Farmer Mac's 2012 Outstanding Business Volume and Core Earnings Reach Record Levels

Mar 18, 2013, 19:05 ET from Farmer Mac

WASHINGTON, March 18, 2013 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced that it achieved record business volume and core earnings for the year ended December 31, 2012.  Farmer Mac's outstanding business volume, consisting of loans, guarantees, and commitments, rose to $13.0 billion as of December 31, 2012, up from $11.9 billion as of December 31, 2011.  Farmer Mac's 2012 core earnings, a non-GAAP measure, increased 15.7 percent to $49.6 million ($4.51 per diluted common share), continuing the upward trend from $42.9 million ($3.97 per diluted common share) in 2011.  Farmer Mac's core earnings for fourth quarter 2012 were $11.6 million, compared to $12.6 million for fourth quarter 2011.

Core earnings for 2012 benefited from higher net effective spread of $106.6 million (95 basis points), compared to $89.4 million (96 basis points) in 2011.  This higher net effective spread was partially offset by net provisions to the allowance for losses of $1.9 million in 2012, compared to net releases from the allowance for losses of $2.3 million in 2011. Both GAAP net income and core earnings for fourth quarter and full year 2012 were negatively affected by the severance payment made to a former executive in connection with the termination of his employment in October 2012, which resulted in a net after-tax expense of $1.0 million during fourth quarter 2012.  

Farmer Mac's GAAP net income attributable to common stockholders was $9.6 million ($0.87 per diluted common share) for fourth quarter 2012 and $43.9 million ($3.98 per diluted common share) for the year ended December 31, 2012, compared to $13.3 million ($1.23 per diluted common share) and $13.8 million ($1.28 per diluted common share) for the same periods in 2011.  Farmer Mac's GAAP results for fourth quarter 2012 compared to fourth quarter 2011 were lower primarily due to fair value adjustments on loans held for sale and the severance payment to a former executive, offset partially by gains on financial derivatives and hedging activities for fourth quarter 2012, compared to losses for fourth quarter 2011.  Farmer Mac's GAAP results for 2012 were significantly higher compared to 2011 primarily due to decreased losses on financial derivatives and hedging activities, as Farmer Mac designated $950.0 million notional amount of interest rate swaps in hedging relationships with related assets and the volatility of interest rates declined for the year.  Farmer Mac uses financial derivatives, primarily interest rate swaps, to mitigate its exposure to interest rate risk and often times to achieve an overall lower effective cost of borrowing. 

Farmer Mac President and Chief Executive Officer Tim Buzby stated, "2012 was a great year for Farmer Mac.  New business from all of our product lines raised the aggregate outstanding business volume to $13.0 billion.  Credit quality also remained high, with 90-day delinquencies down again in both dollar and percentage terms.  We believe that our Farm & Ranch and Rural Utilities lines of business have opportunities for growth over the next several years based on expected increases in capital requirements for lenders under new regulatory frameworks, trends toward borrower preferences for longer-term fixed rate loans, and an expected general economic recovery."

Business Results  For the year ended December 31, 2012, Farmer Mac's net effective spread was $106.6 million  (95 basis points), compared to $89.4 million (96 basis points) for 2011.  The yield of the net effective spread  remained consistent with the prior year while the dollar amount increased driven by the growth in interest earning assets.  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 $25.0 million for 2012, compared to $24.8 million for 2011. 

