WASHINGTON, Nov. 9, 2017 /PRNewswire/ -- The Federal
Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A)
today announced its results for the fiscal quarter ended
September 30, 2017, which included
$385.4 million in net new business
volume growth that brought total outstanding business volume to
$18.6 billion as of September 30, 2017. Farmer Mac's net income
attributable to common stockholders for third quarter 2017 was
$18.5 million ($1.71 per diluted common share), compared to
$17.5 million ($1.62 per diluted common share) in second
quarter 2017 and $16.4 million
($1.54 per diluted common share) in
third quarter 2016. Farmer Mac's third quarter 2017 core
earnings, a non-GAAP measure, were $17.0 million ($1.57 per diluted common share), compared to
$16.0 million ($1.48 per diluted common share) in second quarter
2017 and $14.4 million ($1.36 per diluted common share) in third quarter
2016.
"Disciplined execution on our strategy, our success in business
development efforts, and current industry dynamics that play to our
strengths continue to help produce strong results for Farmer Mac,"
said President and Chief Executive Officer Tim Buzby. "Our third quarter 2017 results
reflect these factors, as outstanding business volume reached a new
record high of $18.6 billion and core
earnings per share grew 15 percent year-over-year. We saw
good business volume performance across all four of our lines of
business, as growth in the agricultural credit market has remained
strong throughout 2017. Some of Farmer Mac's credit metrics
continued to show signs of normalization this quarter, although the
modest deterioration was primarily due to borrower-specific
factors. Farmer Mac continues to deliver upon its mission
throughout agricultural economic cycles, and this has never been
more true than throughout the last two years."
Earnings
Farmer Mac's net income attributable to common stockholders for
third quarter 2017 was $18.5 million ($1.71 per diluted common share), compared to
$16.4 million ($1.54 per diluted common share) for third quarter
2016. The $2.1 million increase
compared to third quarter 2016 was driven by an increase in net
interest income of $2.6 million,
after tax. Also contributing to the year-over-year increase was a
$0.8 million after-tax increase in
gains in fair value of financial derivatives and hedged assets. The
increase was offset in part by a $0.8
million after-tax decrease in unrealized gains in fair value
of trading securities and a $0.6
million after-tax increase in non-interest expense.
The increase in non-interest expense was primarily attributable to
higher general and administrative ("G&A") and compensation and
employee benefits expenses.
Core earnings in third quarter 2017 were $17.0 million ($1.57 per diluted common share), compared to
$16.0 million ($1.48 per diluted common share) in second quarter
2017 and $14.4 million ($1.36 per diluted common share) in third quarter
2016. The $1.0 million
sequential increase in core earnings was primarily driven by an
after-tax decrease of $0.5 million in
compensation and employee benefits expenses caused by the absence
in third quarter 2017 of payouts of annual variable incentive
compensation that occurred during second quarter 2017. Also
contributing to the sequential increase was a $0.4 million after-tax increase in net effective
spread.
The $2.6 million year-over-year
increase in core earnings was primarily attributable to (1) a
$2.6 million after-tax increase in
net effective spread; (2) a $0.3
million increase in tax benefits recognized from exercises
of stock-based awards in third quarter 2017 which did not occur in
third quarter 2016; and (3) a $0.3
million after-tax increase in other income, primarily driven
by a decrease in hedging costs. Partially offsetting the
year-over-year increase was a $0.6
million after-tax increase in operating expenses
attributable to both an increase in compensation and employee
benefits and G&A expenses.
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 third quarter 2017, Farmer Mac added $0.9 billion of new business volume, compared to
$1.1 billion in third quarter
2016. Specifically, Farmer Mac:
- purchased $298.3 million of newly
originated Farm & Ranch loans;
- purchased $291.0 million of
AgVantage securities;
- added $102.8 million of Farm
& Ranch loans under LTSPCs;
- purchased $90.2 million of USDA
Securities;
- purchased $70.0 million of Rural
Utilities loans; and
- issued $41.1 million of Farmer
Mac Guaranteed USDA Securities
After $507.9 million of maturities
and principal paydowns on existing business during third quarter
2017, Farmer Mac's outstanding business volume increased by
$385.4 million from June 30, 2017 to $18.6 billion as of September 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.
