Farmer Mac Reports 2015 Results and Announces Dividend Increase

$15.9 Billion in Outstanding Business Volume; Core Earnings of $47.0 Million

Mar 10, 2016, 08:00 ET from Farmer Mac

WASHINGTON, March 10, 2016 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced its results for the fiscal quarter and year ended December 31, 2015, which included $1.3 billion in net new business volume growth in 2015 that brought total outstanding business volume to a record $15.9 billion as of December 31, 2015. Farmer Mac's 2015 core earnings, a non-GAAP measure, were $47.0 million ($4.15 per diluted common share), compared to $53.0 million ($4.67 per diluted common share) in 2014. For fourth quarter 2015, core earnings were $13.1 million ($1.17 per diluted common share), compared to $13.2 million ($1.17 per diluted common share) for third quarter 2015, and $9.5 million ($0.84 per diluted common share) for fourth quarter 2014.

Farmer Mac's board of directors also approved an increase in the quarterly dividend on all classes of Farmer Mac's common stock to $0.26 per share for first quarter 2016 and announced a new common stock dividend policy. This quarter's dividend amount represents a 63 percent increase over the $0.16 per share amount paid in each quarter during 2015.

"Farmer Mac completed another successful year in 2015 and positioned itself for continued success over the long-term," said President and Chief Executive Officer Tim Buzby. "Our expanding customer base and product offerings have helped us grow by an average of approximately $1 billion per year in outstanding business volume over the last four years. Our financial results continue to be strong, and our credit quality remains very favorable. While certain segments of agriculture are facing their challenges, Farmer Mac is executing well on the opportunities within its markets and we believe the outlook for us is positive for 2016. We also made some important decisions recently, including the change to our dividend policy and the adoption of a $25 million share repurchase program in September 2015. With our capital restructuring initiative behind us, we have reevaluated our common stock dividend policy and decided to provide a greater payout of core earnings to our common stockholders – one that is more aligned with other publicly-traded financial companies. Given our existing strong capital base, we expect to maintain a growing and sustainable common dividend and to target a payout ratio of core earnings to common stockholders that is anticipated to grow to approximately 30% over time. Even with this higher target payout ratio, Farmer Mac still expects to retain sufficient earnings each year to fund its growth and to build equity capital over the long term."

Earnings

Farmer Mac's net income attributable to common stockholders for 2015 was $47.4 million ($4.19 per diluted common share), compared to $38.3 million ($3.37 per diluted common share) for 2014. The increase in 2015 from 2014 was primarily attributable to the effects of unrealized fair value changes on financial derivatives and hedged assets, which was a $7.1 million after-tax gain in 2015, compared to a $6.5 million after-tax loss in 2014.

Core earnings for 2015 were $47.0 million ($4.15 per diluted common share), compared to $53.0 million ($4.67 per diluted common share) in 2014. The decrease in core earnings in 2015 compared to 2014 was primarily attributable to the absence of the $11.4 million net economic benefit of the cash management and liquidity initiative, which was completed in 2014, and the loss of $5.6 million after-tax in preferred dividend income resulting from the fourth quarter 2014 redemption of Farmer Mac's investment in $78.5 million of high-yielding preferred stock previously held in Farmer Mac's investment portfolio. Also contributing to the decrease was a $2.6 million after-tax increase in operating expenses primarily due to higher compensation costs resulting from the consolidation of Farmer Mac's appraisal subsidiary, Contour Valuation Services, LLC, and higher legal fees, consulting fees, and information services expenses related to corporate strategic initiatives. The year-over-year decrease in core earnings was partially offset by a $7.7 million after-tax increase in net effective spread (excluding the effect of the fourth quarter 2014 redemption of high-yielding preferred stock), which was driven by growth in outstanding business volume, and a $7.6 million after-tax decrease in preferred dividend expense resulting from the redemption of all outstanding shares of Farmer Mac II Preferred Stock in first quarter 2015.

Core earnings in fourth quarter 2015 were $13.1 million ($1.17 per diluted common share), compared to $13.2 million ($1.17 per diluted common share) in third quarter 2015, and $9.5 million ($0.84 per diluted common share) in fourth quarter 2014. The increase in core earnings for fourth quarter 2015 compared to fourth quarter 2014 was attributable to a $1.0 million after-tax increase in net effective spread and a $3.5 million after-tax decrease in preferred dividend expense resulting from the redemption of all outstanding shares of Farmer Mac II Preferred Stock in first quarter 2015.

See "Non-GAAP Earnings Measures" below for more information about core earnings and for a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings.

