
  • purchased $26.8 million of loans under the Rural Utilities program;
  • purchased $250.0 million of Rural Utilities AgVantage securities; and
  • purchased $115.0 million of Farmer Mac II USDA-guaranteed portions.

Farmer Mac’s outstanding program volume was $12.5 billion as of September 30, 2012, an increase of $554.8 million from December 31, 2011, as new volume exceeded maturities and principal paydowns on existing program assets. Demand has recently increased for Farmer Mac’s longer-term, fixed-rate loan products in the agricultural segment of its portfolio. Farmer Mac believes that the trend toward longer-term mortgage financing by farmland owners will continue and that demand for Farmer Mac’s secondary market tools will also increase as rural lenders make more loans and adapt to the changing regulatory environment, which could require more liquidity and capital.

Credit Quality

In the Farmer Mac I agricultural portfolio, 90-day delinquencies declined to $40.8 million (0.93 percent of the non-AgVantage Farmer Mac I portfolio) as of September 30, 2012, from $47.0 million (1.07 percent) as of June 30, 2012 and $44.8 million (1.02 percent) as of September 30, 2011. The decrease in delinquencies compared to second quarter 2012 is notable because Farmer Mac’s 90-day delinquencies are usually higher, both in dollars and as a percentage of the outstanding portfolio, at the end of the first and third quarters of each year corresponding to the annual (January 1st) and semi-annual (January 1st and July 1st) payment characteristics of most Farmer Mac I loans. Farmer Mac recorded net provisions of $0.1 million to the allowance for losses during the three months ended September 30, 2012, compared to net releases of $0.8 million for the same period in 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 of loans 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, 90-day delinquencies represented 0.33 percent of total program business as of September 30, 2012, compared to 0.38 percent as of June 30, 2012 and 0.38 percent as of September 30, 2011.

The agricultural sector remained profitable across a variety of industries through the first nine months of 2012, but the summer drought across the Midwest and Great Plains generated concerns about the grain crop. The drought has had no measurable impact on the credit quality of Farmer Mac’s portfolio as of the end of third quarter 2012. In general, Farmer Mac does not expect the drought to have a significant negative effect on grain producers. However, increased grain prices resulting from reduced supply may adversely affect the profitability of producers in many industries that use feed grains as an input, including livestock, dairy, and ethanol producers. Farmer Mac believes that it generally remains well collateralized on its exposures in drought areas.

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 September 30, 2012, Farmer Mac’s core capital totaled $508.5 million and exceeded its statutory minimum capital requirement of $368.4 million by $140.1 million. As of September 30, 2012, Farmer Mac’s risk-based capital stress test generated a risk-based capital requirement of $42.0 million. Farmer Mac’s regulatory capital of $526.3 million exceeded that amount by approximately $484.3 million.

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 60 days of liquidity. As of September 30, 2012, Farmer Mac had 128 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/(loss) attributable to common stockholders to core earnings is presented in the following table.

        Reconciliation of GAAP Net Income/(Loss) Attributable to Common Stockholders to Core Earnings
        ---------------------------------------------------------------------------------------------
                                                 For the Three Months Ended
                                                 --------------------------
                                          September 30,                September 30,
                                               2012                        2011
                                         --------------             --------------
                                               (in thousands, except per share
                                                          amounts)
    GAAP net income/
     (loss) attributable
     to common
     stockholders                                         $16,381                                  $(23,032)
    Less the after-tax
     effects of:
    Unrealized gains/
     (losses) on
     financial
     derivatives and
     hedging activities                           3,456                     (35,857)
    Unrealized losses on
     trading assets                                (286)                      (2,361)
    Amortization of
     premiums and
     deferred gains on
     assets consolidated
     at fair value                                 (873)                      (1,154)
    Net effects of
     settlements on
     agency forward
     contracts                                      699                       (1,291)
    Lower of cost or
     fair value
     adjustment on loans
     held for sale                                    -                        6,403
                                                    ---                        -----
    Sub-total                                     2,996                     (34,260)
    Core earnings                                         $13,385                                   $11,228
                                                          =======                                   =======