The $190.4 million net increase in
AgVantage securities for third quarter 2017 resulted from purchases
of $225.0 million from Rabo
AgriFinance LLC ("Rabo") and of $66.0
million from smaller institutional customers, including
first-time transactions with two new counterparties. The
purchases from Rabo resulted in net portfolio growth of
$175.0 million and reflect the first
time that Rabo has used Farmer Mac's AgVantage funding for its
shorter-term (less than one year) funding needs. Farmer Mac grew
its Farm & Ranch loan portfolio by $186.4 million during third quarter 2017, which
was primarily driven by an increase in the average size of loans
purchased, including several large loans with large
borrowers. This growth outpaced the seasonally large amount
of repayments that resulted from a July
1 payment date on most loans within the Farm & Ranch
portfolio. The $61.9 million net
increase in USDA Securities reflected an increase in USDA
Securities securitized and sold to lenders in the form of Farmer
Mac Guaranteed USDA Securities. Farmer Mac grew its Rural Utilities
loan portfolio by $42.4 million,
which was primarily due to the purchases of a few larger loans in
competitive situations as a result of an improvement in Farmer
Mac's pricing on these types of loans.
Spreads
Net interest income was $39.6
million in third quarter 2017, compared to $35.6 million in third quarter 2016. In
percentage terms, net interest income for third quarter 2017 was
0.92 percent, compared to 0.89 percent in third quarter 2016.
The $4.0 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 effect of an increase in short-term interest rates on assets
and liabilities indexed to LIBOR due to the Federal Reserve's
decision to raise the target range for the federal funds rate in
December 2016, March 2017, and June
2017. This effect on net interest income occurred because
interest expense used to calculate net interest income does not
include all the funding expenses related to these assets,
specifically the expense on financial derivatives not designated in
hedge accounting relationships. This increase in short-term rates
on assets and liabilities indexed to LIBOR did not have a similar
effect on net effective spread because net effective spread
includes interest expense from all funding related to those assets,
including interest expense from financial derivatives not
designated in hedge accounting relationships. The increase in
net interest income was offset in part by an increase in net yield
adjustments related to amortization of premiums and discounts on
assets consolidated at fair value and a decrease in the amount of
cash basis interest income recognized on nonaccrual Farm &
Ranch loans. The 3 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 and investment securities.
Farmer Mac's net effective spread, a non-GAAP measure, was
$36.2 million in third quarter 2017,
compared to $35.6 million in second
quarter 2017 and $32.2 million in
third quarter 2016. In percentage terms, net effective spread
for third quarter 2017 was 0.92 percent, compared to 0.92 percent
in second quarter 2017 and 0.86 percent in third 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 $0.6 million sequential
increase in net effective spread in dollars was primarily
attributable to growth in on-balance sheet AgVantage securities,
Farm & Ranch loans, and other business volume, which increased
net effective spread by approximately $0.9
million. Net effective spread in percentage terms was
flat sequentially, as the effect of a decrease in the average
balance of lower-earning investment securities was offset by a
decrease in the amount of cash basis interest income recognized on
nonaccrual Farm & Ranch loans.
The $4.0 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 $4.0 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 third quarter 2017, which added approximately
$0.8 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 $0.5 million. The
6 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 and
lower earning investment securities, which added approximately 6
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 2 basis points. The increase in percentage terms was
offset in part by the effect of the refinancing in second quarter
2017 of a $1.0 billion AgVantage
security, $970.0 million of which was
previously held by third party investors and reported as
off-balance sheet business volume in the Institutional Credit line
of business, into three new on-balance sheet AgVantage securities,
which reduced net effective spread by approximately 3 basis
points.