Business Volume Highlights

Farmer Mac added $3.2 billion of new business volume during 2015. Specifically, Farmer Mac:

  • purchased $748.4 million of newly originated Farm & Ranch loans;
  • purchased $743.2 million of AgVantage securities;
  • added $522.3 million of Rural Utilities loans under LTSPCs;
  • added $427.8 million of Farm & Ranch loans under LTSPCs;
  • purchased $363.6 million of USDA Securities;
  • added a $300.0 million revolving floating rate AgVantage facility;
  • purchased $108.3 million of Rural Utilities loans; and
  • purchased $13.3 million of Farmer Mac Guaranteed USDA Securities.

During fourth quarter 2015, Farmer Mac added $564.1 million of new business volume, with Farm & Ranch loan purchases and Farm & Ranch loans under LTSPCs driving the volume growth. Specifically, Farmer Mac:

  • purchased $245.3 million of newly originated Farm & Ranch loans;
  • added $185.9 million of Farm & Ranch loans under LTSPCs;
  • purchased $72.4 million of USDA Securities;
  • purchased $46.1 million of Rural Utilities loans; and
  • purchased $14.4 million of AgVantage securities.

After $1.9 billion of maturities and principal paydowns on existing business during 2015, which included $715.8 million in scheduled maturities of AgVantage securities, Farmer Mac's outstanding business volume increased by $1.3 billion from December 31, 2014 to $15.9 billion as of December 31, 2015. The increase in Farmer Mac's outstanding business volume was driven by the addition of $522.3 million of Rural Utilities loans under LTSPCs, as well as broad-based portfolio growth across most of Farmer Mac's other products, including AgVantage securities, Farm & Ranch loans, and USDA Securities. The large LTSPC transaction completed in 2015 was the first time Farmer Mac has provided LTSPCs under its Rural Utilities line of business. Of the new business volume in AgVantage securities for 2015, a $300.0 million revolving floating rate AgVantage facility with the National Rural Utilities Cooperative Finance Corporation ("CFC") was added as an off-balance sheet commitment because CFC had not drawn on the facility as of December 31, 2015. If CFC draws on this facility, the amounts drawn will be presented as on-balance sheet AgVantage securities, and Farmer Mac will earn interest income on the drawn balance.

Net Effective Spread

Farmer Mac's net effective spread was $119.4 million (87 basis points) for 2015, compared to $113.7 million (91 basis points) for 2014. The contraction in net effective spread in percentage terms in 2015 compared to 2014 was primarily attributable to the loss of $6.5 million in preferred dividend income (5 basis points) from the fourth quarter 2014 redemption of the high-yielding preferred stock previously held in Farmer Mac's investment portfolio and a higher average balance in low-yielding cash and cash equivalents intended to increase Farmer Mac's liquidity position, partially offset by a shift towards products earning higher spreads. The year-over-year increase in dollars was primarily attributable to growth in outstanding business volume.

Net effective spread was $29.9 million (85 basis points) in fourth quarter 2015, compared to $30.4 million (88 basis points) in third quarter 2015, and $28.4 million (91 basis points) in fourth quarter 2014. The decrease in net effective spread in fourth quarter 2015 compared to third quarter 2015 was primarily attributable to a decline in cash interest received on non-accrual Farm & Ranch loans. The decrease in net effective spread in percentage terms in fourth quarter 2015 compared to fourth quarter 2014 was primarily attributable to a higher average balance in Farmer Mac's low-yielding cash and cash equivalents intended to increase Farmer Mac's liquidity position. The increase in dollar terms in fourth quarter 2015 compared to fourth quarter 2014 was primarily attributable to growth in outstanding business volume.

Credit Quality

Credit quality remains favorable across Farmer Mac's four lines of business. In the Farm & Ranch portfolio, 90-day delinquencies were $32.1 million (0.56 percent of the Farm & Ranch portfolio) as of December 31, 2015, compared to $36.7 million (0.67 percent) as of September 30, 2015, and $18.9 million (0.35 percent) as of December 31, 2014. The increase in the 90-day delinquencies in 2015 compared to 2014 was related to the delinquency of two Agricultural Storage and Processing loans that financed one canola facility. Although these two loans were outstanding and delinquent as of December 31, 2015, Farmer Mac collected funds in the amount of $9.8 million to pay them off in January 2016. Farmer Mac charged off the $3.7 million specific allowance related to these two loans in fourth quarter 2015. Farmer Mac expects that over time its 90-day delinquency rate will eventually revert closer to Farmer Mac's historical averages due to macroeconomic and other potential factors, but Farmer Mac has not yet seen an impact on its portfolio or a rise in delinquencies related to these factors. Farmer Mac's average 90-day delinquency rate for the Farm & Ranch line of business over the last fifteen years is approximately one percent.