    Core earnings per
     share:
    Basic                                                   $1.28                                     $1.08
    Diluted                                        1.22                         1.04

                                                 For the Nine Months Ended
                                                 -------------------------
                                          September 30,             September 30,
                                               2012                        2011
                                         --------------             --------------
                                              (in thousands, except per share
                                                          amounts)
    GAAP net income
     attributable to
     common stockholders                                  $34,293                                      $461
    Less the after-tax
     effects of:
    Unrealized losses on
     financial
     derivatives and
     hedging activities                            (394)                    (31,316)
    Unrealized losses on
     trading assets                              (1,578)                        (230)
    Amortization of
     premiums and
     deferred gains on
     assets consolidated
     at fair value                               (2,732)                      (1,817)
    Net effects of
     settlements on
     agency forward
     contracts                                      958                       (2,283)
    Lower of cost or
     fair value
     adjustment on loans
     held for sale                                    -                        5,776
                                                    ---                        -----
    Sub-total                                    (3,746)                    (29,870)
    Core earnings                                         $38,039                                   $30,331
                                                          =======                                   =======

    Core earnings per
     share:
    Basic                                                   $3.64                                     $2.94
    Diluted                                        3.47                         2.83

More complete information on Farmer Mac’s performance for third 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 but not limited to developments in relation to agricultural policies and programs contained in the 2008 Farm Bill, many of which expired this year; (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, including the effects of drought and other weather-related conditions and fluctuations in agricultural real estate values, on agricultural mortgage lending and borrower repayment capacity; (7) developments in the financial markets, including possible investor, analyst and rating agency reactions to events involving GSEs, including Farmer Mac; (8) financial market volatility, including the future level and direction of interest rates; and (9) volatility in commodity prices and/or 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 September 30, 2012, as filed with the SEC earlier today. In light of these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this release. 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 help increase the availability of credit in rural America through the operation of a secondary market for eligible loans to agricultural and rural borrowers. 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 third quarter 2012 financial results and the Corporation’s Form 10-Q for third quarter 2012 will be webcast on Farmer Mac’s website beginning at 11:00 a.m. eastern time on Friday, November 9, 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 SHEETS
                                          (unaudited)

                                September 30,                   December 31,
                                         2012                               2011
                                         ----                               ----
                                (in thousands)
    Cash
     and
     cash
     equivalents                                  $870,040                           $817,046
     Investment
     securities                     2,636,328                          2,184,490
    Farmer
     Mac
     Guaranteed
     Securities                     4,648,507                          4,289,272
    USDA
     Guaranteed
     Securities                     1,590,628                          1,491,905
    Loans:
    Loans                           1,990,278                          1,782,758
    Loans
     held
     in
     consolidated
     trusts                           568,307                          1,121,559
     Allowance
     for
     loan
     losses                            (9,050)                           (10,161)
                                       ------                            -------
    Total
     loans,
     net
     of
     allowance                      2,549,535                          2,894,156
                                    ---------                          ---------
    Other
     assets                           207,443                            206,639
    Total
     Assets                                    $12,502,481                        $11,883,508
                                               ===========                        ===========
    Notes
     Payable:
    Due
     within
     one
     year                                       $6,775,226                         $6,087,879
    Due
     after
     one
     year                           4,700,680                          4,104,882
                                    ---------                          ---------
    Total
     notes
     payable                       11,475,906                         10,192,761
    Debt
     securities
     of
     consolidated
     trusts
     held
     by
     third
     parties                          163,909                            701,583
     Reserve
     for
     losses                             8,736                              7,355
    Other
     liabilities                      253,617                            427,276
                                      -------                            -------
    Total
     Liabilities                   11,902,168                         11,328,975
     Preferred
     stock                             57,578                             57,578
    Common
     stock                             10,496                             10,357
     Additional
     paid-
     in
     capital                          104,869                            102,821
     Accumulated
     other
     comprehensive
     income                            91,805                             79,370
     Retained
     earnings                          93,712                             62,554
    Non-
     controlling
     interest
     -
     preferred
     stock                            241,853                            241,853
                                      -------                            -------
    Total
     Equity                           600,313                            554,533
    Total
     Liabilities
     and
     Equity                                    $12,502,481                        $11,883,508
                                               ===========                        ===========