Credit
In the Farm & Ranch portfolio, 90-day delinquencies were
$66.4 million (1.01 percent of the
Farm & Ranch portfolio) as of September
30, 2017, compared to $21.0
million (0.34 percent) as of December
31, 2016 and $18.4 million
(0.31 percent of the Farm & Ranch portfolio) as of September 30, 2016. Those 90-day
delinquencies were comprised of 68 delinquent loans as of
September 30, 2017, compared with 38
delinquent loans as of December 31,
2016 and 50 delinquent loans as of September 30, 2016. As of September 30, 2017, the increase in 90-day
delinquencies, as compared to as of December
31, 2016, is primarily attributable to several larger loans
and certain crop and permanent planting loans mostly due to factors
specific to the borrower and not related to macroeconomic factors
in the agricultural economy. In particular, $15.3 million in permanent planting loans to
a single borrower became delinquent in first quarter 2017 and
accounts for one-third of the year-to-date increase in 90-day
delinquencies. Farmer Mac believes it is adequately
collateralized on this exposure. The increase is also
consistent with the seasonal pattern of Farmer Mac's 90-day
delinquencies fluctuating from quarter to quarter, both in dollars
and as a percentage of the outstanding Farm & Ranch portfolio,
with higher levels generally observed at the end of the first and
third quarters and lower levels generally observed at the end of
the second and fourth quarters of each year as a result of the
annual (January 1st) and semi-annual
(January 1st and July 1st) payment terms of most Farm & Ranch
loans. Farmer Mac believes that it remains adequately
collateralized on these loans. As Farmer Mac has expected, its
90-day delinquency rate has reverted to, and is in line with, its
fifteen-year historical average rate of approximately one percent
of the Farm & Ranch portfolio. Although the vast majority
of the year-to-date increase in 90-day delinquencies is due to
borrower-specific factors, other factors such as macroeconomic
trends and the cyclical nature of the agricultural economy could
contribute to an increase in 90-day delinquencies in the
future. The highest 90-day delinquency rate observed in
the Farm & Ranch portfolio during the preceding fifteen-year
period occurred in 2009 at approximately two 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
0.36 percent of total business volume as of September 30, 2017, compared to 0.12 percent as
of December 31, 2016, and 0.11
percent as of September 30, 2016.
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
September 30, 2017, Farmer Mac's substandard assets were
$219.6 million (3.3 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 298 loans as
of September 30, 2017 and 287 loans
as of December 31, 2016.
The $54.4 million increase from
year-end 2016 was primarily driven by credit downgrades in
on-balance sheet loans. The new substandard asset volume from
year-end 2016 includes several large exposures and also represents
a relatively diverse set of commodities. Subsequent to
September 30, 2017, $8.2 million in on-balance sheet loans considered
to be substandard were paid off in full at par. 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 line of business for third
quarter 2017 was $13.6 million (139
basis points) for Farm & Ranch, $5.3
million (100 basis points) for USDA Guarantees, $2.2 million (86 basis points) for Rural
Utilities, and $15.4 million (83
basis points) for Institutional Credit. Net effective spread
by line of business for third quarter 2017 was $11.5 million (175 basis points) for
Farm & Ranch, $4.9 million
(92 basis points) for USDA Guarantees, $2.8
million (109 basis points) for Rural Utilities, and
$14.4 million (78 basis points) for
Institutional Credit.
Liquidity and Capital
Farmer Mac's core capital totaled $653.4
million as of September 30,
2017, exceeding the statutory minimum capital requirement by
$137.6 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 nine months 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 $970.0 million of the refinanced security was
previously held by third party investors and reported as
off-balance sheet business volume.