For Farmer Mac's other lines of business, there are currently no delinquent AgVantage securities or Rural Utilities loans held or underlying LTSPCs, and USDA Securities are backed by the full faith and credit of the United States. As a result, across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.20 percent of total business volume as of December 31, 2015, compared to 0.23 percent as of September 30, 2015, and 0.13 percent as of December 31, 2014.

The western part of the United States, and in particular California, continues to experience drought conditions, with the water level in many California reservoirs at or near historically low levels. The persistence of extreme drought conditions in the western states could have an adverse effect on Farmer Mac's delinquency rates or loss experience in the future; however, Farmer Mac has not observed any material effect on its portfolio from the drought through 2015. Farmer Mac continues to remain informed about the drought and its effects on the agricultural industries located in the western states and on Farmer Mac's Farm & Ranch portfolio through regular discussions with its loan servicers that service loans in drought-stricken areas, as well as customers and other lenders in the industry.

Lines of Business

Farmer Mac's operations consist of four lines of business – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. Net effective spread by business segment for fourth quarter 2015 was $9.4 million (172 basis points) for Farm & Ranch, $4.5 million (96 basis points) for USDA Guarantees, $2.8 million (114 basis points) for Rural Utilities, and $10.9 million (80 basis points) for Institutional Credit.

Liquidity and Capital

Farmer Mac's core capital totaled $564.5 million as of December 31, 2015, exceeding the statutory minimum capital requirement by $102.4 million, or 22 percent, compared to $766.3 million as of December 31, 2014, which was $345.0 million, or 82 percent, above the statutory minimum capital requirement. The decrease in core capital primarily resulted from the redemption of $250.0 million of Farmer Mac II LLC Preferred Stock on March 30, 2015. Farmer Mac issued an aggregate of $150.0 million of non-cumulative preferred stock during the first half of 2014 and used the proceeds of these preferred stock offerings and cash on hand to cause Farmer Mac II LLC to redeem all of the outstanding shares of Farmer Mac II LLC Preferred Stock. The preferred stock issued in 2014 qualifies as Tier 1 capital for Farmer Mac whereas the Farmer Mac II LLC Preferred Stock that was redeemed did not qualify as Tier 1 capital.

As of December 31, 2015, Farmer Mac's total stockholders' equity was $553.5 million, compared to $545.8 million as of December 31, 2014. The increase in total stockholders' equity was primarily attributable to an increase in retained earnings, offset in part by a decrease in accumulated other comprehensive income due to decreases in fair value of available-for-sale securities. The decrease in the fair value of available-for-sale securities was driven primarily by higher market interest rates and wider credit spreads on certain investment securities as of December 31, 2015 compared to December 31, 2014.

On September 8, 2015, Farmer Mac's board of directors approved a share repurchase program, which authorized Farmer Mac to repurchase up to $25 million of its outstanding Class C non-voting common stock through September 2017. As of December 31, 2015, Farmer Mac had repurchased approximately 362,000 shares at a cost of approximately $10.5 million.

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 90 days of liquidity. In accordance with the methodology prescribed by those regulations, Farmer Mac maintained an average of 171 days of liquidity during 2015 and had 166 days of liquidity as of December 31, 2015.

Dividends

On March 2, 2016, Farmer Mac's board of directors declared a quarterly dividend of $0.26 per share for each of Farmer Mac's three classes of common stock – Class A voting common stock (NYSE: AGM.A), Class B voting common stock (not listed on any exchange), and Class C non-voting common stock (NYSE: AGM). This quarterly dividend will be payable on March 31, 2016 to holders of record of common stock as of March 21, 2016. This represents the fifth consecutive year that Farmer Mac has increased its dividend from the prior year. Farmer Mac seeks to provide a competitive return on its common stockholders' investment through the payment of cash dividends while retaining sufficient capital to support future growth in its business and to meet regulatory requirements and metrics established by Farmer Mac's board of directors.

Farmer Mac's board of directors also declared a dividend on each of Farmer Mac's three classes of preferred stock. The quarterly dividend of $0.3672 per share of 5.875% Non-Cumulative Preferred Stock, Series A (NYSE: AGM.PR.A), $0.4297 per share of 6.875% Non-Cumulative Preferred Stock, Series B (NYSE: AGM.PR.B), and $0.375 per share of 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (NYSE: AGM.PR.C), is for the period from but not including January 17, 2016 to and including April 17, 2016.  The preferred stock dividends will be payable on April 17, 2016 to holders of record as of April 4, 2016.

