Washington, DC – March 19, 2013 – (RealEstateRama) — 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’ 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.”
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.
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.