Farmer Mac Reports 2013 Year End Results

WASHINGTON, March 13, 2014 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced its results for the year ended December 31, 2013, which included new highs in outstanding business volume and core earnings.  Total outstanding business volume grew $935.1 million to reach just under $14 billion by year-end.  Business growth was driven by a diversified mix of new business at attractive margins, including strong growth in Farm & Ranch loan purchases.  Farmer Mac's core earnings, a non-GAAP measure, were $54.9 million, or $4.90 per diluted share in 2013, a 9 percent increase on a per share basis compared to $49.6 million, or $4.51 per diluted share in 2012.  This increase was a result of net business volume growth, gains from the sale of certain securities, lower operating expenses, and strong credit performance.

During fourth quarter 2013, core earnings increased $3.7 million to $15.3 million, from $11.6 million in fourth quarter 2012.  This increase was primarily attributable to a $1.5 million ($1.0 million after tax) reduction in operating expenses, a $1.1 million ($0.7 million after tax) increase in net effective spread and guarantee fees, as well as a reduction in net credit expenses due to continued strong credit quality.  Farmer Mac also recognized a $2.1 million federal income tax benefit in fourth quarter 2013, as capital loss carryforwards offset certain capital gains.

Farmer Mac's GAAP net income for 2013 was $71.8 million or $6.41 per diluted common share, compared to $43.9 million or $3.98 per diluted common share for 2012.  Net income for fourth quarter 2013 was $12.5 million, compared to $9.6 million for the same period in 2012.  The same factors that contributed to growth in core earnings contributed to both the annual and quarter-over-quarter growth in GAAP net income.  In addition, a $22.0 million change in unrealized gains on interest rate swaps not designated in hedge accounting relationships was primarily responsible for the sharp annual increase.

Outstanding business volume increased to just under $14 billion as of December 31, 2013, compared to $13.0 billion as of December 31, 2012, which represented a 7 percent year-over-year growth rate.  New business volume for 2013 was $3.1 billion, including purchases of $824.9 million of Farm & Ranch loans, $820.0 million in new Rural Utilities AgVantage securities, and $540.8 million of long-term standby purchase commitments ("LTSPCs").

Farmer Mac's President and Chief Executive Officer Timothy Buzby stated, "2013 was an excellent year for Farmer Mac.  For the second consecutive year, we achieved all-time highs in both core earnings and outstanding business volume.  Credit quality also continued to be very strong, with low levels of delinquencies and charge-offs.  Farmer Mac remains focused on the fundamentals that drive long-term value for stockholders.  Our marketing, customer service, and product innovation efforts have helped to drive growth in business volume, and our diligence with credit underwriting and pricing have combined to help us achieve record core earnings in 2013.  We continue to innovate for our customers as we strive to provide an efficient and competitive secondary market to lenders for the benefit of rural borrowers in fulfillment of our mission while also building stockholder value."

Revenue 

Net effective spread for 2013 was $105.3 million (86 basis points), compared to $106.6 million (95 basis points) for 2012.  This decrease was primarily a result of tightening new business spreads in the first half of 2013 and dilution from the run-off of existing higher spread business during the year.  Net effective spread for fourth quarter 2013 was $27.1 million (85 basis points), compared to $26.5 million (91 basis points) in fourth quarter 2012, and $25.8 million (83 basis points) in third quarter 2013.  This growth was primarily a result of new business spread stabilization, net outstanding business volume growth, and decreased business run-off in fourth quarter 2013.  Net effective spread by business segment for 2013 was $66.6 million (130 basis points) for Farm & Ranch, $11.2 million (69 basis points) for USDA Guarantees, and $11.1 million (44 basis points) for Rural Utilities.

Guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac Guaranteed Securities and LTSPCs, were $27.0 million for 2013, compared to $25.0 million for 2012, driven by a net increase of $427.5 million of AgVantage securities.

Business Volume

Farmer Mac added $3.1 billion of new business volume during 2013, with contributions from all business lines and products.  Specifically, Farmer Mac:

• purchased $824.9 million of newly originated Farm & Ranch loans;
• added $540.8 million of Farm & Ranch loans under LTSPCs;
• purchased $453.5 million of Farm & Ranch AgVantage securities;
• purchased $361.9 million of USDA Securities;
• purchased $87.0 million of Rural Utilities loans; and
• purchased $820.0 million of Rural Utilities AgVantage securities.

Total principal paydowns and maturities in 2013 were $2.1 billion, including $593.0 million of repayments related to Rural Utilities AgVantage securities and $435.0 million related to Farm & Ranch loans under LTSPCs.

Farmer Mac's outstanding business volume was just under $14 billion as of December 31, 2013, an increase of $935.1 million from December 31, 2012, as new volume exceeded maturities and principal paydowns on existing business volume.  Demand has continued to remain strong for Farmer Mac's longer-term, fixed-rate loan products in the Farm & Ranch line of business, which drove a 45 percent increase in Farm & Ranch loan purchases in 2013 compared to 2012.  The trend toward longer-term fixed-rate mortgage financing by farmland owners continues, driven by expectations for increasing rates in the future.  Over the longer term, Farmer Mac believes demand for its secondary market tools should also increase as rural lenders make more loans and adapt to a changing regulatory environment.