Non-GAAP Earnings Measure

Farmer Mac uses core earnings 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 principally differs from net income attributable to common stockholders by excluding the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is generally expected.  Core earnings also differs from net income attributable to common stockholders 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 Farmer Mac'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 intended to be supplemental in nature, and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

A reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings is presented in the following table along with a breakdown of the composition of core earnings:

 

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings





For the Three Months Ended





December 31, 2015


September 30, 2015


December 31, 2014





(in thousands, except per share amounts)

Net income attributable to common stockholders


$

15,032



$

8,359



$

5,647


Less the after-tax effects of:














Unrealized gains/(losses) on financial derivatives and hedging activities



1,784




(4,489)




(3,717)



Unrealized gains/(losses) on trading assets(1)



452




(5)




679



Amortization of premiums/discounts and deferred gains on assets consolidated
at fair value


(171)




(76)




(811)



Net effects of settlements on agency forward contracts



(106)




(253)




30




Sub-total



1,959




(4,823)




(3,879)


Core earnings


$

13,073



$

13,182



$

9,526











Composition of Core Earnings:













Revenues:














Net effective spread(2)


$

29,949



$

30,387



$

28,442



Guarantee and commitment fees(3)



4,730




4,328




4,097



Other(4)



(284)




(93)




(1,285)




Total revenues



34,395




34,622




31,254

















Credit related (income)/expense (GAAP):














Release of losses



(49)




(303)




(479)



REO operating expenses



44




48




48



Losses on sale of REO



-




-




28




Total credit related income



(5)




(255)




(403)

















Operating expenses (GAAP):














Compensation & employee benefits



5,385




5,236




4,971



General & Administrative



3,238




3,676




2,992



Regulatory fees



613




600




600




Total operating expenses



9,236




9,512




8,563



















Net earnings



25,164




25,365




23,094



Income tax expense(5)



8,855




8,924




4,858



Net (loss)/income attributable to non-controlling interest (GAAP)



(60)




(36)




5,414



Preferred stock dividends (GAAP)



3,296




3,295




3,296




Core earnings


$

13,073



$

13,182



$

9,526

















Core earnings per share:














Basic


$

1.21



$

1.20



$

0.87



Diluted



1.17




1.17




0.84


 

 

 

(1)       

Excludes realized gains related to securities sold, not yet purchased of $12.8 million during the three months ended December 31, 2014.

(2)       

Includes reconciling adjustments to exclude amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts. Also includes reconciling adjustments to include the reclassification of expenses related to interest rate swaps not designated as hedges and reclassifications of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased.

(3)       

Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from interest income and interest expense to guarantee and commitment fees to reflect that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

(4)       

Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets and a reconciling adjustment to exclude the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. Fourth quarter 2014 includes $13.6 million of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased and $12.8 million of gains on securities sold, not yet purchased.

(5)       

Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings because those non-GAAP reconciling items are presented after tax. Income tax expense as reported in the consolidated statement of operations for fourth quarter 2014 reflects a reduction of $1.4 million in the tax valuation allowance against capital loss carryforwards related to capital gains on securities sold, not yet purchased.

 

 

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings





For the Year Ended





December 31, 2015


December 31, 2014





(in thousands, except per share amounts)

Net income attributable to common stockholders


$

47,371



$

38,251


Less the after-tax effects of:










Unrealized gains/(losses) on financial derivatives and hedging activities



7,101




(6,480)



Unrealized gains on trading assets(1)



793




1,038



Amortization of premiums/discounts and deferred gains on assets consolidated at fair value(2)


(857)




(9,457)



Net effects of settlements on agency forward contracts



(395)




103



Loss on retirement of Farmer Mac II LLC Preferred Stock(3)



(6,246)




-




Sub-total



(396)




(14,796)


Core earnings


$

46,975



$

53,047









Composition of Core Earnings:









Revenues:










Net effective spread(4)


$

119,380



$

113,693



Guarantee and commitment fees(5)



17,155




16,780



Other(6)



(806)




(4,216)




Total revenues



135,729




126,257













Credit related expense/(income) (GAAP):










Provision for/(release of) losses



208




(3,166)



REO operating expenses



91




110



Losses/(gains) on sale of REO



1




(137)




Total credit related expense/(income)



300




(3,193)













Operating expenses (GAAP):










Compensation & employee benefits



22,047




19,009



General & Administrative



13,111




12,197



Regulatory fees



2,413




2,381




Total operating expenses



37,571




33,587















Net earnings



97,858




95,863



Income tax expense(7)



32,562




10,785



Net income attributable to non-controlling interest (GAAP)



5,139




22,192



Preferred stock dividends (GAAP)



13,182




9,839




Core earnings


$

46,975



$

53,047













Core earnings per share:










Basic


$

4.29



$

4.86



Diluted



4.15




4.67


 

 

(1)       

Excludes realized gains related to securities sold, not yet purchased of $37.0 million during 2014.