Business Volume Farmer Mac conducts its secondary market activities through three lines of business – Farm & Ranch (formerly referred to as the Farmer Mac I program), USDA Guarantees (formerly referred to as the Farmer Mac II program), and Rural Utilities.  The loans eligible for the Farm & Ranch line of business are mortgage loans secured by first liens on agricultural real estate and rural housing.  The USDA Guarantees line of business involves the purchase of agricultural and rural development loans guaranteed by the United States Department of Agriculture ("USDA Guaranteed Securities").  The loans eligible for the Rural Utilities line of business are loans made by cooperative lenders to finance electrification and telecommunications systems in rural areas.  During 2012, Farmer Mac added $2.9 billion of new business volume from a broad range of sources.  Specifically, during the year Farmer Mac:

  • purchased $570.3 million of newly originated Farm & Ranch loans;
  • added $744.1 million of Farm & Ranch loans under LTSPCs;
  • purchased $601.0 million of Farm & Ranch AgVantage securities;
  • purchased $166.1 million of Rural Utilities loans;
  • purchased $383.4 million of Rural Utilities AgVantage securities; and
  • purchased $484.7 million of USDA Guaranteed Securities. 

Farmer Mac's outstanding business volume was $13.0 billion as of December 31, 2012, an increase of $1.1 billion from December 31, 2011, as new volume exceeded maturities and principal paydowns on existing assets during the year.  During 2012, for the first time in its history, Farmer Mac purchased $1.1 billion of Farm & Ranch loans and USDA Guaranteed Securities in a single calendar year.  This purchase volume is more than double the level of purchase volume only five years ago, when Farmer Mac purchased $501 million of Farm & Ranch loans and USDA Guaranteed Securities during 2008.  During fourth quarter 2012, Farmer Mac added $0.9 billion of new business volume, compared to $0.4 billion in fourth quarter 2011.  That increase was driven by an increase in LTSPC volume during fourth quarter 2012 compared to the same period in the prior year.

Credit Quality  In the Farm & Ranch portfolio, 90-day delinquencies declined to $33.3 million (0.70% of the non-AgVantage Farm & Ranch portfolio) as of December 31, 2012, compared to $40.6 million (0.93%) as of December 31, 2011.  Farmer Mac recorded charge-offs of $2.5 million in 2012, compared to $0.3 million in 2011.  The increase was driven primarily by a $1.7 million charge-off on one loan in fourth quarter 2012.  

When analyzing the overall risk profile of its business, Farmer Mac takes into account more than the Farm & Ranch loan delinquency percentages provided above.  The total volume related to Farmer Mac's three lines of business also includes AgVantage securities and rural utilities loans, neither of which have any delinquencies, and USDA Guaranteed Securities, which are backed by the full faith and credit of the United States.  Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.26% of total business volume as of December 31, 2012, compared to 0.34% as of December 31, 2011.

The agricultural sector remained profitable across a variety of industries through 2012.  The drought conditions experienced in the Midwest and Great Plains during 2012 resulted in substantial yield reductions in the grain crop.  However, as of December 31, 2012, the drought has had no measurable impact on the credit quality of Farmer Mac's portfolio.  In general, Farmer Mac does not expect the drought to have a significant negative effect on grain producers because of the widespread use of crop insurance and the increased grain prices that helped to offset reduced yields, although grain producers may experience increased costs in the future from possible higher premiums for crop insurance.  At the same time, these increased grain prices, together with the diminished quality and availability of adequate grazing land, may adversely affect the profitability of producers in many other agricultural industries that depend on feed grains as an input commodity to production, including livestock, dairy, and ethanol producers, which have already experienced prolonged periods of economic stress.  Farmer Mac continues to monitor closely the effects of drought on all segments of its portfolio.  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 or the amount required by the risk-based capital stress test prescribed by Farm Credit Administration (FCA) regulations.  As of December 31, 2012, Farmer Mac's core capital totaled $519.0 million and exceeded its statutory minimum capital requirement of $374.0 million by $145.0 million.  As of December 31, 2012, Farmer Mac's risk-based capital stress test generated a risk-based capital requirement of $58.1 million.  Farmer Mac's regulatory capital of $535.9 million exceeded that amount by approximately $477.8 million

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 60 days of liquidity.  As of December 31, 2012, Farmer Mac had 164 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, which are not expected to have a permanent effect on capital.  Core earnings also differs from GAAP net income by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of the Corporation's core business.  This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies.  Farmer Mac's disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.

