WASHINGTON, Aug. 9, 2017 /PRNewswire/ -- The Federal
Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A)
today announced its results for the fiscal quarter ended
June 30, 2017, which included
$414.3 million in net new business
volume growth that brought total outstanding business volume to
$18.3 billion as of June 30, 2017. Farmer Mac's net income
attributable to common stockholders for second quarter 2017 was
$17.5 million ($1.62 per diluted common share), compared to
$18.6 million ($1.73 per diluted common share) in first
quarter 2017 and $12.0 million
($1.13 per diluted common share) in
second quarter 2016. Farmer Mac's second quarter 2017 core
earnings, a non-GAAP measure, were $16.0 million ($1.48 per diluted common share), compared to
$15.6 million ($1.45 per diluted common share) in first quarter
2017 and $13.0 million ($1.23 per diluted common share) in second quarter
2016.
"We are proud to report another strong quarter, as outstanding
business volume reached a new record high of $18.3 billion and core earnings grew by 22
percent year-over-year," said President and Chief Executive Officer
Tim Buzby. "Our financial
results reflect a continuation of the positive trends we've seen
over the last several quarters, with new business volume growth,
improvements in spreads, and strong profitability. The
relative demand for our agricultural real estate financing products
and solutions has increased significantly as more customers are
recognizing the value Farmer Mac can provide and are choosing
different products and solutions across our lines of
business. This growth reflects our team's dedication to
understanding our customers' needs and continuing to deliver upon
our mission throughout agricultural economic cycles. Despite
certain sectors of the agricultural economy remaining under
pressure, our credit quality remains favorable and within our
expectations despite showing signs of the expected normalization
related to the current agricultural credit cycle. We believe
our financial outlook is strong as we continue to expand our
customer base and innovate our product set to meet the needs of our
customers in a more challenging environment."
Earnings
Farmer Mac's net income attributable to common stockholders for
second quarter 2017 was $17.5 million ($1.62 per diluted common share), compared to
$12.0 million ($1.13 per diluted common share) for second
quarter 2016. The $5.5 million
increase compared to second quarter 2016 was driven by an increase
in net interest income of $3.5
million, after-tax. Also contributing to the
year-over-year increase was the effect of fair value changes on
financial derivatives and hedged assets, which was a $1.4 million after-tax gain in second quarter
2017 compared to a $1.3 million
after-tax loss in second quarter 2016. The increase was offset in
part by a $0.8 million after-tax
increase in non-interest expense primarily attributable to higher
compensation and employee benefits expenses.
Core earnings in second quarter 2017 were $16.0 million ($1.48 per diluted common share), compared to
$15.6 million ($1.45 per diluted common share) in first quarter
2017 and $13.0 million ($1.23 per diluted common share) in second quarter
2016. The $0.4 million
sequential increase in core earnings was attributable to a
$1.8 million after-tax increase in
net effective spread and an increase in net realized gains of
$0.5 million after-tax on the sale of
real estate owned properties. The increase was offset in part
by (1) a $0.8 million after-tax
decrease in other income, primarily driven by a decrease in fees
received upon the inception of swaps and (2) a $0.5 million decrease in tax benefits recognized
from stock-based awards. Other offsetting factors included:
(1) a decrease of $0.2 million
after-tax in guarantee and commitment fees driven by the
refinancing during second quarter 2017 of a $1.0 billion AgVantage security reported as
off-balance sheet business volume in the Institutional Credit line
of business upon which Farmer Mac previously earned a guarantee fee
to an on-balance sheet asset upon which Farmer Mac earns interest
income and (2) an increase of $0.2
million after-tax in compensation and employee benefits
expenses primarily due to higher payouts of variable incentive
compensation during second quarter 2017 resulting from actual
performance exceeding certain performance target amounts.
The $3.0 million year-over-year
increase in core earnings was primarily attributable to higher
total revenues, which included (1) a $3.0
million after-tax increase in net effective spread and (2) a
$0.1 million after-tax increase in
guarantee and commitment fee income. Farmer Mac also realized net
gains of $0.5 million after-tax in
second quarter 2017 on the sale of real estate owned properties
compared to no sales of real estate owned properties in second
quarter 2016. Partially offsetting the year-over-year increase was
a $0.7 million after-tax increase in
compensation and employee benefit expenses due primarily to an
increase in staffing, related employee health insurance costs and
benefits, and higher payouts of variable incentive compensation
resulting from actual performance exceeding certain performance
target amounts.
See "Use of Non-GAAP Measures" below for more information about
core earnings, core earnings per share, and net effective spread
and for a reconciliation of the comparable GAAP measures to these
non-GAAP measures.
Business Volume Highlights
During second quarter 2017, Farmer Mac added $1.9 billion of new business volume, compared to
$1.3 billion in second quarter
2016. Specifically, Farmer Mac:
- purchased $1.3 billion of
AgVantage securities, including $36.7
million in AgVantage securities for smaller institutional
customers;
- purchased $312.2 million of newly
originated Farm & Ranch loans;
- purchased $115.8 million of USDA
Securities;
- added $55.9 million of Farm &
Ranch loans under LTSPCs;
- issued $53.5 million of Farmer
Mac Guaranteed USDA Securities; and
- purchased $25.0 million of Rural
Utilities loans.
After $1.4 billion of maturities
and principal paydowns on existing business during second quarter
2017, Farmer Mac's outstanding business volume increased by
$414.3 million from March 31, 2017 to $18.3 billion as of June 30, 2017. The increase in Farmer Mac's
outstanding business volume was driven by broad-based portfolio
growth across most of Farmer Mac's products and lines of business,
including Farm & Ranch loans, AgVantage securities, USDA
Securities, and Rural Utilities loans.
In April 2017, Farmer Mac
purchased and retained $1.0 billion
of AgVantage securities issued by Metropolitan Life Insurance
Company ("MetLife"). MetLife used the proceeds from Farmer
Mac's purchase of $1.0 billion in
AgVantage securities to refinance an AgVantage security of the same
amount that matured in April 2017. Previously, Farmer Mac
held $30.0 million of the
$1.0 billion AgVantage security that
matured in April 2017 on-balance
sheet and earned a spread between the interest income earned on
that portion of the security and the related funding costs.
The remaining $970.0 million of the
$1.0 billion AgVantage security that
matured in April 2017 had previously
been sold to third parties and reported as off-balance sheet
business volume in the Institutional Credit line of business on
which Farmer Mac earned a guarantee fee of approximately 0.15
percent on an annual basis. For the newly purchased
$1.0 billion in AgVantage securities,
which are now held entirely on-balance sheet, Farmer Mac will earn
weighted average net effective spread income of approximately 0.42
percent on an annual basis. The newly purchased AgVantage
securities are comprised of three maturities – $500.0 million of a one-year security, which is
callable in six months, $250.0
million of a two-year security, and $250.0 million of a three-year security.
The new business volume in AgVantage securities for second
quarter 2017 also included purchases of $250.0 million from Rabo Agrifinance, Inc.
("Rabo"). The AgVantage securities purchased from Rabo in
second quarter 2017 included $150.0
million in AgVantage securities used to refinance AgVantage
securities that matured in second quarter 2017 and $50.0 million in AgVantage securities that Rabo
used to refinance an AgVantage security that matured in early July
2017. Farmer Mac also experienced net portfolio growth of
$36.7 million in AgVantage securities
for smaller institutional customers in second quarter 2017.
Spreads
Net interest income was $39.7
million in second quarter 2017, compared to $34.4 million in second quarter 2016. In
percentage terms, net interest income for second quarter 2017 was
0.95 percent, compared to 0.88 percent in second quarter
2016. The $5.3 million
year-over-year increase in net interest income was driven by net
growth in Farm & Ranch loans, USDA Securities, and on-balance
sheet AgVantage Securities. Another factor contributing to
the increase was the incremental effect of the Federal Reserve's
decision to raise the target range for the federal funds rate in
December 2016, March 2017, and June
2017, which affected assets and liabilities indexed to
LIBOR. An increase in the net effect of consolidated trusts
resulting from an increase in securitization of Farm & Ranch
loans throughout 2016 and the first six months of 2017 also
contributed to the year-over-year increase in net interest
income. Farmer Mac earns the difference between the interest
income recognized on loans in consolidated trusts and the related
interest expense recognized on debt securities of consolidated
trusts held by third parties. The increase in net interest income
was offset in part by an increase in the application of hedge
accounting, as funding expense from financial derivatives
designated in hedge accounting relationships is included in net
interest income and a decrease in the amount of cash basis interest
income recognized on nonaccrual Farm & Ranch loans. The 7 basis
point year-over-year increase in net interest income in percentage
terms was primarily attributable to a reduction in the average
balance of lower-earning cash and cash equivalents.