As of September 30, 2017, Farmer
Mac's total stockholders' equity was $694.2
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 209 days of liquidity
during third quarter 2017 and had 200 days of liquidity
as of September 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. In
October 2017, the U.S. Commodity
Futures Trading Commission ("CFTC") issued an interpretive letter
to the CME confirming that, under the Commodity Exchange Act, the
exchange of variation margin payments on cleared swap positions
constitutes settlement of the outstanding exposure and not
collateral against it and that CME rules must reflect this
interpretation. However, the CFTC acknowledged the economic
equivalence between the settlement of and the pledge of collateral
against outstanding exposure under a derivatives contract, and
Farmer Mac also believes that the economic character of these
transactions remains the same as they were before the CME rule
change. 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 and
subsequent CFTC interpretation, this 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, since the beginning of first quarter 2017, Farmer Mac
has excluded 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 September 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 third quarter 2017
financial results will be held beginning at 11:00 a.m. eastern
time on Thursday, November 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
third quarter 2017 is set forth in Farmer Mac's Quarterly Report on
Form 10-Q for the period ended September 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
|
|
September
30,
|
|
December
31,
|
|
2017
|
2016
|
|
(in
thousands)
|
Assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
366,764
|
|
$
|
265,229
|
|
Investment
securities
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
2,234,966
|
|
|
2,515,851
|
|
Farmer Mac Guaranteed
Securities
|
|
|
|
|
|
|
|
Available-for-sale,
at fair value
|
|
5,443,746
|
|
|
4,853,685
|
|
|
Held-to-maturity, at
amortized cost
|
|
2,158,810
|
|
|
1,149,231
|
|
|
|
Total Farmer Mac
Guaranteed Securities
|
|
7,602,556
|
|
|
6,002,916
|
|
USDA
Securities
|
|
|
|
|
|
|
|
Trading, at fair
value
|
|
14,864
|
|
|
20,388
|
|
|
Held-to-maturity, at
amortized cost
|
|
2,092,285
|
|
|
2,009,225
|
|
|
|
Total USDA
Securities
|
|
2,107,149
|
|
|
2,029,613
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
Loans held for
investment, at amortized cost
|
|
3,804,966
|
|
|
3,379,884
|
|
|
Loans held for
investment in consolidated trusts, at amortized cost
|
|
1,329,212
|
|
|
1,132,966
|
|
|
Allowance for loan
losses
|
|
(6,408)
|
|
|
(5,415)
|
|
|
|
Total loans, net of
allowance
|
|
5,127,770
|
|
|
4,507,435
|
|
Real estate owned, at
lower of cost or fair value
|
|
1,086
|
|
|
1,528
|
|
Financial
derivatives, at fair value
|
|
2,020
|
|
|
23,182
|
|
Interest receivable
(includes $10,625 and $12,584, respectively, related to
consolidated trusts)
|
|
110,175
|
|
|
122,782
|
|
Guarantee and
commitment fees receivable
|
|
36,679
|
|
|
38,871
|
|
Deferred tax asset,
net
|
|
4,293
|
|
|
12,291
|
|
Prepaid expenses and
other assets
|
|
96,780
|
|
|
86,322
|
|
|
|
|
Total
Assets
|
$
|
17,690,238
|
|
$
|
15,606,020
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity:
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Notes
Payable:
|
|
|
|
|
|
|
|
Due within one
year
|
$
|
8,112,928
|
|
$
|