Credit Quality 

The loans in Farmer Mac's three lines of business continued to perform well during 2013.  In the Farm & Ranch portfolio, 90-day delinquencies were $28.3 million (0.55 percent of the non-AgVantage Farm & Ranch portfolio) as of December 31, 2013, down from $33.3 million (0.70 percent) as of December 31, 2012.  Farmer Mac recorded net provisions of $0.4 million to the allowance for losses during 2013, compared to net provisions of $1.9 million for 2012.  Charge-offs were $0.1 million in fourth quarter 2013 and $4.0 million for the year, resulting in a $3.6 million decrease in the overall allowance for losses to $13.3 million as of December 31, 2013.

When analyzing the overall risk profile of its portfolio, Farmer Mac takes into account more than the Farm & Ranch loan delinquency percentages provided above.  Total business volume also includes AgVantage securities and rural utilities loans, neither of which currently have any delinquencies, and USDA Securities, which are backed by the full faith and credit of the United States.  Across Farmer Mac's three lines of business, 90-day delinquencies represented 0.20 percent of total volume as of December 31, 2013, compared to 0.26 percent as of December 31, 2012.

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 December 31, 2013, Farmer Mac's core capital totaled $590.7 million and exceeded the statutory minimum capital requirement of $398.5 million by $192.2 million, or 48 percent.  As of December 31, 2013, Farmer Mac's risk-based capital stress test generated a risk-based capital requirement of $90.8 million.  Farmer Mac's regulatory capital of $604.0 million exceeded that amount by approximately $513.2 million.  Under FCA's rule on capital planning effective January 3, 2014, Farmer Mac must develop and submit to its regulator for approval annually a capital plan that  assesses Farmer Mac's overall capital adequacy and incorporates a Farmer Mac board-approved policy on capital adequacy.  Farmer Mac does not expect its compliance with the final rule on capital planning to materially affect Farmer Mac's operations or financial condition.

As of December 31, 2013, total equity was $574.5 million, compared to $593.0 million as of December 31, 2012, as a $90.2 million decrease in accumulated other comprehensive income (AOCI) was partially offset by a $66.6 million increase in retained earnings.  The change in AOCI resulted primarily from reductions in unrealized gains on available-for-sale securities due to increases in interest rates in 2013.

As prescribed by FCA regulations, Farmer Mac is currently required to maintain a minimum of 60 days of liquidity.  As of December 31, 2013, Farmer Mac had 134 days of liquidity, as calculated in accordance with the applicable FCA regulations currently in effect.  FCA recently approved a final rule to revise the current regulations governing the management of liquidity risk at Farmer Mac, which is expected to become effective during second quarter 2014.  These new regulations will require Farmer Mac to hold a minimum of 90 days of liquidity and will revise the methodology for determining Farmer Mac's liquidity reserve.  Farmer Mac does not expect its compliance with the final regulation to materially affect its operations or financial condition.

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 principally differs from GAAP net income by excluding the effects of fair value accounting guidance, which are not expected to have a cumulative net impact on GAAP earnings if the related financial instruments are held to maturity, as is generally expected.  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 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 GAAP net income attributable to common stockholders to core earnings is presented in the following tables:

More complete information about Farmer Mac's performance for 2013 is set forth in Farmer Mac's Annual Report on Form 10-K filed 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:

• the availability to Farmer Mac and Farmer Mac II LLC of debt financing and, if available, the reasonableness of rates and terms;
• legislative or regulatory developments that could affect Farmer Mac or its sources of business, including but not limited to:
  • developments related to the implementation of agricultural policies and programs resulting from the recently enacted Agricultural Act of 2014 (referred to as the 2014 Farm Bill), including the elimination of direct payments to agricultural producers by the USDA and increased federal subsidies for enhanced crop insurance programs; and
  • changes in policies related to renewable fuel standards and the use of ethanol as a blending agent;
• fluctuations in the fair value of assets held by Farmer Mac and Farmer Mac II LLC;
• 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 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 GSEs, 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; 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 Farmer Mac's Annual Report on Form 10‑K for the year ended December 31, 2013, 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 the SEC otherwise requires.

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 (including the Annual Report on Form 10-K 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 USDA Guarantees line of business of purchasing and holding USDA-guaranteed loans.  Information about Farmer Mac II LLC is available on its website at www.farmermac2.com.

The conference call to discuss Farmer Mac's 2013 financial results and Form 10-K will be webcast on Farmer Mac's website beginning at 11:00 a.m. eastern time on Friday, March 14, 2013.  An audio recording of that call will be available on Farmer Mac's website for two weeks after the call.

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

The following table presents the quarterly net effective spread by business segment for fourth quarter 2013 and the previous eight quarters:

The following table presents quarterly core earnings reconciled to GAAP net income available to common stockholders for fourth quarter 2013 and each of the previous eight quarters:

SOURCE Farmer Mac