(2)       

Includes $7.5 million related to the acceleration of premium amortization in 2014 due to significant refinancing activity in the Rural Utilities line of business.

(3)       

Relates to the write-off of deferred issuance costs as a result of the retirement of Farmer Mac II LLC Preferred Stock.

(4)       

Includes reconciling adjustments to exclude amortization of premiums and discounts on assets consolidated at fair value to reflect core earnings amounts. Also includes reconciling adjustments to include the reclassification of expenses related to interest rate swaps not designated as hedges and reclassification of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased.

(5)       

Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from interest income and interest expense to guarantee and commitment fees to reflect that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

(6)       

Includes interest income and interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased. Also reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and fair value adjustments on financial derivatives and trading assets and a reconciling adjustment to exclude the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. Includes $39.4 million of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased and $37.0 million of realized gains on securities sold, not yet purchased during 2014.

(7)       

Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings because those non-GAAP reconciling items are presented after tax. Income tax expense as reported in the consolidated statements of operations includes the reduction of $13.0 million tax valuation allowance against capital loss carryforwards related to capital gains on securities sold, not yet purchased during 2014, and a reduction in tax valuation allowance of $0.9 million associated with certain gains on investment portfolio assets during 2014.

 

More complete information about Farmer Mac's performance for fourth quarter and full year 2015 is set forth in Farmer Mac's Annual Report on Form 10-K for the period ended December 31, 2015 filed today with the U.S. Securities and Exchange Commission ("SEC").

Forward-Looking Statements

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, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements herein, including uncertainties regarding:

  • the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms;
  • legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural sector or the rural utilities industry;
  • fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries;
  • 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 secondary market provided by Farmer Mac;
  • the general rate of growth in agricultural mortgage and rural utilities indebtedness;
  • 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;
  • developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac;
  • changes in the level and direction of interest rates, which could, among other things, affect the value of collateral securing Farmer Mac's agricultural mortgage loan assets;
  • the degree to which Farmer Mac is exposed to basis risk, which results from fluctuations in Farmer Mac's borrowing costs relative to market indexes such as LIBOR; and
  • volatility in commodity prices relative to costs of production and/or export demand for U.S. agricultural products.

Other risk factors are discussed in "Risk Factors" in Part I, Item 1A in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2015 filed today with the SEC.  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.  The information contained in this release is not necessarily indicative of future results.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's fourth quarter and full-year 2015 financial results and Annual Report on Form 10-K will be held beginning at 11:00 a.m. eastern time on Thursday, March 10, 2016 and can be accessed by telephone or live webcast as follows:

Telephone (Domestic): (888) 346-2616

Telephone (International): (412) 902-4254

Webcast: https://www.farmermac.com/investors/events-presentations/

If you are dialing in to the call, please ask for the conference chairman Tim Buzby.  You will receive additional instructions when you join the call.  The call can be heard live and will also be available for replay on Farmer Mac's website at the link provided above for two weeks following the conclusion of the call.

About Farmer Mac

Farmer Mac is the stockholder-owned company created to deliver capital and increase lender competition for the benefit of American agriculture and rural communities.  Additional information about Farmer Mac (including the Annual Report on Form 10-K referenced above) is available on Farmer Mac's website at www.farmermac.com.

 

 

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS








As of







December 31,


December 31,






2015

2014







(in thousands)

Assets:












Cash and cash equivalents

$

1,210,084



$

1,363,387



Investment securities










Available-for-sale, at fair value


2,775,025




1,938,499




Trading, at fair value


491




689





Total investment securities


2,775,516




1,939,188



Farmer Mac Guaranteed Securities










Available-for-sale, at fair value


4,152,605




3,659,281




Held-to-maturity, at amortized cost


1,274,016




1,794,620





Total Farmer Mac Guaranteed Securities


5,426,621




5,453,901



USDA Securities










Available-for-sale, at fair value


1,888,344




1,731,222




Trading, at fair value


28,975




40,310





Total USDA Securities


1,917,319




1,771,532



Loans:












Loans held for investment, at amortized cost


3,258,413




2,833,461




Loans held for investment in consolidated trusts, at amortized cost


708,111




692,478




Allowance for loan losses


(4,480)




(5,864)