8,440,123
|
|
|
Due after one
year
|
|
7,399,961
|
|
|
5,222,977
|
|
|
|
Total notes
payable
|
|
15,512,889
|
|
|
13,663,100
|
|
Debt securities of
consolidated trusts held by third parties
|
|
1,333,417
|
|
|
1,142,704
|
|
Financial
derivatives, at fair value
|
|
30,595
|
|
|
58,152
|
|
Accrued interest
payable (includes $8,874 and $10,881, respectively, related to
consolidated trusts)
|
|
61,804
|
|
|
49,700
|
|
Guarantee and
commitment obligation
|
|
35,316
|
|
|
37,282
|
|
Accounts payable and
accrued expenses
|
|
19,971
|
|
|
9,415
|
|
Reserve for
losses
|
|
2,080
|
|
|
2,020
|
|
|
|
|
Total
Liabilities
|
|
16,996,072
|
|
|
14,962,373
|
Commitments and
Contingencies
|
|
|
|
|
|
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, 9,082,335 shares and
9,007,481 shares
outstanding, respectively
|
|
9,082
|
|
|
9,008
|
|
Additional paid-in
capital
|
|
119,130
|
|
|
118,655
|
|
Accumulated other
comprehensive income, net of tax
|
|
40,795
|
|
|
33,758
|
|
Retained
earnings
|
|
318,869
|
|
|
275,714
|
|
|
|
|
Total Stockholders'
Equity
|
|
694,166
|
|
|
643,425
|
|
Non-controlling
interest
|
|
-
|
|
|
222
|
|
|
|
|
Total
Equity
|
|
694,166
|
|
|
643,647
|
|
|
|
|
|
Total Liabilities and
Equity
|
$
|
17,690,238
|
|
$
|
15,606,020
|
FEDERAL
AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(unaudited)
|
|
|
|
For the Three Months
Ended
|
|
For the Nine Months
Ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
|
(in thousands,
except per share amounts)
|
Interest
income:
|
|
|
|
|
|
|
|
Investments and cash
equivalents
|
$
|
9,223
|
|
$
|
6,994
|
|
$
|
24,834
|
|
$
|
20,235
|
Farmer Mac Guaranteed
Securities and USDA Securities
|
54,350
|
|
38,129
|
|
146,978
|
|
110,938
|
Loans
|
40,924
|
|
34,409
|
|
117,349
|
|
99,486
|
Total interest
income
|
104,497
|
|
79,532
|
|
289,161
|
|
230,659
|
Total interest
expense
|
64,935
|
|
43,969
|
|
172,797
|
|
127,098
|
Net interest
income
|
39,562
|
|
35,563
|
|
116,364
|
|
103,561
|
Provision for loan
losses
|
(270)
|
|
(191)
|
|
(1,234)
|
|
(604)
|
Net interest income
after provision for loan losses
|
39,292
|
|
35,372
|
|
115,130
|
|
102,957
|
Non-interest
income:
|
|
|
|
|
|
|
|
Guarantee and
commitment fees
|
3,314
|
|
3,798
|
|
10,630
|
|
11,079
|
Gains/(losses) on
financial derivatives and hedging activities
|
661
|
|
(1,601)
|
|
2,530
|
|
(13,079)
|
Gains/(losses) on
trading securities
|
—
|
|
1,182
|
|
(84)
|
|
1,934
|
Gains/(losses) on
sale of available-for-sale investment securities
|
89
|
|
—
|
|
89
|
|
(9)
|
Gains on sale of real
estate owned
|
32
|
|
15
|
|
784
|
|
15
|
Other
income
|
203
|
|
707
|
|
890
|
|
1,221
|
Non-interest
income
|
4,299
|
|
4,101
|
|
14,839
|
|
1,161
|
Non-interest
expense:
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
5,987
|
|
5,438
|
|
18,986
|
|
16,823
|
General and
administrative
|
3,890
|
|
3,474
|
|
11,611
|
|
10,757
|
Regulatory
fees
|
625
|
|
613
|
|
1,875
|
|
1,838
|
Real estate owned
operating costs, net
|
—
|
|
—
|
|
23
|
|
39
|
Provision
for/(release of) reserve for losses
|
114
|
|
(222)
|
|
60
|
|
(114)
|
Non-interest
expense
|
10,616
|
|
9,303
|
|
32,555
|
|
29,343
|
Income before income
taxes
|
32,975
|
|
30,170
|
|
97,414
|
|
74,775
|
Income tax
expense
|
11,193
|
|
10,529
|
|
33,103
|
|
26,264
|
Net income
|
21,782
|
|
19,641
|
|
64,311
|
|
48,511
|
Less: Net loss
attributable to non-controlling interest
|
—
|
|
18
|
|
165
|
|
62
|
Net income