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

Reconciliation of GAAP Net Income Attributable to Common Stockholders to Core Earnings

For the Three Months Ended December 31,

2012

2011

(in thousands, except per share amounts)

GAAP net income attributable to common stockholders

$

9,601

$

13,323

Less the after-tax effects of:

Unrealized gains on financial derivatives and hedging activities

4,719

386

Unrealized gains on trading assets

1,778

2,476

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

(4,534)

(1,875)

Net effects of settlements on agency forward contracts

(102)

(240)

Lower of cost or fair value adjustment on loans held for sale

(3,863)

Sub-total

(2,002)

747

Core earnings

$

11,603

$

12,576

Core earnings per share:

Basic

$

1.10

$

1.21

Diluted

1.05

1.16

Weighted-average shares:

Basic

10,591

10,357

Diluted

11,075

10,837

For the Year Ended December 31,

2012

2011

(in thousands, except per share amounts)

GAAP net income attributable to common stockholders

$

43,894

$

13,784

Less the after-tax effects of:

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

4,325

(30,930)

Unrealized gains on trading assets

200

2,246

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

(7,266)

(3,692)

Net effects of settlements on agency forward contracts

856

(2,523)

Lower of cost or fair value adjustment on loans held for sale

(3,863)

5,776

Sub-total

(5,748)

(29,123)

Core earnings

$

49,642

$

42,907

Core earnings per share:

Basic

$

4.74

$

4.15

Diluted

4.51

3.97

Weighted-average shares:

Basic

10,479

10,335

Diluted

11,019

10,802

More complete information on Farmer Mac's performance for 2012 is set forth in the Annual Report on Form 10-K 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 or its sources of business, including but not limited to developments in relation to agricultural policies and programs contained in the current Farm Bill (the Food, Conservation and Energy Act of 2008), which is currently scheduled to expire in September 2013, or reduced funding for agricultural policies and programs as a result of federal budget cuts; (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; (9) 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; and (10) 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, 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 is available on Farmer Mac's website at www.farmermac.com.   Farmer Mac II LLC is a subsidiary of Farmer Mac that operates the USDA Guarantees line of business of purchasing and holding USDA-guaranteed loans.  Additional information about Farmer Mac II LLC is available on its website at www.farmermac2.com.

Earnings Conference Call Information The conference call to discuss Farmer Mac's 2012 financial results and the Corporation's Form 10-K for 2012 will be held beginning at 11:00 a.m. eastern time on Tuesday, March 19, 2013 and can be accessed as follows:

Dial-in:            800-860-2442

Reference:       Farmer Mac

The conference call will be webcast live on Farmer Mac's website, and an audio recording of the call will be available on Farmer Mac's website at http://www.farmermac.com/Investors/ConferenceCall/ for two weeks after the call is concluded.

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)

December 31, 2012

December 31, 2011

(in thousands)

Assets:

Cash and cash equivalents

$

785,564

$

817,046

Investment securities:

Available-for-sale, at fair value

2,498,382

2,182,694

Trading, at fair value

1,247

1,796

Total investment securities

2,499,629

2,184,490

Farmer Mac Guaranteed Securities:

Available-for-sale, at fair value

4,766,258

4,289,272

USDA Guaranteed Securities:

Available-for-sale, at fair value

1,486,595

1,279,546

Trading, at fair value

104,188

212,359

Total USDA Guaranteed Securities

1,590,783

1,491,905

Loans:

Loans held for sale, at lower of cost or fair value

673,991

541,447

Loans held for investment, at amortized cost

1,503,559

1,241,311

Loans held for investment in consolidated trusts, at amortized cost

563,575

1,121,559

Allowance for loan losses

(11,351)

(10,161)

Total loans, net of allowance

2,729,774

2,894,156

Real estate owned, at lower of cost or fair value

3,985

3,136

Financial derivatives, at fair value

31,173

40,250

Interest receivable

103,414

110,339

Guarantee and commitment fees receivable

41,789

31,384

Deferred tax asset, net

3,123

Prepaid expenses and other assets

66,709

21,530

Total Assets

$

12,622,201

$

11,883,508

Liabilities and Equity:

Liabilities:

Notes payable:

Due within one year

$

6,567,366

$

6,087,879

Due after one year

5,034,739

4,104,882

Total notes payable

11,602,105

10,192,761

Debt securities of consolidated trusts held by third parties

167,621

701,583

Financial derivatives, at fair value

150,682

160,024

Accrued interest payable

51,779

60,854

Guarantee and commitment obligation

37,803

27,440

Accounts payable and accrued expenses

13,710

178,708

Deferred tax liability, net

250

Reserve for losses

5,539

7,355

Total Liabilities

12,029,239

11,328,975

Equity:

Preferred stock:

Series C

57,578

57,578

Common stock:

Class A Voting

1,031

1,031

Class B Voting

500

500

Class C Non-Voting

9,171

8,826

Additional paid-in capital

106,617

102,821

Accumulated other comprehensive income

73,969

79,370

Retained earnings

102,243

62,554

Total Stockholders' Equity

351,109

312,680

Non-controlling interest - preferred stock

241,853

241,853

Total Equity

592,962

554,533

Total Liabilities and Equity

$

12,622,201

$

11,883,508

 

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

For the Three Months Ended

For the Year Ended

December 31,

December 31,

2012

2011

2012

2011

(in thousands, except per share amounts)

Interest income:

Investments and cash equivalents

$

6,036

$

7,017

$

24,729

$

28,117

Farmer Mac Guaranteed Securities and USDA Guaranteed Securities

27,767

35,863

136,297

127,394

Loans

22,348

29,762

103,644

119,176

Total interest income

56,151

72,642

264,670

274,687

Total interest expense

33,358

39,277

142,690

153,382

Net interest income

22,793

33,365

121,980

121,305

(Provision for)/release of loan losses

(4,354)

482

(3,691)

(610)

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

18,439

33,847

118,289

120,695

Non-interest income/(loss):

Guarantee and commitment fees

6,568

5,966

24,963

24,821

Gains/(losses) on financial derivatives and hedging activities

3,505

(10,277)

(19,829)

(92,645)

Gains on trading assets

2,735

3,809

307

3,455

(Losses)/gains on sale of available-for-sale investment securities

(10)

18

269

Gains on sale of real estate owned

629

254

878

974

Lower of cost or fair value adjustment on loans held for sale

(5,943)

(5,943)

8,887

Other income

890

1,102

3,341

6,850

Non-interest income/(loss)

8,374

854

3,735

(47,389)

Non-interest expense:

Compensation and employee benefits

5,752

3,916

19,186

17,884

General and administrative

2,913

2,315

11,123

9,732

Regulatory fees

594

563

2,281

2,277

Real estate owned operating costs, net

47

82

134

823

(Release of)/provision for losses

(3,197)

364

(1,816)

(2,957)

Other expense

900

Non-interest expense

6,109

7,240

30,908

28,659

Income before income taxes

20,704

27,461

91,116

44,647

Income tax expense

4,837

7,872

22,156

5,797

Net income

15,867

19,589

68,960

38,850

Less: Net income attributable to non-controlling interest - preferred stock dividends

(5,546)

(5,546)

(22,187)

(22,187)

Net income attributable to Farmer Mac

10,321

14,043

46,773

16,663

Preferred stock dividends

(720)

(720)

(2,879)

(2,879)

Net income attributable to common stockholders

$

9,601

$

13,323

$

43,894

$

13,784

Earnings per common share and dividends:

Basic earnings per common share

$

0.91

$

1.29

$

4.19

$

1.33

Diluted earnings per common share

$

0.87

$

1.23

$

3.98

$

1.28

Common stock dividends per common share

$

0.10

$

0.05

$

0.40

$

0.20

 

 

 

SOURCE Farmer Mac



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