Farmer Mac's net effective spread, a non-GAAP measure, was
$35.6 million in second quarter 2017,
compared to $32.9 million in first
quarter 2017 and $31.0 million in
second quarter 2016. In percentage terms, net effective
spread for second quarter 2017 was 0.92 percent, compared to 0.91
percent in first quarter 2017 and 0.84 percent in second quarter
2016. Farmer Mac uses net effective spread as an alternative
measure to net interest income because management believes it is a
useful metric that reflects the economics of the net spread between
all the assets owned by Farmer Mac and all related funding,
including any associated derivatives, some of which may not be
included in net interest income.
The $2.7 million sequential
increase in net effective spread in dollars was primarily
attributable to (1) growth in on-balance sheet AgVantage
securities, Farm & Ranch loans, and other business volume,
which increased net effective spread by approximately $2.0 million; and (2) changes in Farmer Mac's
funding strategies and LIBOR-based short-term funding costs for
floating rate assets indexed to LIBOR that remained favorable
throughout most of second quarter 2017, which added approximately
$0.7 million. The one basis point
sequential increase in net effective spread in percentage terms was
primarily attributable to the effects of the changes in Farmer
Mac's funding strategy noted above and a favorable LIBOR-based
funding market, which added approximately 2 basis points. This
increase was offset in part by the effect of the refinancing of a
$1.0 billion AgVantage security into
three new on-balance sheet AgVantage securities as described above,
which resulted in an average spread that was less than the overall
average net effective spread in percentage terms.
The $4.6 million year-over-year
increase in net effective spread in dollars was primarily
attributable to (1) growth in on-balance sheet AgVantage
securities, Farm & Ranch loans, and other business volume,
which increased net effective spread by approximately $3.4 million; and (2) changes in Farmer Mac's
funding strategies and LIBOR-based short-term funding costs for
floating rate assets indexed to LIBOR that remained favorable
throughout most of second quarter 2017, which added approximately
$2.0 million. The increase was
offset in part by a decrease in the amount of cash basis interest
income recognized on nonaccrual Farm & Ranch loans, which
reduced net effective spread by $0.8
million. The 8 basis point year-over-year increase in net
effective spread in percentage terms was primarily attributable to
a significant reduction in the average balance of cash and cash
equivalents, which added approximately 5 basis points to net
effective spread. Also contributing to the increase were the
effects of the changes in Farmer Mac's funding strategy and a
favorable LIBOR-based funding market, which added approximately 5
basis points. The increase in percentage terms was offset in part
by a decrease in the amount of cash basis interest income
recognized on nonaccrual Farm & Ranch loans, which reduced net
effective spread by approximately 2 basis points.
Credit
In the Farm & Ranch portfolio, 90-day delinquencies were
$41.9 million (0.65 percent of the
Farm & Ranch portfolio) as of June 30,
2017, compared to $21.0
million (0.34 percent) as of December
31, 2016 and $22.1 million
(0.38 percent of the Farm & Ranch portfolio) as of June 30, 2016. Those 90-day delinquencies
were comprised of 42 delinquent loans as of June 30, 2017, compared with 38 delinquent loans
as of December 31, 2016 and 40
delinquent loans as of June 30,
2016. More than half of the net increase in Farmer Mac's
90-day delinquencies as a percentage of its Farm & Ranch
portfolio from year-end resulted from the delinquency of a single
borrower on two permanent planting loans to which Farmer Mac had
$15.4 million of exposure as of
June 30, 2017. That delinquency
was due to factors specific to the borrower and not related to
macroeconomic factors in the agricultural economy. Farmer Mac
believes that it remains adequately collateralized on these
loans. Farmer Mac expects that over time its 90-day
delinquency rate will eventually revert closer to, and possibly
exceed, Farmer Mac's historical average due to macroeconomic
factors and the cyclical nature of the agricultural economy.
Farmer Mac's average 90-day delinquency rate for the Farm &
Ranch line of business over the last fifteen years is approximately
one percent. The highest 90-day delinquency rate observed
during that period occurred in 2009 at approximately 2 percent,
which coincided with increased delinquencies in loans within Farmer
Mac's then-held ethanol portfolio that Farmer Mac no longer
holds.
For Farmer Mac's other lines of business, there are currently no
delinquent AgVantage securities or Rural Utilities loans held or
underlying LTSPCs, and USDA Securities are backed by the full faith
and credit of the United States. As a result, across all of
Farmer Mac's lines of business, 90-day delinquencies represented
0.23 percent of total business volume as of June 30, 2017, compared to 0.12 percent as of
December 31, 2016 and 0.13 percent as
of the year-ago quarter.
Another indicator that Farmer Mac considers in analyzing the
credit quality of its Farm & Ranch portfolio is the level of
internally-rated "substandard" assets, both in dollars and as a
percentage of the outstanding Farm & Ranch portfolio.
Assets categorized as "substandard" have a well-defined weakness or
weaknesses, and there is a distinct possibility that some loss will
be sustained if deficiencies are not corrected. As of
June 30, 2017, Farmer Mac's substandard assets were
$192.1 million (3.0 percent of the
Farm & Ranch portfolio), compared to $165.2 million (2.7 percent of the
Farm & Ranch portfolio) as of December 31,
2016. Those substandard assets were comprised of 287 loans as
of both June 30, 2017 and December
31, 2016. The $26.9
million increase from year-end 2016 was primarily driven by
credit downgrades in loans underlying LTSPCs. Farmer Mac
expects that over time its substandard asset rate will eventually
revert closer to, and possibly exceed, Farmer Mac's historical
average due to macroeconomic factors and the cyclical nature of the
agricultural economy. Farmer Mac's average substandard assets
as a percentage of its Farm & Ranch portfolio over the last 15
years is approximately 4 percent. The highest substandard
asset rate observed during that period occurred in 2010 at
approximately 8 percent, which coincided with an increase in
substandard loans within Farmer Mac's then-held ethanol portfolio
that Farmer Mac no longer holds. If Farmer Mac's substandard
asset rate continues to increase from current levels, it is likely
that Farmer Mac's provision to the allowance for loan losses and
the reserve for losses will also increase.
Although some credit losses are inherent to the business of
agricultural lending, Farmer Mac believes that any losses
associated with the current agricultural credit cycle will be
moderated by the strength and diversity of its portfolio, which
Farmer Mac believes is adequately collateralized.
Lines of Business
Farmer Mac's operations consist of four lines of business – Farm
& Ranch, USDA Guarantees, Rural Utilities, and Institutional
Credit. Net interest income by business segment for second
quarter 2017 was $13.3 million (143
basis points) for Farm & Ranch, $5.2
million (99 basis points) for USDA Guarantees, $3.0 million (119 basis points) for Rural
Utilities, and $15.4 million (87
basis points) for Institutional Credit. Net effective spread
by business segment for second quarter 2017 was $11.3 million (180 basis points) for
Farm & Ranch, $4.7 million
(90 basis points) for USDA Guarantees, $2.7
million (109 basis points) for Rural Utilities, and
$14.4 million (81 basis points) for
Institutional Credit.
Liquidity and Capital
Farmer Mac's core capital totaled $638.5
million as of June 30, 2017,
exceeding the statutory minimum capital requirement by $134.1 million, or 27 percent, compared to
$609.7 million as of
December 31, 2016, which was $143.2
million, or 31 percent, above the statutory minimum capital
requirement. The decrease in capital in excess of the minimum
capital level was due primarily to an increase in minimum capital
required to support the growth of on-balance sheet assets during
the first half of 2017, which was offset in part by an increase in
retained earnings. In particular, the refinancing of a
$1.0 billion AgVantage security that
matured in April 2017 into three new
on-balance sheet AgVantage securities significantly increased
Farmer Mac's on-balance sheet assets because $970 million of the refinanced security was
previously held by third party investors and reported as
off-balance sheet business volume.
As of June 30, 2017, Farmer Mac's
total stockholders' equity was $680.9
million, compared to $643.4
million as of December 31,
2016. The increase in total stockholders' equity was a result
of an increase in retained earnings and accumulated other
comprehensive income.
As prescribed by FCA regulations, Farmer Mac is required to
maintain a minimum of 90 days of liquidity. In
accordance with the methodology prescribed by those regulations,
Farmer Mac maintained an average of 200 days of liquidity
during second quarter 2017 and had 208 days of liquidity
as of June 30, 2017.