attributable to Farmer Mac
|
21,782
|
|
19,659
|
|
64,476
|
|
48,573
|
Preferred stock
dividends
|
(3,295)
|
|
(3,295)
|
|
(9,886)
|
|
(9,886)
|
Net income
attributable to common stockholders
|
$
|
18,487
|
|
$
|
16,364
|
|
$
|
54,590
|
|
$
|
38,687
|
|
|
|
|
|
|
|
|
Earnings per common
share and dividends:
|
|
|
|
|
|
|
|
Basic earnings per
common share
|
$
|
1.74
|
|
$
|
1.56
|
|
$
|
5.16
|
|
$
|
3.70
|
Diluted earnings per
common share
|
$
|
1.71
|
|
$
|
1.54
|
|
$
|
5.06
|
|
$
|
3.60
|
Common stock
dividends per common share
|
$
|
0.36
|
|
$
|
0.26
|
|
$
|
1.08
|
|
$
|
0.78
|
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
|
|
September 30,
2017
|
|
June 30,
2017
|
|
September 30,
2016
|
|
(in thousands, except per share amounts)
|
Net income
attributable to common stockholders
|
$
|
18,487
|
|
$
|
17,488
|
|
$
|
16,364
|
Less reconciling
items:
|
|
|
|
|
|
Gains on financial
derivatives and hedging activities due to fair
value changes
|
2,737
|
|
2,221
|
|
1,460
|
Unrealized
(losses)/gains on trading securities
|
—
|
|
(2)
|
|
1,182
|
Amortization of
premiums/discounts and deferred gains on assets
consolidated at fair value
|
(954)
|
|
(117)
|
|
(157)
|
Net effects of
settlements on agency forward contracts
|
456
|
|
261
|
|
464
|
Income tax effect
related to reconciling items
|
(784)
|
|
(827)
|
|
(1,032)
|
Sub-total
|
1,455
|
|
1,536
|
|
1,917
|
Core
earnings
|
$
|
17,032
|
|
$
|
15,952
|
|
$
|
14,447
|
|
|
|
|
|
|
Composition of Core
Earnings:
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Net effective
spread(1)
|
$
|
36,227
|
|
$
|
35,610
|
|
$
|
32,199
|
Guarantee and
commitment fees(2)
|
4,935
|
|
4,942
|
|
4,533
|
Other(3)
|
429
|
|
(197)
|
|
(32)
|
Total
revenues
|
41,591
|
|
40,355
|
|
36,700
|
|
|
|
|
|
|
Credit related
expense/(income) (GAAP):
|
|
|
|
|
|
Provision
for/(release of) losses
|
384
|
|
466
|
|
(31)
|
REO operating
expenses
|
—
|
|
23
|
|
—
|
Gains on sale of
REO
|
(32)
|
|
(757)
|
|
(15)
|
Total credit related
expense/(income)
|
352
|
|
(268)
|
|
(46)
|
|
|
|
|
|
|
Operating expenses
(GAAP):
|
|
|
|
|
|
Compensation and
employee benefits
|
5,987
|
|
6,682
|
|
5,438
|
General and
administrative
|
3,890
|
|
3,921
|
|
3,474
|
Regulatory
fees
|
625
|
|
625
|
|
613
|
Total operating
expenses
|
10,502
|
|
11,228
|
|
9,525
|
|
|
|
|
|
|
Net
earnings
|
30,737
|
|
29,395
|
|
27,221
|
Income tax
expense(4)
|
10,410
|
|
10,297
|
|
9,497
|
Net loss attributable
to non-controlling interest (GAAP)
|
—
|
|
(150)
|
|
(18)
|
Preferred stock
dividends (GAAP)
|
3,295
|
|
3,296
|
|
3,295
|
Core
earnings
|
$
|
17,032
|
|
$
|
15,952
|
|
$
|
14,447
|
|
|
|
|
|
|
Core earnings per
share:
|
|
|
|
|
|
Basic
|
$
|
1.61
|
|
$
|
1.50
|
|
$
|
1.38
|
Diluted
|
1.57
|
|
1.48
|
|
1.36
|
|
|
(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. Third quarter 2017 includes
$0.4 million of fees received upon the inception of swaps and $0.2
million of hedging losses, compared to $0.3 million of fees
received upon the inception of swaps and $0.6 million of hedging
losses in second quarter 2017 and no fees received and $0.7 million
of hedging losses, respectively, in third quarter 2016.
|
(4)
|
Includes the tax
impact of non-GAAP reconciling items between net income
attributable to common stockholders and core earnings. Second
and third quarter 2017 includes $0.2 million and $0.3 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
2017.
