Farmer Mac Reports Strong Fourth Quarter and Full Year Results for 2011

WASHINGTON, March 15, 2012 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac;NYSE: AGM and AGM.A) today reported continued strong performance in 2011, as a robust agricultural economy contributed to Farmer Mac's positive earnings, increased capital, and improved asset quality.  Farmer Mac's core earnings, a non-GAAP measure, for fourth quarter 2011 were $12.6 million ($1.16 per diluted common share), up from $6.7 million ($0.63 per diluted common share) for fourth quarter 2010.  Core earnings increased 69 percent for the full year to $42.9 million ($3.97 per diluted common share) in 2011, up from $25.4 million ($2.39 per diluted common share) in 2010.  This increase was primarily due to increased net interest income and releases from the allowance for losses, compared to provisions in 2010.  

Farmer Mac's GAAP net income attributable to common stockholders was $13.3 million ($1.23 per diluted common share) and $13.8 million ($1.28 per diluted common share) for the three and twelve months ended December 31, 2011, respectively, compared to $12.5 million ($1.16 per diluted common share) and $22.1 million ($2.08 per diluted common share) for the same periods in 2010.  Farmer Mac's 2011 GAAP results were impacted by decreases in the fair values of financial derivatives compared to 2010.  Farmer Mac uses financial derivatives, primarily interest rate swaps, to mitigate its exposure to interest rate risk and often times achieve an overall lower effective cost of borrowing.  Because these financial derivatives are not designated in hedge relationships for accounting purposes, as changes in long-term interest rates affect the fair values of the financial derivatives, those fair value changes are recorded in earnings, while much of the offsetting changes in the fair values of related assets and liabilities are not recorded in earnings.  Farmer Mac excludes these fair value fluctuations from its core earnings.  

Farmer Mac President and Chief Executive Officer Michael Gerber stated, "2011 was an excellent year for Farmer Mac.  We achieved significant growth in core earnings despite reduced demand for loans by rural borrowers at the retail level.  The positive trend in credit quality has also continued, as our 90-day delinquencies were again down compared to both the previous quarter and the prior year.  In addition, our capital position remains significantly above applicable statutory and regulatory requirements.  As a result of our continued strong performance, Farmer Mac remains well-positioned to meet the expanding demand for access to credit in rural America that is expected over time.  The recent doubling of the quarterly dividend on common stock underscores our confidence in Farmer Mac's future and our commitment to provide enhanced returns to shareholders over the long term while fulfilling our mission of serving rural America."

Business Results  

For the year ended December 31, 2011, Farmer Mac's net effective interest spread was $89.4 million (96 basis points), compared to $66.5 million (106 basis points) in 2010.  This increase in dollars was a result of net interest income earned on new on-balance sheet program assets added during 2011.  The 10 basis point decrease in yield is mainly attributable to the addition of (1) lower yielding assets in Farmer Mac's liquidity investment portfolio, such as U.S. Treasuries, which have a negative net yield but offer a source of contingent liquidity, and (2) on balance sheet AgVantage securities at lower net yields than the average net yield on Farmer Mac's existing portfolio.

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 $24.8 million for 2011, compared to $24.1 million for 2010.   

Program Activity

During 2011, Farmer Mac added $3.4 billion of new program volume from a variety of sources:

• purchased $495.5 million of newly originated Farmer Mac I eligible loans;
• added $472.0 million of Farmer Mac I eligible loans under LTSPCs;
• purchased $1.8 billion of Farmer Mac I AgVantage securities;
• purchased $203.8 million of loans under the Rural Utilities program;
• guaranteed $2.8 million of Rural Utilities AgVantage securities; and
• purchased $407.7 million of Farmer Mac II USDA-guaranteed portions.

This new business volume was offset by principal paydowns on outstanding loans and loans underlying Farmer Mac Guaranteed Securities and LTSPCs and the maturity of a $475.0 million AgVantage security that was not replaced with new business.  Farmer Mac's outstanding program volume was $11.9 billion as of December 31, 2011, a net decrease of $303.4 million from December 31, 2010.

Credit Quality

Farmer Mac's 90-day delinquencies were $40.6 million (0.93 percent of the portfolio) as of December 31, 2011, compared to $70.2 million (1.63 percent of the portfolio) as of December 31, 2010.  As of December 31, 2011, there were no ethanol loans in the 90-day delinquencies, compared to $10.9 million as of December 31, 2010.  Farmer Mac recorded charge-offs of $0.3 million in 2011, compared to charge-offs of $0.6 million during 2010.   

When analyzing the overall risk profile of its program business, Farmer Mac takes into account more than the Farmer Mac I agricultural loan delinquency information provided above.  The total program business includes AgVantage securities and rural utilities loans, neither of which have any delinquencies, and USDA-guaranteed portions (Farmer Mac II), which are backed by the full faith and credit of the United States.  Across Farmer Mac's entire program business, 90day delinquencies represented 0.34 percent of total program assets as of December 31, 2011, compared to 0.58 percent as of December 31, 2010.

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 regulations.  As of December 31, 2011, Farmer Mac's core capital totaled $475.2 million and exceeded its statutory minimum capital requirement of $348.7 million by $126.5 million.  As of December 31, 2011 the risk-based capital stress test generated a risk-based capital requirement of $52.9 million.  Farmer Mac's regulatory capital of $492.7 million exceeded that amount by approximately $439.8 million.

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 60 days of liquidity.  As of December 31, 2011, Farmer Mac had 151 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 attributable to common stockholders to core earnings is presented in the following table.  

More complete information on Farmer Mac's performance for 2011 is set forth in the 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, including those related to the Dodd-Frank Act; (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 and real estate values on agricultural mortgage lending; (7) developments in the financial markets, including possible investor, analyst and rating agency reactions to events involving GSEs, including Farmer Mac; and (8) financial market volatility, including the future level and direction of interest rates, commodity prices, and 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 earlier today.  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 establish a secondary market for agricultural real estate and rural housing mortgage loans, rural utilities loans, and USDA-guaranteed farm program and rural development loans.  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 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 2011 financial results and the Corporation's Form 10-K for 2011 will be webcast on Farmer Mac's website beginning at 11:00 a.m. eastern time on Friday, March 16, 2012.  An audio recording of that call will be available on Farmer Mac's website for two weeks after the call is concluded.

SOURCE Farmer Mac