Use of Non-GAAP Measures
In the analysis of its financial information, Farmer Mac
sometimes uses "non-GAAP measures," which are measures of financial
performance that are not presented in accordance with generally
accepted accounting principles in the
United States (GAAP). Specifically, Farmer Mac uses
the following non-GAAP measures: "core earnings," "core earnings
per share," and "net effective spread." Farmer Mac uses these
non-GAAP measures to measure corporate economic performance and
develop financial plans because, in management's view, they are
useful alternative measures in understanding Farmer Mac's
economic performance, transaction economics, and business
trends. The non-GAAP financial measures that Farmer Mac uses
may not be comparable to similarly labeled non-GAAP financial
measures disclosed by other companies. Farmer Mac's
disclosure of these non-GAAP measures 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.
Core Earnings and Core Earnings per Share
Core earnings and core earnings per share principally differ
from net income attributable to common stockholders and earnings
per common share, respectively, by excluding the effects of fair
value fluctuations. These fluctuations are not expected to have a
cumulative net impact on Farmer Mac's financial condition or
results of operations reported in accordance with GAAP if the
related financial instruments are held to maturity, as is
expected. Among other items, these fair value fluctuations
have included unrealized gains or losses on financial derivatives
and hedging activities. Variation margin is exchanged between
Farmer Mac and its counterparties on both its cleared and
non-cleared derivatives portfolios. Prior to first quarter 2017,
Farmer Mac accounted for variation margin as collateral and
associated unrealized gains or losses on its centrally cleared
derivative contracts. However, beginning in first quarter 2017, the
variation margin amounts exchanged between Farmer Mac and its
counterparties on cleared derivatives are considered as settlement
rather than collateral as a result of a change in variation margin
rules implemented by the Chicago Mercantile Exchange ("CME"), the
central clearinghouse used by Farmer Mac. Specifically,
effective January 3, 2017, CME began
to deem the exchange of variation margin between derivatives
counterparties as a partial settlement of each respective
derivative contract rather than as collateral pledged by a
counterparty. Accordingly, beginning in first quarter 2017,
Farmer Mac presents its cleared derivatives portfolio net of
variation margin payments on its consolidated balance sheets and
recognizes realized gains or losses as a result of these payments
on its consolidated statements of operations. However, Farmer
Mac believes that even though these variation margin amounts are
accounted for as realized gains or losses on financial derivatives
and hedging activities as a result of the CME rule change, the
economic character of these transactions remains the same as they
were before the change. The exchange of variation margin, whether
considered a partial settlement of or the pledge of collateral
under a derivatives contract, is not expected to have a cumulative
net impact on Farmer Mac's financial condition or results of
operations reported in accordance with GAAP because the related
financial instruments are expected to be held to maturity.
Therefore, beginning in first quarter 2017, Farmer Mac excludes the
effects of realized gains or losses resulting from the exchange of
variation margin on its cleared derivatives portfolio in its
calculations of core earnings and core earnings per share to
present them on a consistent basis with quarters prior to 2017.
Core earnings and core earnings per share also differ from net
income attributable to common stockholders and earnings per common
share, respectively, 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. For
example, the loss from retirement of the Farmer Mac II LLC
Preferred Stock in first quarter 2015 was excluded from core
earnings and core earnings per share because it was not a
frequently occurring transaction and not indicative of future
operating results. This is also consistent with Farmer Mac's
previous treatment of these types of origination costs associated
with securities underwriting that are capitalized and deferred
during the life of the security. For a reconciliation of
Farmer Mac's net income attributable to common stockholders to core
earnings and of earnings per common share to core earnings per
share, see the "Reconciliations" section below.
Net Effective Spread
Farmer Mac uses net effective spread to measure the net spread
Farmer Mac earns between its interest-earning assets and the
related net funding costs of these assets. Net effective
spread differs from net interest income and net interest yield
because it excludes (1) the amortization of premiums and discounts
on assets consolidated at fair value that are amortized as
adjustments to yield in interest income over the contractual or
estimated remaining lives of the underlying assets, and (2)
interest income and interest expense related to consolidated trusts
with beneficial interests owned by third parties, which are
presented on Farmer Mac's consolidated balance sheets as "Loans
held for investment in consolidated trusts, at amortized
cost." Farmer Mac excludes from net effective spread premiums
and discounts on assets consolidated at fair value because they
either do not reflect actual cash premiums paid for the assets at
acquisition or are not expected to have an economic effect on
Farmer Mac's financial performance if the assets are held to
maturity, as is expected. Farmer Mac also excludes from net
effective spread the interest income and interest expense
associated with the consolidated trusts and the average balance of
the loans underlying these trusts to reflect management's view that
the net interest income Farmer Mac earns on the related Farmer Mac
Guaranteed Securities owned by third parties is effectively a
guarantee fee. Accordingly, the excluded interest income and
interest expense associated with consolidated trusts is
reclassified to guarantee and commitment fees for purposes of
determining Farmer Mac's core earnings.
Net effective spread also principally differs from net interest
income and net interest yield because it includes the accrual of
income and expense related to the contractual amounts due on
financial derivatives that are not designated in hedge accounting
relationships ("undesignated financial derivatives"). Farmer
Mac uses interest rate swaps to manage its interest rate risk
exposure by synthetically modifying the interest rate reset or
maturity characteristics of certain assets and
liabilities. The accrual of the contractual amounts due
on interest rate swaps designated in hedge accounting relationships
is included as an adjustment to the yield or cost of the hedged
item and is included in net interest income. For undesignated
financial derivatives, Farmer Mac records the income or expense
related to the accrual of the contractual amounts due in
"Gains/(losses) on financial derivatives and hedging activities" on
the consolidated statements of operations. However, the
accrual of the contractual amounts due for undesignated financial
derivatives are included in Farmer Mac's calculation of net
effective spread, which is intended to reflect management's view of
the net spread between an asset and all of its related funding,
including any associated derivatives, whether or not they are in a
hedge accounting relationship. For a reconciliation of net
interest income and net interest yield to net effective spread, see
the "Reconciliations" section below.
Forward-Looking Statements
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, both
known and unknown, could cause Farmer Mac's actual results to
differ materially from the expectations as expressed or implied by
the forward-looking statements herein, including uncertainties
regarding:
- the availability to Farmer Mac of debt and equity financing
and, if available, the reasonableness of rates and terms;
- legislative or regulatory developments that could affect Farmer
Mac, its sources of business, or the agricultural or rural
utilities industries;
- fluctuations in the fair value of assets held by Farmer Mac and
its subsidiaries;
- the rate and direction of development of the secondary market
for agricultural mortgage and rural utilities loans, including
lender interest in Farmer Mac's products and the secondary market
provided by Farmer Mac;
- the general rate of growth in agricultural mortgage and rural
utilities indebtedness;
- the effect 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;
- developments in the financial markets, including possible
investor, analyst, and rating agency reactions to events involving
government-sponsored enterprises, 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;
- the degree to which Farmer Mac is exposed to basis risk, which
results from fluctuations in Farmer Mac's borrowing costs relative
to market indexes such as LIBOR; 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 "Risk Factors" in Part I,
Item 1A in Farmer Mac's Annual Report on Form 10-K for the year
ended December 31, 2016 filed with
the U.S. Securities and Exchange Commission ("SEC") on March 9, 2017 and in the Quarterly Report on Form
10-Q for the quarter ended June 30,
2017 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. The information contained in this release is not
necessarily indicative of future results.
Earnings Conference Call Information
The conference call to discuss Farmer Mac's second quarter 2017
financial results will be held beginning at 11:00 a.m. eastern
time on Wednesday, August 9, 2017 and
can be accessed by telephone or live webcast as follows:
Telephone (Domestic): (888) 346-2616
Telephone (International): (412) 902-4254
Webcast:
https://www.farmermac.com/investors/events-presentations/
Presentation materials to be referenced during the call will be
posted on the webpage that can be accessed by clicking on the link
noted above. When dialing in to the call, please ask for the
conference chairman Tim Buzby.
The call can be heard live and will also be available for replay on
Farmer Mac's website for two weeks following the conclusion of the
call.
More complete information about Farmer Mac's performance for
second quarter 2017 is set forth in Farmer Mac's Quarterly Report
on Form 10-Q for the period ended June 30,
2017 filed today with the SEC.
About Farmer Mac
Farmer Mac is a vital part of the agricultural credit markets
and was created to increase access to and reduce the cost of
capital for the benefit of American agricultural and rural
communities. As the nation's premier secondary market for
agricultural credit, we provide financial solutions to a broad
spectrum of the agricultural community, including agricultural
lenders, agribusinesses, and other institutions that can benefit
from access to flexible, low-cost financing and risk management
tools. Farmer Mac's customers benefit from our low cost of funds,
low overhead costs, and high operational efficiency. In fact, we
are often able to provide the lowest cost of borrowing to
agricultural and rural borrowers. For more than a quarter-century,
Farmer Mac has been delivering the capital and commitment rural
America deserves. Additional information about Farmer Mac
(including the Annual Report on Form 10-K and Quarterly Report on
Form 10-Q referenced above) is available on Farmer Mac's website at
www.farmermac.com.