Total loans, net of allowance


3,962,044




3,520,075



Real estate owned, at lower of cost or fair value


1,369




421



Financial derivatives, at fair value


3,816




4,177



Interest receivable (includes $7,938 and $9,509, respectively, related to consolidated trusts)


112,700




106,874



Guarantee and commitment fees receivable


40,189




39,462



Deferred tax asset, net


42,916




33,391



Prepaid expenses and other assets


47,780




55,413






Total Assets

$

15,540,354



$

14,287,821















Liabilities and Equity:








Liabilities:











Notes Payable:










Due within one year

$

9,111,461



$

7,353,953




Due after one year


4,967,036




5,471,186





Total notes payable


14,078,497




12,825,139



Debt securities of consolidated trusts held by third parties


713,536




424,214



Financial derivatives, at fair value


77,199




84,844



Accrued interest payable (includes $6,705 and $5,145, respectively, related to consolidated trusts)


47,621




48,355



Guarantee and commitment obligation


38,609




37,925



Accounts payable and accrued expenses


29,089




81,252



Reserve for losses


2,083




4,263






Total Liabilities


14,986,634




13,505,992


Commitments and Contingencies








Equity:












Preferred stock:










Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding


58,333




58,333




Series B, par value $25 per share, 3,000,000 shares authorized, issued and outstanding


73,044




73,044




Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding


73,382




73,382



Common stock:










Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding


1,031




1,031




Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding


500




500




Class C Non-Voting, $1 par value, no maximum authorization, 9,155,661 shares and 9,406,267 shares outstanding, respectively


9,156




9,406



Additional paid-in capital


117,862




113,559



Accumulated other comprehensive (loss)/ income, net of tax


(11,019)




15,533



Retained earnings


231,228




201,013






Total Stockholders' Equity


553,517




545,801



Non-controlling interest


203




236,028






Total Equity


553,720




781,829







Total Liabilities and Equity

$

15,540,354



$

14,287,821















 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS





For the Three Months Ended


For the Year Ended




December 31,
2015


December 31,
2014


December 31,
2015


December 31,
2014




(in thousands, except per share amounts)

Interest income:









Investments and cash equivalents

$

4,194



$

2,424



$

13,338



$

17,269



Farmer Mac Guaranteed Securities and USDA Securities


32,835




30,588




134,443




128,923



Loans


30,533




27,718




117,042




94,875




Total interest income


67,562




60,730




264,823




241,067



Total interest expense


36,591




44,606




139,016




170,720




Net interest income


30,971




16,124




125,807




70,347



(Provision for)/release of allowance for loan losses


(3,366)




462




(2,338)




961




Net interest income after (provision for)/release of allowance for loan losses


27,605




16,586




123,419




71,308


Non-interest income:









Guarantee and commitment fees


3,780




3,563




14,077




14,694



Gains/(losses) on financial derivatives and hedging activities


1,592




(9,178)




2,531




(21,646)



Gains on trading securities


696




13,857




1,220




38,629



Gains/(losses) on sale of available-for-sale investment securities


-




-




9




(238)



(Losses)/gains on sale of real estate owned


-




(28)




(1)




137



Other income


372




920




2,305




1,714




Non-interest income


6,440




9,134




20,141




33,290


Non-interest expense:

















Compensation and employee benefits


5,385




4,971




22,047




19,009



General and administrative


3,238




2,992




13,111




12,197



Regulatory fees


613




600




2,413




2,381



Real estate owned operating costs, net


44




48




91




110



Release of reserve for losses


(3,415)




(17)




(2,180)




(2,205)




Non-interest expense


5,865




8,594




35,482




31,492




Income before income taxes


28,180




17,126




108,078




73,106


Income tax expense


9,912




2,769




34,239




2,824




Net income


18,268




14,357




73,839




70,282


Less: Net loss/(income) attributable to non-controlling interest


60




(5,414)




(5,139)




(22,192)



Net income attributable to Farmer Mac


18,328




8,943




68,700




48,090


Preferred stock dividends


(3,296)




(3,296)




(13,182)




(9,839)


Loss on retirement of preferred stock


-




-




(8,147)




-




Net income attributable to common stockholders

$

15,032



$

5,647



$

47,371



$

38,251




















Earnings per common share and dividends:


















Basic earnings per common share

$

1.39



$

0.52



$

4.33



$

3.50




Diluted earnings per common share

$

1.35



$

0.50



$

4.19



$

3.37




Common stock dividends per common share

$

0.16



$

0.14



$

0.64



$

0.56




















 

 

 

The following table sets forth information regarding outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated:


Lines of Business - Outstanding Business Volume






As of December 31, 2015


As of December 31, 2014






(in thousands)