|
Reconciliation of Net
Income Attributable to Common Stockholders to Core
Earnings
|
|
For the Nine Months
Ended
|
|
September 30,
2017
|
|
September 30,
2016
|
|
(in thousands,
except per share amounts)
|
Net income
attributable to common stockholders
|
$
|
54,590
|
|
$
|
38,687
|
Less reconciling
items:
|
|
|
|
Gains/(losses) on
financial derivatives and hedging activities due to fair value
changes
|
9,763
|
|
(3,605)
|
Unrealized
(losses)/gains on trading securities
|
(84)
|
|
1,934
|
Amortization of
premiums/discounts and deferred gains on assets consolidated at
fair value
|
(1,198)
|
|
(809)
|
Net effects of
settlements on agency forward contracts
|
749
|
|
675
|
Income tax effect
related to reconciling items
|
(3,231)
|
|
633
|
Sub-total
|
5,999
|
|
(1,172)
|
Core
earnings
|
$
|
48,591
|
|
$
|
39,859
|
|
|
|
|
Composition of Core
Earnings:
|
|
|
|
Revenues:
|
|
|
|
Net effective
spread(1)
|
$
|
104,703
|
|
$
|
93,174
|
Guarantee and
commitment fees(2)
|
15,194
|
|
14,012
|
Other(3)
|
1,293
|
|
(674)
|
Total
revenues
|
121,190
|
|
106,512
|
|
|
|
|
Credit related
expense (GAAP):
|
|
|
|
Provision for
losses
|
1,294
|
|
490
|
REO operating
expenses
|
23
|
|
39
|
Gains on sale of
REO
|
(784)
|
|
(15)
|
Total credit related
expense
|
533
|
|
514
|
|
|
|
|
Operating expenses
(GAAP):
|
|
|
|
Compensation and
employee benefits
|
18,986
|
|
16,823
|
General and
administrative
|
11,611
|
|
10,757
|
Regulatory
fees
|
1,875
|
|
1,838
|
Total operating
expenses
|
32,472
|
|
29,418
|
|
|
|
|
Net
earnings
|
88,185
|
|
76,580
|
Income tax
expense(4)
|
29,873
|
|
26,897
|
Net loss attributable
to non-controlling interest (GAAP)
|
(165)
|
|
(62)
|
Preferred stock
dividends (GAAP)
|
9,886
|
|
9,886
|
Core
earnings
|
$
|
48,591
|
|
$
|
39,859
|
|
|
|
|
Core earnings per
share:
|
|
|
|
Basic
|
$
|
4.59
|
|
$
|
3.81
|
Diluted
|
4.50
|
|
3.71
|
|
|
(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.
|
(1)
|
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 nine months of 2017
includes $1.7 million of fees received upon the inception of swaps
and $1.3 million of hedging losses, compared to $0.1 million of
fees received and $2.3 million of hedging losses, respectively, in
the first nine months of 2016.
|
(2)
|
Includes the tax
impact of non-GAAP reconciling items between net income
attributable to common stockholders and core earnings. The first
nine months of 2017 includes $1.2 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 Nine Months
Ended
|
|
September 30,
2017
|
|
June 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
|
(in thousands,
except per share amounts)
|
GAAP - Basic
EPS
|
$
|
1.74
|
|
$
|
1.65
|
|
$
|
1.56
|
|
$
|
5.16
|
|
$
|
3.70
|
Less reconciling
items:
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on
financial derivatives and hedging
activities due to fair value changes
|
0.26
|
|
0.22
|
|
0.14
|
|
0.92
|
|
(0.33)
|
Unrealized
gains/(losses) on trading securities
|
—
|
|
—
|
|
0.11
|
|
(0.01)
|
|
0.18
|
Amortization of
premiums/discounts and deferred
gains on assets consolidated at fair value
|
(0.09)