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(unaudited)
|
|
|
As of
|
|
June 30,
2017
|
|
December 31,
2016
|
|
(in
thousands)
|
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
319,993
|
|
|
$
|
265,229
|
|
Investment
securities:
|
|
|
|
Available-for-sale,
at fair value
|
2,363,805
|
|
|
2,515,851
|
|
Farmer Mac Guaranteed
Securities:
|
|
|
|
Available-for-sale,
at fair value
|
5,282,562
|
|
|
4,853,685
|
|
Held-to-maturity, at
amortized cost
|
2,137,786
|
|
|
1,149,231
|
|
Total Farmer Mac
Guaranteed Securities
|
7,420,348
|
|
|
6,002,916
|
|
USDA
Securities:
|
|
|
|
Trading, at fair
value
|
16,294
|
|
|
20,388
|
|
Held-to-maturity, at
amortized cost
|
2,066,026
|
|
|
2,009,225
|
|
Total USDA
Securities
|
2,082,320
|
|
|
2,029,613
|
|
Loans:
|
|
|
|
Loans held for
investment, at amortized cost
|
3,665,984
|
|
|
3,379,884
|
|
Loans held for
investment in consolidated trusts, at amortized cost
|
1,240,624
|
|
|
1,132,966
|
|
Allowance for loan
losses
|
(6,138)
|
|
|
(5,415)
|
|
Total loans, net of
allowance
|
4,900,470
|
|
|
4,507,435
|
|
Real estate owned, at
lower of cost or fair value
|
1,374
|
|
|
1,528
|
|
Financial
derivatives, at fair value
|
5,546
|
|
|
23,182
|
|
Interest receivable
(includes $13,917 and $12,584, respectively, related to
consolidated trusts)
|
126,509
|
|
|
122,782
|
|
Guarantee and
commitment fees receivable
|
37,083
|
|
|
38,871
|
|
Deferred tax asset,
net
|
3,688
|
|
|
12,291
|
|
Prepaid expenses and
other assets
|
6,249
|
|
|
86,322
|
|
Total
Assets
|
$
|
17,267,385
|
|
|
$
|
15,606,020
|
|
|
|
|
|
Liabilities and
Equity:
|
|
|
|
Liabilities:
|
|
|
|
Notes
payable:
|
|
|
|
Due within one
year
|
$
|
7,859,059
|
|
|
$
|
8,440,123
|
|
Due after one
year
|
7,281,509
|
|
|
5,222,977
|
|
Total notes
payable
|
15,140,568
|
|
|
13,663,100
|
|
Debt securities of
consolidated trusts held by third parties
|
1,249,627
|
|
|
1,142,704
|
|
Financial
derivatives, at fair value
|
34,114
|
|
|
58,152
|
|
Accrued interest
payable (includes $11,787 and $10,881, respectively, related to
consolidated trusts)
|
63,960
|
|
|
49,700
|
|
Guarantee and
commitment obligation
|
35,814
|
|
|
37,282
|
|
Accounts payable and
accrued expenses
|
60,407
|
|
|
9,415
|
|
Reserve for
losses
|
1,966
|
|
|
2,020
|
|
Total
Liabilities
|
16,586,456
|
|
|
14,962,373
|
|
Commitments and
Contingencies (Note 6)
|
|
|
|
Equity:
|
|
|
|
Preferred
stock:
|
|
|
|
Series A, par value
$25 per share, 2,400,000 shares authorized, issued and
outstanding
|
58,333
|
|
|
58,333
|
|
Series B, par value
$25 per share, 3,000,000 shares authorized, issued and
outstanding
|
73,044
|
|
|
73,044
|
|
Series C, par value
$25 per share, 3,000,000 shares authorized, issued and
outstanding
|
73,382
|
|
|
73,382
|
|
Common
stock:
|
|
|
|
Class A Voting, $1
par value, no maximum authorization, 1,030,780 shares
outstanding
|
1,031
|
|
|
1,031
|
|
Class B Voting, $1
par value, no maximum authorization, 500,301 shares
outstanding
|
500
|
|
|
500
|
|
Class C Non-Voting,
$1 par value, no maximum authorization, 9,072,644 shares and
9,007,481 shares
outstanding, respectively
|
9,073
|
|
|
9,008
|
|
Additional paid-in
capital
|
118,937
|
|
|
118,655
|
|
Accumulated other
comprehensive income, net of tax
|
42,428
|
|
|
33,758
|
|
Retained
earnings
|
304,201
|
|
|
275,714
|
|
Total Stockholders'
Equity
|
680,929
|
|
|
643,425
|
|
Non-controlling
interest
|
—
|
|
|
222
|
|
Total
Equity
|
680,929
|
|
|
643,647
|
|
Total Liabilities and
Equity
|
$
|
17,267,385
|
|
|
$
|
15,606,020
|
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
For the Three Months
Ended
|
|
For the Six Months
Ended
|
|
June 30,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
|
(in thousands,
except per share amounts)
|
Interest
income:
|
|
|
|
|
|
|
|
Investments and cash
equivalents
|
$
|
8,368
|
|
|
$
|
6,560
|
|
|
$
|
15,611
|
|
|
$
|
13,241
|
|
Farmer Mac Guaranteed
Securities and USDA Securities
|
50,106
|
|
|
37,299
|
|
|
92,628
|
|
|
72,809
|
|
Loans
|
39,573
|
|
|
33,377
|
|
|
76,425
|
|
|
65,077
|
|
Total interest
income
|
98,047
|
|
|
77,236
|
|
|
184,664
|
|
|
151,127
|
|
Total interest
expense
|
58,316
|
|
|
42,878
|
|
|
107,862
|
|
|
83,129
|
|
Net interest
income
|
39,731
|
|
|
34,358
|
|
|
76,802
|
|
|
67,998
|
|
Provision for loan
losses
|
(327)
|
|
|
(364)
|
|
|
(964)
|
|
|
(413)
|
|
Net interest income
after provision for loan losses
|
39,404
|
|
|
33,994
|
|
|
75,838
|
|
|
67,585
|
|
Non-interest
income/(loss):
|
|
|
|
|
|
|
|
Guarantee and
commitment fees
|
3,472
|
|
|
3,655
|
|
|
7,316
|
|
|
7,281
|
|
(Losses)/gains on
financial derivatives and hedging activities
|
(617)
|
|
|
(4,696)
|
|
|
1,869
|
|
|
(11,478)
|
|
(Losses)/gains on
trading securities
|
(2)
|
|
|
394
|
|
|
(84)
|
|
|
752
|
|
Losses on sale of
available-for-sale investment securities
|
—
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
Gains on sale of real
estate owned
|
757
|
|
|
—
|
|
|
752
|
|
|
—
|
|
Other
income
|
134
|
|
|
413
|
|
|
687
|
|
|
514
|
|
Non-interest
income/(loss)
|
3,744
|
|
|
(234)
|
|
|
10,540
|
|
|
(2,940)
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
6,682
|
|
|
5,611
|
|
|
12,999
|
|
|
11,385
|
|
General and
administrative
|
3,921
|
|
|
3,757
|
|
|
7,721
|
|
|
7,283
|
|
Regulatory
fees
|
625
|
|
|
612
|
|
|
1,250
|
|
|
1,225
|
|
Real estate owned
operating costs, net
|
23
|
|
|
—
|
|
|
23
|
|
|
39
|
|
Provision
for/(release of) reserve for losses
|
139
|
|
|
94
|
|
|
(54)
|
|
|
108
|
|
Non-interest
expense
|
11,390
|
|
|
10,074
|
|
|
21,939
|
|
|
20,040
|
|
Income before income
taxes
|
31,758
|
|
|
23,686
|
|
|
64,439
|
|
|
44,605
|
|
Income tax
expense
|
11,124
|
|
|
8,400
|
|
|
21,910
|
|
|
15,735
|
|
Net income
|
20,634
|
|
|
15,286
|
|
|
42,529
|
|
|
28,870
|
|
Less: Net loss
attributable to non-controlling interest
|
150
|
|
|
16
|
|
|
165
|
|
|
44
|
|
Net income
attributable to Farmer Mac
|
20,784
|
|
|
15,302
|
|
|
42,694
|
|
|
28,914
|
|
Preferred stock
dividends
|
(3,296)
|
|
|
(3,296)
|
|
|
(6,591)
|
|
|
(6,591)
|
|
Net income
attributable to common stockholders
|
$
|
17,488
|
|
|
$
|
12,006
|
|
|
$
|
36,103
|
|
|
$
|
22,323
|
|
|
|
|
|
|
|
|
|
Earnings per common
share and dividends:
|
|
|
|
|
|
|
|
Basic earnings per
common share
|
$
|
1.65
|
|
|
$
|
1.15
|
|
|
$
|
3.41
|
|
|
$
|
2.13
|
|
Diluted earnings per
common share
|
$
|
1.62
|
|
|
$
|
1.13
|
|
|
$
|
3.35
|
|
|
$
|
2.07
|
|
Common stock