On-balance sheet:





Farm & Ranch:






Loans

$

2,249,864



$

2,118,867




Loans held in trusts:











Beneficial interests owned by third party investors


708,111




421,355



USDA Guarantees:










USDA Securities


1,876,451




1,756,224




Farmer Mac Guaranteed USDA Securities


31,554




27,832



Rural Utilities:










Loans(1)


1,008,126




718,213




Loans held in trusts:











Beneficial interests owned by Farmer Mac(1)


-




267,396



Institutional Credit:










AgVantage Securities


5,439,383




5,410,413





Total on-balance sheet

$

11,313,489



$

10,720,300


Off-balance sheet:





Farm & Ranch:






LTSPCs

$

2,253,273



$

2,240,866




Guaranteed Securities


514,051




636,086



USDA Guarantees:










Farmer Mac Guaranteed USDA Securities


10,272




13,978



Rural Utilities:









LTSPCs(2)


522,864




-



Institutional Credit:










AgVantage Securities


984,871




986,528




Revolving floating rate AgVantage facility(3)


300,000




-





Total off-balance sheet

$

4,585,331



$

3,877,458






Total

$

15,898,820



$

14,597,758


 

(1)       

Reflects the dissolution of certain consolidated trusts that caused loans that were previously consolidated as "Loans held in trusts" to be included within "Loans."

(2)       

Includes $8.8 million related to a one-year loan purchase commitment on which Farmer Mac receives a nominal unused commitment fee.

(3)       

As of December 31, 2015, this facility had not been utilized.  Farmer Mac receives a fixed fee based on the full dollar amount of the facility.  If the counterparty draws on the facility, the amounts drawn will be presented as AgVantage securities, and Farmer Mac will earn interest income on those securities.

 

 

The following table presents the quarterly net effective spread by segment:




Net Effective Spread by Line of Business

















Farm & Ranch


USDA Guarantees


Rural Utilities


Institutional Credit


Corporate


Net Effective Spread



Dollars


Yield


Dollars


Yield


Dollars


Yield


Dollars


Yield


Dollars


Yield


Dollars


Yield



(dollars in thousands)

For the quarter ended:




























December 31, 2015

$

9,381



1.72

%


$

4,518



0.96

%


$

2,845



1.14

%


$

10,899



0.80

%


$

2,306



0.26

%


$

29,949



0.85

%


September 30, 2015


9,628



1.80

%



4,630



0.99

%



2,907



1.18

%



11,271



0.81

%



1,951



0.25

%



30,387



0.88

%


June 30, 2015


9,681



1.82

%



4,466



0.98

%



2,838



1.18

%



10,860



0.78

%



1,942



0.25

%



29,787



0.88

%


March 31, 2015(1)


10,114



1.97

%



4,225



0.95

%



2,804



1.15

%



10,425



0.77

%



1,689



0.20

%



29,257



0.86

%


December 31, 2014(2)


8,682



1.71

%



5,250



1.19

%



2,908



1.18

%



9,870



0.78

%



1,732



0.26

%



28,442



0.91

%


September 30, 2014


8,207



1.68

%



5,073



1.18

%



2,890



1.16

%



9,823



0.78

%



3,773



0.59

%



29,766



0.97

%


June 30, 2014


7,820



1.64

%



4,159



0.99

%



2,953



1.16

%



9,957



0.78

%



4,160



0.57

%



29,049



0.92

%


March 31, 2014(3)


7,114



1.53

%



3,784



0.91

%



1,990



0.73

%



9,406



0.74

%



4,142



0.56

%



26,436



0.84

%


December 31, 2013(3)


10,113



2.20

%



4,022



0.97

%



2,379



0.89

%



9,088



0.72

%



4,420



0.58

%



30,022



0.94

%

 

 

(1)       

Beginning in first quarter 2015, Farmer Mac revised its methodology for interest expense allocation among the Farm & Ranch, USDA Guarantees, and Rural Utilities lines of business.  As a result of this revision, a greater percentage of interest expense has been allocated to the longer-term assets included within the USDA Guarantees and Rural Utilities lines of business.  Net effective spread for periods prior to the quarter ended March 31, 2015 does not reflect this revision.

(2)       

On October 1, 2014, $78.5 million of preferred stock issued by CoBank was called, resulting in a loss of net effective spread of $2.1 million or 30 basis points in the corporate segment.  The impact on consolidated net effective spread was 7 basis points.

