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


News provided by

Farmer Mac

Mar 15, 2012, 05:17 ET

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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.  


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


For the Three Months Ended


December 31, 2011


December 31, 2010


(in thousands, except per share amounts)

GAAP net income attributable to common stockholders

$

13,323



$

12,492


Less the after-tax effects of:




Unrealized gains on financial derivatives

386



13,069


Unrealized gains/(losses) on trading assets

2,476



(931)


Amortization of premiums on assets consolidated at fair value

(2,285)



(2,371)


Recognition of deferred gains related to certain Farmer Mac II Guaranteed Securities and USDA Guaranteed Securities

410



—


Net effects of settlements on agency forward contracts

(240)



(341)


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

—



(3,677)


     Sub-total

747



5,749


Core earnings

$

12,576



$

6,743






Core earnings per share:




Basic

$

1.21



$

0.66


Diluted

1.16



0.63






Weighted-average shares:




Basic

10,357



10,282


Diluted

10,837



10,732







For the Year Ended


December 31, 2011


December 31, 2010


(in thousands, except per share amounts)

GAAP net income attributable to common stockholders

$

13,784



$

22,080


Less the after-tax effects of:




Unrealized (losses)/gains on financial derivatives

(30,930)



13,046


Unrealized gains on trading assets

2,246



3,426


Amortization of premiums on assets consolidated at fair value

(7,060)



(7,617)


Recognition of deferred gains related to certain Farmer Mac II Guaranteed Securities and USDA Guaranteed Securities

3,368



—


Net effects of settlements on agency forward contracts

(2,523)



(670)


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

5,776



(5,686)


Issuance costs on the retirement of preferred stock

—



(5,784)


     Sub-total

(29,123)



(3,285)


Core earnings

$

42,907



$

25,365






Core earnings per share:




Basic

$

4.15



$

2.48


Diluted

3.97



2.39






Weighted-average shares:




Basic

10,335



10,229


Diluted

10,802



10,615



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.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(unaudited)



As of December 31,


2011


2010


(in thousands)

Assets:




Cash and cash equivalents

$

817,046



$

729,920


Investment securities:




Available-for-sale, at fair value

2,182,694



1,677,233


Trading, at fair value

1,796



86,096


Total investment securities

2,184,490



1,763,329


Farmer Mac Guaranteed Securities:




Available-for-sale, at fair value

4,289,272



2,907,264






USDA Guaranteed Securities:




Available-for-sale, at fair value

1,279,546



1,005,679


Trading, at fair value

212,359



311,765


Total USDA Guaranteed Securities

1,491,905



1,317,444


Loans:




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

541,447



1,212,065


Loans held for investment, at amortized cost

1,241,311



90,674


Loans held for investment in consolidated trusts, at amortized cost

1,121,559



1,265,663


Allowance for loan losses

(10,161)



(9,803)


Total loans, net of allowance

2,894,156



2,558,599


Real estate owned, at lower of cost or fair value

3,136



1,992


Financial derivatives, at fair value

40,250



41,492


Interest receivable

110,339



90,295


Guarantee and commitment fees receivable

31,384



34,752


Deferred tax asset, net

—



14,530


Prepaid expenses and other assets

21,530



20,297


Total Assets

$

11,883,508



$

9,479,914






Liabilities and Equity:




Liabilities:




Notes payable:




Due within one year

$

6,087,879



$

4,509,419


Due after one year

4,104,882



3,430,656


Total notes payable

10,192,761



7,940,075


Debt securities of consolidated trusts held by third parties

701,583



827,411


Financial derivatives, at fair value

160,024



113,687


Accrued interest payable

60,854



57,131


Guarantee and commitment obligation

27,440



30,308


Accounts payable and accrued expenses

178,708



22,113


Deferred tax liability, net

250



—


Reserve for losses

7,355



10,312


Total Liabilities

11,328,975



9,001,037


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

8,826



8,753


Additional paid-in capital

102,821



100,050


Accumulated other comprehensive income

79,370



18,275


Retained earnings

62,554



50,837


Total Stockholders' Equity

312,680



237,024


Non-controlling interest - preferred stock

241,853



241,853


Total Equity

554,533



478,877


Total Liabilities and Equity

$

11,883,508



$

9,479,914



FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



For the Three Months Ended


For the Year Ended


December 31,


December 31,


2011


2010


2011


2010


(in thousands, except per share amounts)

Interest income:








Investments and cash equivalents

$

7,017



$

8,194



$

28,117



$

27,497


Farmer Mac Guaranteed Securities and USDA Guaranteed Securities

35,863



24,145



127,394



86,742


Loans

29,762



29,738



119,176



124,472


Total interest income

72,642



62,077



274,687



238,711


Total interest expense

39,277



36,308



153,382



142,668


Net interest income

33,365



25,769



121,305



96,043


Release of/(provision for) loan losses

482



(501)



(610)



(1,893)


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

33,847



25,268



120,695



94,150


Non-interest income/(loss):








Guarantee and commitment fees

5,966



6,485



24,821



24,091


(Losses)/gains on financial derivatives

(10,277)



11,349



(92,645)



(17,159)


Gains/(losses) on trading assets

3,809



(1,433)



3,455



5,270


Gains on sale of available-for-sale investment securities

—



2



269



266


Gain on sale of real estate owned

254



10



974



10


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

—



(5,658)



8,887



(8,748)


Other income

1,102



64



6,850



1,244


Non-interest income/(loss)

854



10,819



(47,389)



4,974


Non-interest expense:








Compensation and employee benefits

3,916



5,313



17,884



17,232


General and administrative

2,315



2,235



9,732



8,564


Regulatory fees

563



550



2,277



2,243


Real estate owned operating costs, net

82



674



823



2,171


Provision for/(release of) losses

364



737



(2,957)



2,417


Other expense

—



—



900



—


Non-interest expense

7,240



9,509



28,659



32,627


Income before income taxes

27,461



26,578



44,647



66,497


Income tax expense

7,872



7,820



5,797



13,797


Net income

19,589



18,758



38,850



52,700


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

(5,546)



(5,547)



(22,187)



(20,707)


Net income attributable to Farmer Mac

14,043



13,211



16,663



31,993


Preferred stock dividends

(720)



(719)



(2,879)



(4,129)


Loss on retirement of preferred stock

—



—



—



(5,784)


Net income attributable to common stockholders

$

13,323



$

12,492



$

13,784



$

22,080


Earnings per common share and dividends:








Basic earnings per common share

$

1.29



$

1.21



$

1.33



$

2.16


Diluted earnings per common share

$

1.23



$

1.16



$

1.28



$

2.08


Common stock dividends per common share

$

0.05



$

0.05



$

0.20



$

0.20



SOURCE Farmer Mac

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