dividends per common share
|
$
|
0.36
|
|
|
$
|
0.26
|
|
|
$
|
0.72
|
|
|
$
|
0.52
|
|
Reconciliations
A reconciliation of Farmer Mac's net income attributable to
common stockholders to core earnings and core earnings per share
are presented in the following tables along with a breakdown of the
composition of core earnings for the periods indicated:
Reconciliation of Net
Income Attributable to Common Stockholders to Core
Earnings
|
|
For the Three Months
Ended
|
|
June 30,
2017
|
|
March 31,
2017
|
|
June 30,
2016
|
|
(in thousands, except per share amounts)
|
Net income
attributable to common stockholders
|
$
|
17,488
|
|
|
$
|
18,615
|
|
|
$
|
12,006
|
|
Less reconciling
items:
|
|
|
|
|
|
Gains/(losses) on
financial derivatives and hedging activities due to
fair value changes
|
2,221
|
|
|
4,805
|
|
|
(2,076)
|
|
Unrealized
(losses)/gains on trading securities
|
(2)
|
|
|
(82)
|
|
|
394
|
|
Amortization of
premiums/discounts and deferred gains on assets
consolidated at fair value
|
(117)
|
|
|
(127)
|
|
|
(371)
|
|
Net effects of
settlements on agency forward contracts
|
261
|
|
|
32
|
|
|
466
|
|
Income tax effect
related to reconciling items
|
(827)
|
|
|
(1,620)
|
|
|
556
|
|
Sub-total
|
1,536
|
|
|
3,008
|
|
|
(1,031)
|
|
Core
earnings
|
$
|
15,952
|
|
|
$
|
15,607
|
|
|
$
|
13,037
|
|
|
|
|
|
|
|
Composition of Core
Earnings:
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Net effective
spread(1)
|
$
|
35,610
|
|
|
$
|
32,866
|
|
|
$
|
31,026
|
|
Guarantee and
commitment fees(2)
|
4,942
|
|
|
5,317
|
|
|
4,810
|
|
Other(3)
|
(197)
|
|
|
1,061
|
|
|
(125)
|
|
Total
revenues
|
40,355
|
|
|
39,244
|
|
|
35,711
|
|
|
|
|
|
|
|
Credit related
(income)/expense (GAAP):
|
|
|
|
|
|
Provision for
losses
|
466
|
|
|
444
|
|
|
458
|
|
REO operating
expenses
|
23
|
|
|
—
|
|
|
—
|
|
(Gains)/losses on
sale of REO
|
(757)
|
|
|
5
|
|
|
—
|
|
Total credit related
(income)/expense
|
(268)
|
|
|
449
|
|
|
458
|
|
|
|
|
|
|
|
Operating expenses
(GAAP):
|
|
|
|
|
|
Compensation and
employee benefits
|
6,682
|
|
|
6,317
|
|
|
5,611
|
|
General and
administrative
|
3,921
|
|
|
3,800
|
|
|
3,757
|
|
Regulatory
fees
|
625
|
|
|
625
|
|
|
612
|
|
Total operating
expenses
|
11,228
|
|
|
10,742
|
|
|
9,980
|
|
|
|
|
|
|
|
Net
earnings
|
29,395
|
|
|
28,053
|
|
|
25,273
|
|
Income tax
expense(4)
|
10,297
|
|
|
9,166
|
|
|
8,956
|
|
Net loss attributable
to non-controlling interest (GAAP)
|
(150)
|
|
|
(15)
|
|
|
(16)
|
|
Preferred stock
dividends (GAAP)
|
3,296
|
|
|
3,295
|
|
|
3,296
|
|
Core
earnings
|
$
|
15,952
|
|
|
$
|
15,607
|
|
|
$
|
13,037
|
|
|
|
|
|
|
|
Core earnings per
share:
|
|
|
|
|
|
Basic
|
$
|
1.50
|
|
|
$
|
1.48
|
|
|
$
|
1.25
|
|
Diluted
|
1.48
|
|
|
1.45
|
|
|
1.23
|
|
(1)
|
Net effective spread
is a non-GAAP measure. See below for a reconciliation of net
interest income to net effective spread.
|
(2)
|
Includes interest
income and interest expense related to consolidated trusts owned by
third parties reclassified from net interest income to guarantee
and commitment fees to reflect management's view that the net
interest income Farmer Mac earns is effectively a guarantee fee on
the consolidated Farmer Mac Guaranteed Securities.
|
(3)
|
Reflects reconciling
adjustments for the reclassification to exclude expenses related to
interest rate swaps not designated as hedges and fair value
adjustments on financial derivatives and trading assets and a
reconciling adjustment to exclude the recognition of deferred gains
over the estimated lives of certain Farmer Mac Guaranteed
Securities and USDA Securities. Second quarter 2017 includes
$0.3 million of fees received upon the inception of swaps and $0.6
million of hedging losses, respectively, compared to $1.0 million
of fees received upon the inception of swaps and $0.5 million of
hedging losses, respectively, in first quarter 2017, and no fees
received and $0.6 million of hedging losses, respectively, in
second quarter 2016.
|
(4)
|
Includes the tax
impact of non-GAAP reconciling items between net income
attributable to common stockholders and core earnings. First and
second quarter 2017 includes $0.7 million and $0.2 million of tax
benefits, respectively, upon the vesting of restricted stock and
the exercise of SARs under new accounting guidance for stock-based
awards that became effective in first quarter
|
Reconciliation of Net
Income Attributable to Common Stockholders to Core
Earnings
|
|
For the Six Months
Ended
|
|
June 30,
2017
|
|
June 30,
2016
|
|
(in thousands,
except per share amounts)
|
Net income
attributable to common stockholders
|
$
|
36,103
|
|
|
$
|
22,323
|
|
Less reconciling
items:
|
|
|
|
Gains/(losses) on
financial derivatives and hedging activities due to fair value
changes
|
7,026
|
|
|
(5,065)
|
|
Unrealized
(losses)/gains on trading securities
|
(84)
|
|
|
752
|
|
Amortization of
premiums/discounts and deferred gains on assets consolidated at
fair value
|
(244)
|
|
|
(652)
|
|
Net effects of
settlements on agency forward contracts
|
293
|
|
|
211
|
|
Income tax effect
related to reconciling items
|
(2,447)
|
|
|
1,665
|
|
Sub-total
|
4,544
|
|
|
(3,089)
|
|
Core
earnings
|
$
|
31,559
|
|
|
$
|
25,412
|
|
|
|
|
|
Composition of Core
Earnings:
|
|
|
|
Revenues:
|
|
|
|
Net effective
spread(1)
|
$
|
68,476
|
|
|
$
|
60,975
|
|
Guarantee and
commitment fees(2)
|
10,259
|
|
|
9,479
|
|
Other(3)
|
864
|
|
|
(642)
|
|
Total
revenues
|
79,599
|
|
|
69,812
|
|
|
|
|
|
Credit related
expense (GAAP):
|
|
|
|
Provision for
losses
|
910
|
|
|
521
|
|
REO operating
expenses
|
23
|
|
|
39
|
|
Gains on sale of
REO
|
(752)
|
|
|
—
|
|
Total credit related
expense
|
181
|
|
|
560
|
|
|
|
|
|
Operating expenses
(GAAP):
|
|
|
|
Compensation and
employee benefits
|
12,999
|
|
|
11,385
|
|
General and
administrative
|
7,721
|
|
|
7,283
|
|
Regulatory
fees
|
1,250
|
|
|
1,225
|
|
Total operating
expenses
|
21,970
|
|
|
19,893
|
|
|
|
|
|
Net
earnings
|
57,448
|
|
|
49,359
|
|
Income tax
expense(4)
|
19,463
|
|
|
17,400
|
|
Net loss attributable
to non-controlling interest (GAAP)
|
(165)
|
|
|
(44)
|
|
Preferred stock
dividends (GAAP)
|
6,591
|
|
|
6,591
|
|
Core
earnings
|
$
|
31,559
|
|
|
$
|
25,412
|
|
|
|
|
|
Core earnings per
share:
|
|
|
|
Basic
|
$
|
2.98
|
|
|
$
|
2.43
|
|
Diluted
|
2.93
|
|
|
2.35
|
|
(1)
|
Net effective spread
is a non-GAAP measure. See below for a reconciliation
of net interest income to net effective spread.