(3)       

First quarter 2014 includes the impact of spread compression in the Rural Utilities line of business from the early refinancing of loans (41 basis points).  Fourth quarter 2013 includes the impact in net effective spread in the Farm & Ranch line of business of one-time adjustments for recovered buyout interest and yield maintenance (40 basis points in aggregate) and the impact of spread compression in the Rural Utilities line of business from the early refinancing of loans (26 basis points).

 

 

 

The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:


Core Earnings by Quarter Ended





December
2015


September
2015


June
2015


March
2015


December
2014


September
2014


June
2014


March
2014


December
2013





 (in thousands)

Revenues:




















Net effective spread(1)

$

29,949



$

30,387



$

29,787



$

29,257



$

28,442



$

29,766



$

29,049



$

26,436



$

30,022



Guarantee and commitment fees


4,730




4,328




4,085




4,012




4,097




4,152




4,216




4,315




4,252



Other(2)


(284)




(93)




(24)




(405)




(1,285)




(2,001)




(520)




(410)




427




Total revenues


34,395




34,622




33,848




32,864




31,254




31,917




32,745




30,341




34,701









































Credit related (income)/expense:





































(Release of)/provision for losses


(49)




(303)




1,256




(696)




(479)




(804)




(2,557)




674




12



REO operating expenses


44




48




-




(1)




48




1




59




2




3



Losses/(gains) on sale of REO


-




-




-




1




28




-




(168)




3




(26)




Total credit related (income)/expense


(5)




(255)




1,256




(696)




(403)




(803)




(2,666)




679




(11)









































Operating expenses:





































Compensation and employee benefits


5,385




5,236




5,733




5,693




4,971




4,693




4,889




4,456




4,025



General and administrative


3,238




3,676




3,374




2,823




2,992




3,123




3,288




2,794




3,104



Regulatory fees


613




600




600




600




600




593




594




594




594




Total operating expenses


9,236




9,512




9,707




9,116




8,563




8,409




8,771




7,844




7,723











































Net earnings


25,164




25,365




22,885




24,444




23,094




24,311




26,640




21,818




26,989


Income tax expense/(benefit)(3)


8,855




8,924




8,091




6,692




4,858




6,327




(4,734)




4,334




5,279


Net (loss)/income attributable to non-controlling interest


(60)




(36)




(119)




5,354




5,414




5,412




5,819




5,547




5,546


Preferred stock dividends


3,296




3,295




3,296




3,295




3,296




3,283




2,308




952




882




Core earnings

$

13,073



$

13,182



$

11,617



$

9,103



$

9,526



$

9,289



$

23,247



$

10,985



$

15,282









































Reconciling items (after-tax effects):






































Unrealized gains/(losses) on financial derivatives and hedging activities


1,784




(4,489)




10,388




(582)




(3,717)




2,685




(3,053)




(2,395)




8,003




Unrealized gains/(losses) on trading assets


452




(5)




110




236




679




(21)




(46)




426




(50)




Amortization of premiums/discounts and deferred gains on assets consolidated at fair value


(171)




(76)




(81)




(529)




(811)




(440)




(179)




(8,027)




(10,864)




Net effects of settlements on agency forwards


(106)




(253)




128




(164)




(30)




73




236




(176)




114




Loss on retirement of Farmer Mac II LLC Preferred Stock


-




-




-




(6,246)




-




-




-




-




-





Net income attributable to common stockholders

$

15,032



$

8,359



$

22,162



$

1,818



$

5,647



$

11,586



$

20,205



$

813



$

12,485









































 

 

 

(1)       

The difference between first quarter 2014 and fourth quarter 2013 net effective spread was due to the impact of one-time adjustments for recovered buyout interest and yield maintenance of $1.8 million in fourth quarter 2013, $0.6 million associated with the early refinancing of AgVantage securities and the recasting of certain Rural Utilities loans, and a lower day count in first quarter 2014.

(2)       

Fourth quarter 2014 and third quarter 2014 include $13.6 million and $17.9 million, respectively, of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased and $12.8 million and $16.4 million, respectively of gains on securities sold, not yet purchased.  First quarter 2014 includes additional hedging costs of $0.6 million.  Fourth quarter 2013 includes gains on the repurchase of debt of $1.5 million, partially offset by realized losses on the sale of available-for-sale securities of $0.9 million and additional hedging costs of $0.2 million.

(3)       

Fourth quarter 2014 and second quarter 2014 reflect a reduction of $1.4 million and $11.6 million, respectively, in the tax valuation allowance against capital loss carryforwards related to capital gains on securities sold, not yet purchased.  First quarter 2014 and fourth quarter 2013 reflect a reduction in tax valuation allowance of $0.8 million and $2.1 million, respectively, associated with certain gains on investment portfolio assets.

 

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SOURCE Farmer Mac



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