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

                                            For the Three Months Ended                           For the Nine Months Ended
                                            --------------------------                           -------------------------
                                    September 30,               September 30,                 September 30,            September 30,
                                             2012                         2011                       2012                     2011
                                             ----                         ----                       ----                     ----
                                                            (in thousands, except per share amounts)
    Interest income:
    Net interest income                             $30,362                                       $31,709                             $99,187  $87,940
    (Provision for)/release of loan
     losses                                  (137)                         349                                  663                    (1,092)
    Net interest income after
     (provision for)/release of
     loan losses                           30,225                       32,058                               99,850                    86,848
                                           ------                       ------                               ------                    ------
    Non-interest income/(loss):
    Guarantee and commitment fees           6,401                        6,148                               18,395                    18,855
    Gains/(losses) on financial
     derivatives and hedging
     activities                             1,558                     (68,567)                             (23,334)                  (82,368)
    Losses on trading assets                 (441)                      (3,633)                              (2,428)                     (354)
    Gains on sale of available-
     for-sale investment
     securities                                 -                           74                                   28                       269
    (Losses)/gains on sale of real
     estate owned                             (13)                          (4)                                 249                       720
    Lower of cost or fair value
     adjustment on loans held for
     sale                                       -                        9,851                                    -                     8,887
    Other income                              959                          726                                2,451                     5,748
    Non-interest income/(loss)              8,464                     (55,405)                               (4,639)                 (48,243)
                                            -----                      -------                               ------                   -------
    Non-interest expense:
    Compensation and employee
     benefits                               4,375                        4,805                               13,434                    13,968
    General and administrative              2,788                        2,505                                8,210                     7,417
    (Release of)/provision for
     losses                                   (43)                        (452)                               1,381                    (3,321)
    Other non-interest expense                628                          692                                1,774                     3,355
                                              ---                          ---                                -----                     -----
    Non-interest expense                    7,748                        7,550                               24,799                    21,419
                                            -----                        -----                               ------                    ------
    Income/(loss) before income
     taxes                                 30,941                     (30,897)                               70,412                    17,186
    Income tax expense/(benefit)            8,294                     (14,131)                               17,319                    (2,075)
                                            -----                      -------                               ------                    ------
    Net income/(loss)                      22,647                     (16,766)                               53,093                    19,261
    Less: Net income attributable
     to non-controlling interest -
      preferred stock dividends            (5,547)                      (5,547)                            (16,641)                  (16,641)
                                           ------                       ------                              -------                   -------
    Net income/(loss) attributable
     to Farmer Mac                         17,100                     (22,313)                               36,452                     2,620
    Preferred stock dividends                (719)                        (719)                              (2,159)                   (2,159)
    Net income/(loss) attributable
     to common stockholders                         $16,381                                      $(23,032)                            $34,293     $461
                                                    =======                                      ========                             =======     ====

    Earnings/(loss) per common
     share and dividends:
    Basic earnings/(loss) per
     common share                                     $1.56                                        $(2.22)                              $3.28    $0.04
    Diluted earnings/(loss) per
     common share                                     $1.49                                        $(2.22)                              $3.12    $0.04
    Common stock dividends per
     common share                                     $0.10                                         $0.05                               $0.30    $0.15

SOURCE Federal Agricultural Mortgage Corporation


Source: PR Newswire