|
(2)
|
Includes interest
income and interest expense related to consolidated trusts owned by
third parties reclassified from net interest income to guarantee
and commitment fees to reflect management's view that the net
interest income Farmer Mac earns is effectively a guarantee fee on
the consolidated Farmer Mac Guaranteed Securities.
|
(3)
|
Reflects reconciling
adjustments for the reclassification to exclude expenses related to
interest rate swaps not designated as hedges and fair value
adjustments on financial derivatives and trading assets and a
reconciling adjustment to exclude the recognition of deferred gains
over the estimated lives of certain Farmer Mac Guaranteed
Securities and USDA Securities. The first six months of 2017
includes $1.3 million of fees received upon the inception of swaps
and $1.1 million of hedging losses, compared to $0.1 million of
fees received and $1.5 million of hedging losses, respectively, in
the first six months of 2016.
|
(4)
|
Includes the tax
impact of non-GAAP reconciling items between net income
attributable to common stockholders and core earnings. The first
half of 2017 includes $0.8 million of tax benefits upon the vesting
of restricted stock and the exercise of SARs under new accounting
guidance for stock-based awards that became effective in first
quarter 2017.
|
Reconciliation of
GAAP Basic Earnings Per Share to Core Earnings Basic Earnings Per
Share
|
|
For the Three Months
Ended
|
|
For the Six Months
Ended
|
|
June 30,
2017
|
|
March 31,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
|
(in thousands,
except per share amounts)
|
GAAP - Basic
EPS
|
$
|
1.65
|
|
|
$
|
1.76
|
|
|
$
|
1.15
|
|
|
$
|
3.41
|
|
|
$
|
2.13
|
|
Less reconciling
items:
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on
financial derivatives and hedging
activities due to fair value changes
|
0.22
|
|
|
0.45
|
|
|
(0.19)
|
|
|
0.65
|
|
|
(0.49)
|
|
Unrealized
(losses)/gains on trading securities
|
—
|
|
|
(0.01)
|
|
|
0.04
|
|
|
(0.01)
|
|
|
0.07
|
|
Amortization of
premiums/discounts and deferred gains
on assets consolidated at fair value
|
(0.01)
|
|
|
(0.01)
|
|
|
(0.04)
|
|
|
(0.02)
|
|
|
(0.06)
|
|
Net effects of
settlements on agency forward contracts
|
0.02
|
|
|
—
|
|
|
0.04
|
|
|
0.03
|
|
|
0.02
|
|
Income tax effect
related to reconciling items
|
(0.08)
|
|
|
(0.15)
|
|
|
0.05
|
|
|
(0.23)
|
|
|
0.16
|
|
Sub-total
|
0.15
|
|
|
0.28
|
|
|
(0.10)
|
|
|
0.42
|
|
|
(0.30)
|
|
Core Earnings - Basic
EPS
|
$
|
1.50
|
|
|
$
|
1.48
|
|
|
$
|
1.25
|
|
|
$
|
2.99
|
|
|
$
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per
share calculation (GAAP and Core
Earnings)
|
10,600
|
|
|
10,551
|
|
|
10,456
|
|
|
10,576
|
|
|
10,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings
Per Share
|
|
For the Three Months
Ended
|
|
For the Six Months
Ended
|
|
June 30,
2017
|
|
March 31,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
|
(in thousands,
except per share amounts)
|
GAAP - Diluted
EPS
|
$
|
1.62
|
|
|
$
|
1.73
|
|
|
$
|
1.13
|
|
|
$
|
3.35
|
|
|
$
|
2.07
|
|
Less reconciling
items:
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on
financial derivatives and hedging
activities due to fair value changes
|
0.21
|
|
|
0.45
|
|
|
(0.20)
|
|
|
0.65
|
|
|
(0.46)
|
|
Unrealized
(losses)/gains on trading securities
|
—
|
|
|
(0.01)
|
|
|
0.04
|
|
|
(0.01)
|
|
|
0.07
|
|
Amortization of
premiums/discounts and deferred gains
on assets consolidated at fair value
|
(0.01)
|
|
|
(0.01)
|
|
|
(0.03)
|
|
|
(0.02)
|
|
|
(0.06)
|
|
Net effects of
settlements on agency forward contracts
|
0.02
|
|
|
—
|
|
|
0.04
|
|
|
0.03
|
|
|
0.02
|
|
Income tax effect
related to reconciling items
|
(0.08)
|
|
|
(0.15)
|
|
|
0.05
|
|
|
(0.23)
|
|
|
0.15
|
|
Sub-total
|
0.14
|
|
|
0.28
|
|
|
(0.10)
|
|
|
0.42
|
|
|
(0.28)
|
|
Core Earnings -
Diluted EPS
|
$
|
1.48
|
|
|
$
|
1.45
|
|
|
$
|
1.23
|
|
|
$
|
2.93
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per
share calculation (GAAP and Core Earnings)
|
10,783
|
|
|
10,782
|
|
|
10,614
|
|
|
10,783
|
|
|
10,808
|
|
The following table presents a reconciliation of net interest
income and net yield to net effective spread for the periods
indicated:
Reconciliation of
GAAP Net Interest Income/Yield to Net Effective Spread
|
|
For the Three Months
Ended
|
|
For the Six Months
Ended
|
|
June 30,
2017
|
|
March 31,
2017
|
|
June 30,
2016
|
|
June 30,
2017
|
|
June 30,
2016
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
(dollars in
thousands)
|
Net interest
income/yield
|
$
|
39,731
|
|
0.95%
|
|
$
|
37,071
|
|
0.96%
|
|
$
|
34,358
|
|
0.88%
|
|
$
|
76,802
|
|
0.95%
|
|
$
|
67,998
|
|
0.88%
|
Net effects of
consolidated trusts
|
(1,470)
|
|
0.04%
|
|
(1,472)
|
|
|
0.03%
|
|
(1,155)
|
|
|
0.02%
|
|
(2,942)
|
|
0.04%
|
|
(2,199)
|
|
|
0.02%
|
Expense related to
undesignated
financial derivatives
|
(2,775)
|
|
(0.07)%
|
|
(2,867)
|
|
(0.08)%
|
|
(2,509)
|
|
(0.07)%
|
|
|
(5,642)
|
|
|
(0.07)%
|
|
(5,178)
|
|
(0.07)%
|
Amortization of
premiums/discounts on assets
consolidated at fair value
|
|
124
|
|
|
—%
|
|
|
134
|
|
—%
|
|
|
332
|
|
0.01%
|
|
|
258
|
|
|
—%
|
|
|
354
|
|
|
—%
|
Net effective
spread
|
$
|
35,610
|
|
0.92%
|
|
$
|
32,866
|
|
0.91%
|
|
$
|
31,026
|
|
0.84%
|
|
$
|
68,476
|
|
0.92%
|
|
$
|
60,975
|
|
0.83%
|
The following table presents core earnings for Farmer Mac's
reportable operating segments and a reconciliation to consolidated
net income for the three months ended June
30, 2017:
Core Earnings by
Business Segment
|
For the Three Months
Ended June 30, 2017
|
|
Farm &
Ranch
|
|
USDA
Guarantees
|
|
Rural
Utilities
|
|
Institutional
Credit
|
|
Corporate
|
|
Reconciling
Adjustments
|
|
Consolidated
Net Income
|
|
(in
thousands)
|
Net interest
income
|
$
|
13,338
|
|
|
$
|
5,176
|
|
|
$
|
3,003
|
|
|
$
|
15,431
|
|
|
$
|
2,783
|
|
|
$
|
—
|
|
|
$
|
39,731
|
|
Less: reconciling
adjustments(1)(2)(3)
|
(2,007)
|
|
|
(495)
|
|
|
(267)
|
|
|
(1,036)
|
|
|
(316)
|
|
|
4,121
|
|
|
—
|
|
Net effective
spread
|
11,331
|
|
|
4,681
|
|
|
2,736
|
|
|
14,395
|
|
|
2,467
|
|
|
4,121
|
|
|
—
|
|
Guarantee and
commitment fees(2)
|
4,191
|
|
|
99
|
|
|
487
|
|
|
165
|
|
|
—
|
|
|
(1,470)
|
|
|
3,472
|
|
Other
income/(expense)(3)(4)
|
994
|
|
|
11
|
|
|
5
|
|
|
—
|
|
|
(450)
|
|
|
(288)
|
|
|
272
|
|
Non-interest
income/(loss)
|
5,185
|
|
|
110
|
|
|
492
|
|
|
165
|
|
|
(450)
|
|
|
(1,758)
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses
|
(327)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(327)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for reserve
for losses
|
(139)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(139)
|
|
Other non-interest
expense
|
(4,446)
|
|
|
(1,166)
|
|
|
(643)
|
|
|
(1,622)
|
|
|
(3,374)
|
|
|
—
|
|
|
(11,251)
|
|
Non-interest
expense(5)
|
(4,585)
|
|
|
(1,166)
|
|
|
(643)
|
|
|
(1,622)
|
|
|
(3,374)
|
|
|
—
|
|
|
(11,390)
|
|
Core earnings before
income taxes
|
11,604
|
|
|
3,625
|
|
|
2,585
|
|
|
12,938
|
|
|
(1,357)
|
|
|
2,363
|
|
(6)
|
31,758
|
|
Income tax
(expense)/benefit
|
(4,061)
|
|
|
(1,269)
|
|
|
(905)
|
|
|
(4,528)
|
|
|
466
|
|
|
(827)
|
|
|
(11,124)
|
|
Core earnings before
preferred stock dividends and attribution of income to
non-controlling interest
|
7,543
|
|
|
2,356
|
|
|
1,680
|
|
|
8,410
|
|
|
(891)
|
|
|
1,536
|
|
(6)
|
20,634
|
|
Preferred stock
dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,296)
|
|
|
—
|
|
|
(3,296)
|
|
Non-controlling
interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
150
|
|
Segment core
earnings/(losses)
|
$
|
7,543
|
|
|
$
|
2,356
|
|
|
$
|
1,680
|
|
|
$
|
8,410
|
|
|
$
|
(4,037)
|
|
|
$
|
1,536
|
|
(6)
|
$
|
17,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at
carrying value
|
$
|
3,958,344
|
|
|
$
|
2,141,569
|
|
|
$
|
1,038,383
|
|
|
$
|
7,425,774
|
|
|
$
|
2,703,315
|
|
|
$
|
—
|
|
|
$
|
17,267,385
|
|
Total on- and
off-balance sheet program assets at principal balance
|
$
|
6,426,518
|
|
|
$
|
2,237,013
|
|
|
$
|
1,883,909
|
|
|
$
|
7,711,418
|
|
|
|
|
—
|
|
|
$
|
18,258,858
|
|
(1)
|
Excludes the
amortization of premiums and discounts on assets consolidated at
fair value, originally included in interest income, to reflect core
earnings
amounts.
