Farmer Mac Achieves Record Core Earnings for Third Quarter 2012

Nov 08, 2012, 16:59 ET from Federal Agricultural Mortgage Corporation

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, 2012

September 30, 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, 2012

September 30, 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, 2012

December 31, 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, 2012

September 30, 2011

September 30, 2012

September 30, 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



RELATED LINKS

http://www.farmermac.com