|
(2)
|
Includes the
reclassification of interest income and interest expense from
consolidated trusts owned by third parties to guarantee and
commitment fees, to reflect management's view that the net interest
income Farmer Mac earns is effectively a guarantee fee.
|
(3)
|
Includes the
reclassification of interest expense related to interest rate swaps
not designated as hedges, which are included in "Gains/(losses) on
financial derivatives and hedging activities" on the consolidated
financial statements, to determine the effective funding cost for
each operating segment.
|
(4)
|
Includes reconciling
adjustments for fair value adjustments on financial derivatives and
trading assets. Also includes a reconciling adjustment related to
the recognition of deferred gains over the estimated lives of
certain Farmer Mac Guaranteed Securities and USDA Securities. In
2016 and prior periods, fair value adjustments on financial
derivatives included variation margin payment amounts because those
amounts were considered to be collateral of the related exposure
and were accounted for as unrealized gains or losses. However,
effective first quarter 2017, CME implemented a change in its rules
related to the exchange of variation margin, whereby variation
margin payments are considered a partial settlement of the
respective derivatives contracts rather than as pledged collateral,
and accounted for as realized gains and losses. Farmer Mac believes
that even though these variation margin amounts are now accounted
for as realized gains or losses on financial derivatives and
hedging activities as a result of the CME rule change, their
economic character will remain the same as they were before the
change. The exchange of variation margin, whether considered a
partial settlement of or the pledge of collateral under a
derivatives contract, is not expected to have a cumulative net
impact on Farmer Mac's financial condition or results of operations
reported in accordance with GAAP because the related financial
instruments are expected to be held to maturity. Therefore,
beginning in 2017, this reconciling adjustment includes realized
gains and losses on financial derivatives centrally cleared through
CME resulting from the exchange of variation margin. As a result,
core earnings subsequent to 2016 will be presented on a consistent
basis with core earnings in 2016 and prior periods.
|
(5)
|
Includes directly
attributable costs and an allocation of indirectly attributable
costs based on staffing.
|
(6)
|
Net adjustments
to reconcile to the corresponding income measures: core earnings
before income taxes reconciled to income before income taxes; core
earnings before preferred stock dividends and attribution of income
to non-controlling interest reconciled to net income; and segment
core earnings reconciled to net income attributable to common
stockholders.
|
Supplemental Information
The following table sets forth information regarding outstanding
volume in each of Farmer Mac's four lines of business as of the
dates indicated:
Lines of Business -
Outstanding Business Volume
|
|
As of June 30,
2017
|
|
As of December 31,
2016
|
|
(in thousands)
|
On-balance
sheet:
|
|
|
|
Farm &
Ranch:
|
|
|
|
Loans
|
$
|
2,641,850
|
|
|
$
|
2,381,488
|
|
Loans held in
trusts:
|
|
|
|
Beneficial interests
owned by third party investors
|
1,240,624
|
|
|
1,132,966
|
|
USDA
Guarantees:
|
|
|
|
USDA
Securities
|
2,014,241
|
|
|
1,954,800
|
|
Farmer Mac Guaranteed
USDA Securities
|
36,516
|
|
|
35,599
|
|
Rural
Utilities:
|
|
|
|
Loans
|
1,024,130
|
|
|
999,512
|
|
Institutional
Credit
|
|
|
|
AgVantage
Securities(1)
|
7,398,204
|
|
|
6,004,472
|
|
Total on-balance
sheet
|
$
|
14,355,565
|
|
|
$
|
12,508,837
|
|
Off-balance
sheet:
|
|
|
|
Farm &
Ranch:
|
|
|
|
LTSPCs
|
2,176,625
|
|
|
2,209,409
|
|
Guaranteed
Securities
|
367,419
|
|
|
415,441
|
|
USDA
Guarantees:
|
|
|
|
Farmer Mac Guaranteed
USDA Securities
|
186,256
|
|
|
103,976
|
|
Rural
Utilities:
|
|
|
|
LTSPCs(2)
|
859,779
|
|
|
878,598
|
|
Institutional
Credit:
|
|
|
|
AgVantage
Securities(1)
|
13,214
|
|
|
983,214
|
|
AgVantage Revolving
Line of Credit Facility(3)
|
300,000
|
|
|
300,000
|
|
Total off-balance
sheet
|
$
|
3,903,293
|
|
|
$
|
4,890,638
|
|
Total
|
$
|
18,258,858
|
|
|
$
|
17,399,475
|
|
(1)
|
In April 2017, Farmer
Mac purchased and retained $1.0 billion in AgVantage securities
from MetLife. MetLife used the proceeds from Farmer Mac's purchase
of $1.0 billion in AgVantage securities to refinance an AgVantage
security of the same amount that matured in April 2017.
Previously, $970.0 million of the maturing $1.0 billion AgVantage
security had been sold to third parties and reported as off-balance
sheet business volume in the Institutional Credit line of
business.
|
(2)
|
As of both
June 30, 2017 and December 31 2016, includes $20.0 million
related to one-year loan purchase commitments
on which Farmer Mac receives a nominal unused commitment
fee.
|
(3)
|
During the first half
of 2017, $100.0 million of this facility was drawn and subsequently
repaid. As of December 31, 2016, this facility had not been
utilized. Farmer Mac receives a fixed fee based on the full
dollar amount of the facility. If the counterparty draws on
the facility, the amounts drawn will be in the form of AgVantage
securities, and Farmer Mac will earn interest income on those
securities.
|
The following table presents the quarterly net effective spread
by segment:
|
Net Effective Spread
by Line of Business
|
|
|
|
Farm &
Ranch
|
|
USDA
Guarantees
|
|
Rural
Utilities
|
|
Institutional
Credit
|
|
Corporate
|
|
Net Effective
Spread
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
(dollars in
thousands)
|
For the quarter
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017(1)
|
$
|
11,331
|
|
|
1.80
|
%
|
|
$
|
4,681
|
|
|
0.90
|
%
|
|
$
|
2,736
|
|
|
1.09
|
%
|
|
$
|
14,395
|
|
|
0.81
|
%
|
|
$
|
2,467
|
|
|
0.35
|
%
|
|
$
|
35,610
|
|
|
0.92
|
%
|
March 31,
2017
|
10,684
|
|
|
1.80
|
%
|
|
4,703
|
|
|
0.91
|
%
|
|
2,639
|
|
|
1.06
|
%
|
|
12,581
|
|
|
0.82
|
%
|
|
2,259
|
|
|
0.32
|
%
|
|
32,866
|
|
|
0.91
|
%
|
December 31,
2016
|
10,349
|
|
|
1.78
|
%
|
|
5,334
|
|
|
1.08
|
%
|
|
2,623
|
|
|
1.05
|
%
|
|
11,627
|
|
|
0.78
|
%
|
|
1,995
|
|
|
0.26
|
%
|
|
31,928
|
|
|
0.89
|
%
|
September 30,
2016
|
10,703
|
|
|
1.90
|
%
|
|
5,189
|
|
|
1.07
|
%
|
|
2,643
|
|
|
1.05
|
%
|
|
11,427
|
|
|
0.75
|
%
|
|
2,237
|
|
|
0.24
|
%
|
|
32,199
|
|
|
0.86
|
%
|
June 30,
2016
|
9,875
|
|
|
1.78
|
%
|
|
4,588
|
|
|
0.96
|
%
|
|
2,562
|
|
|
1.03
|
%
|
|
11,407
|
|
|
0.77
|
%
|
|
2,594
|
|
|
0.29
|
%
|
|
31,026
|
|
|
0.84
|
%
|
March 31,
2016
|
9,461
|
|
|
1.71
|
%
|
|
4,308
|
|
|
0.91
|
%
|
|
2,538
|
|
|
1.02
|
%
|
|
11,090
|
|
|
0.80
|
%
|
|
2,552
|
|
|
0.26
|
%
|
|
29,949
|
|
|
0.82
|
%
|
December 31,
2015
|
9,381
|
|
|
1.72
|
%
|
|
4,518
|
|
|
0.96
|
%
|
|
2,845
|
|
|
1.14
|
%
|
|
10,899
|
|
|
0.80
|
%
|
|
2,306
|
|
|
0.26
|
%
|
|
29,949
|
|
|
0.85
|
%
|
September 30,
2015
|
9,628
|
|
|
1.80
|
%
|
|
4,630
|
|
|
0.99
|
%
|
|
2,907
|
|
|
1.18
|
%
|
|
11,271
|
|
|
0.81
|
%
|
|
1,951
|
|
|
0.25
|
%
|
|
30,387
|
|
|
0.88
|
%
|
June 30,
2015
|
9,681
|
|
|
1.82
|
%
|
|
4,466
|
|
|
0.98
|
%
|
|
2,838
|
|
|
1.18
|
%
|
|
10,860
|
|
|
0.78
|
%
|
|
1,942
|
|
|
0.25
|
%
|
|
29,787
|
|
|
0.88
|
%
|
(1)
|
Net effective spread
is a non-GAAP measure. See "Non-GAAP Measures" for a
reconciliation of GAAP net interest income by line of business to
net effective
spread by line of business.
|
The following table presents quarterly core earnings reconciled
to net income attributable to common stockholders:
Core Earnings by
Quarter Ended
|
|
June
2017
|
|
March
2017
|
|
December
2016
|
|
September
2016
|
|
June
2016
|
|
March
2016
|
|
December
2015
|
|
September
2015
|
|
June
2015
|
|
(in
thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effective
spread
|
$
|
35,610
|
|
|
$
|
32,866
|
|
|
$
|
31,928
|
|
|
$
|
32,199
|
|
|
$
|
31,026
|
|
|
$
|
29,949
|
|
|
$
|
29,949
|
|
|
$
|
30,387
|
|
|
$
|
29,787
|
|
Guarantee and
commitment fees
|
4,942
|
|
|
5,317
|
|
|
5,158
|
|
|
4,533
|
|
|
4,810
|
|
|
4,669
|
|
|
4,730
|
|
|
4,328
|
|
|
4,085
|
|
Other
|
(197)
|
|
|
1,061
|
|
|
1,189
|
|
|
(32)
|
|
|
(125)
|
|
|
(517)
|
|
|
(284)
|
|
|
(93)
|
|
|
(24)
|
|
Total
revenues
|
40,355
|
|
|
39,244
|
|
|
38,275
|
|
|
36,700
|
|
|
35,711
|
|
|
34,101
|
|
|
34,395
|
|
|
34,622
|
|
|
33,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit related
(income)/expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for/(release of) losses
|
466
|
|
|
444
|
|
|
512
|
|
|
(31)
|
|
|
458
|
|
|
63
|
|
|
(49)
|
|
|
(303)
|
|
|
1,256
|
|
REO operating
expenses
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
44
|
|
|
48
|
|
|
—
|
|
(Gains)/losses on
sale of REO
|
(757)
|
|
|
5
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total credit
related
(income)/expense
|
(268)
|
|
|
449
|
|
|
512
|
|
|
(46)
|
|
|
458
|
|
|
102
|
|
|
(5)
|
|
|
(255)
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
employee
benefits
|
6,682
|
|
|
6,317
|
|
|
5,949
|
|
|
5,438
|
|
|
5,611
|
|
|
5,774
|
|
|
5,385
|
|
|
5,236
|
|
|
5,733
|
|
General and
administrative
|
3,921
|
|
|
3,800
|
|
|
4,352
|
|
|
3,474
|
|
|
3,757
|
|
|
3,526
|
|
|
3,238
|
|
|
3,676
|
|
|
3,374
|
|
Regulatory
fees
|
625
|
|
|
625
|
|
|
625
|
|
|
613
|
|
|
612
|
|
|
613
|
|
|
613
|
|
|
600
|
|
|
600
|
|
Total operating
expenses
|
11,228
|
|
|
10,742
|
|
|
10,926
|
|
|
9,525
|
|
|
9,980
|
|
|
9,913
|
|
|
9,236
|
|
|
9,512
|
|
|
9,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
29,395
|
|
|
28,053
|
|
|
26,837
|
|
|
27,221
|
|
|
25,273
|
|
|
24,086
|
|
|
25,164
|
|
|
25,365
|
|
|
22,885
|
|
Income tax
expense(1)
|
10,297
|
|
|
9,166
|
|
|
9,581
|
|
|
9,497
|
|
|
8,956
|
|
|
8,444
|
|
|
8,855
|
|
|
8,924
|
|
|
8,091
|
|
Net (loss)/income
attributable to non-
controlling interest
|
(150)
|
|
|
(15)
|
|
|
28
|
|
|
(18)
|
|
|
(16)
|
|
|
(28)
|
|
|
(60)
|
|
|
(36)
|
|
|
(119)
|
|
Preferred stock
dividends
|
3,296
|
|
|
3,295
|
|
|
3,296
|
|
|
3,295
|
|
|
3,296
|
|
|
3,295
|
|
|
3,296
|
|
|
3,295
|
|
|
3,296
|
|
Core
earnings
|
$
|
15,952
|
|
|
$
|
15,607
|
|
|
$
|
13,932
|
|
|
$
|
14,447
|
|
|
$
|
13,037
|
|
|
$
|
12,375
|
|
|
$
|
13,073
|
|
|
$
|
13,182
|
|
|
$
|
11,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on
financial
derivatives and hedging activities
due to fair value changes
|
2,221
|
|
|
4,805
|
|
|
17,233
|
|
|
1,460
|
|
|
(2,076)
|
|
|
(2,989)
|
|
|
2,743
|
|
|
(6,906)
|
|
|
15,982
|
|
Unrealized
(losses)/gains on
trading assets
|
(2)
|
|
|
(82)
|
|
|
(474)
|
|
|
1,182
|
|
|
394
|
|
|
358
|
|
|
696
|
|
|
(8)
|
|
|
170
|
|
Amortization of
premiums/discounts and deferred
gains on assets consolidated at fair value
|
(117)
|
|
|
(127)
|
|
|
(40)
|
|
|
(157)
|
|
|
(371)
|
|
|
(281)
|
|
|
(263)
|
|
|
(117)
|
|
|
(125)
|
|
Net effects of
settlements on
agency forward contracts
|
261
|
|
|
32
|
|
|
1,024
|
|
|
464
|
|
|
466
|
|
|
(255)
|
|
|
(162)
|
|
|
(390)
|
|
|
197
|
|
Income tax effect
related to
reconciling items
|
(827)
|
|
|
(1,620)
|
|
|
(6,210)
|
|
|
(1,032)
|
|
|
556
|
|
|
1,109
|
|
|
(1,055)
|
|
|
2,598
|
|
|
(5,679)
|
|
Net income
attributable to
common stockholders
|
$
|
17,488
|
|
|
$
|
18,615
|
|
|
$
|
25,465
|
|
|
$
|
16,364
|
|
|
$
|
12,006
|
|
|
$
|
10,317
|
|
|
$
|
15,032
|
|
|
$
|
8,359
|
|
|
$
|
22,162
|
|
(1)
|
First quarter 2017
includes $0.7 million of tax benefits upon the vesting of
restricted stock and the exercise of SARs associated with new
accounting
guidance for stock-based awards that became effective in first
quarter 2017.
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/farmer-mac-reports-second-quarter-2017-financial-results-300501607.html
SOURCE Farmer Mac