|
|
(0.01)
|
|
(0.01)
|
|
(0.11)
|
|
(0.08)
|
Net effects of
settlements on agency forward contracts
|
0.04
|
|
0.02
|
|
0.04
|
|
0.07
|
|
0.06
|
Income tax effect
related to reconciling items
|
(0.08)
|
|
(0.08)
|
|
(0.10)
|
|
(0.30)
|
|
0.06
|
Sub-total
|
0.13
|
|
0.15
|
|
0.18
|
|
0.57
|
|
(0.11)
|
Core Earnings - Basic
EPS
|
$
|
1.61
|
|
$
|
1.50
|
|
$
|
1.38
|
|
$
|
4.59
|
|
$
|
3.81
|
|
|
|
|
|
|
|
|
|
|
Shares used in per
share calculation (GAAP and Core
Earnings)
|
10,605
|
|
10,600
|
|
10,473
|
|
10,586
|
|
10,464
|
|
|
Reconciliation of
GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings
Per Share
|
|
For the Three Months
Ended
|
|
For the Nine Months
Ended
|
|
September 30,
2017
|
|
June 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
|
(in thousands,
except per share amounts)
|
GAAP - Diluted
EPS
|
$
|
1.71
|
|
$
|
1.62
|
|
$
|
1.54
|
|
$
|
5.06
|
|
$
|
3.60
|
Less reconciling
items:
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on
financial derivatives and hedging
activities due to fair value changes
|
0.26
|
|
0.21
|
|
0.14
|
|
0.91
|
|
(0.34)
|
Unrealized
gains/(losses) on trading securities
|
—
|
|
—
|
|
0.11
|
|
(0.01)
|
|
0.18
|
Amortization of
premiums/discounts and deferred
gains on assets consolidated at fair value
|
(0.09)
|
|
(0.01)
|
|
(0.01)
|
|
(0.11)
|
|
(0.07)
|
Net effects of
settlements on agency forward contracts
|
0.04
|
|
0.02
|
|
0.04
|
|
0.07
|
|
0.06
|
Income tax effect
related to reconciling items
|
(0.07)
|
|
(0.08)
|
|
(0.10)
|
|
(0.30)
|
|
0.06
|
Sub-total
|
0.14
|
|
0.14
|
|
0.18
|
|
0.56
|
|
(0.11)
|
Core Earnings -
Diluted EPS
|
$
|
1.57
|
|
$
|
1.48
|
|
$
|
1.36
|
|
$
|
4.50
|
|
$
|
3.71
|
|
|
|
|
|
|
|
|
|
|
Shares used in per
share calculation (GAAP and Core
Earnings)
|
10,815
|
|
10,783
|
|
10,649
|
|
10,794
|
|
10,755
|
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 Nine Months
Ended
|
|
September 30,
2017
|
|
June 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
Dollars
|
|
Yield
|
|
(dollars in
thousands)
|
Net interest
income/yield
|
$
|
39,562
|
|
0.92%
|
|
$
|
39,731
|
|
0.95%
|
|
$
|
35,563
|
|
0.89%
|
|
$
|
116,364
|
|
0.94%
|
|
$
|
103,561
|
|
0.89%
|
Net effects of
consolidated
trusts
|
(1,621)
|
|
0.04%
|
|
(1,470)
|
|
0.04%
|
|
(735)
|
|
0.04%
|
|
(4,563)
|
|
0.04%
|
|
(2,933)
|
|
0.02%
|
Expense related
to
undesignated financial
derivatives
|
(2,675)
|
|
(0.07)%
|
|
(2,775)
|
|
(0.07)%
|
|
(2,807)
|
|
(0.08)%
|
|
(8,317)
|
|
(0.07)%
|
|
(7,985)
|
|
(0.07)%
|
Amortization of
premiums/discounts on assets
consolidated at fair value
|
961
|
|
0.03%
|
|
124
|
|
—%
|
|
178
|
|
0.01%
|
|
1,219
|
|
0.01%
|
|
531
|
|
—%
|
Net effective
spread
|
$
|
36,227
|
|
0.92%
|
|
$
|
35,610
|
|
0.92%
|
|
$
|
32,199
|
|
0.86%
|
|
$
|
104,703
|
|
0.92%
|
|
$
|
93,174
|
|
0.84%
|
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 September 30, 2017:
Core Earnings by
Business Segment
|
For the Three Months
Ended September 30, 2017
|
|
Farm &
Ranch
|
|
USDA
Guarantees
|
|
Rural
Utilities
|
|
Institutional
Credit
|
|
Corporate
|
|
Reconciling
Adjustments
|
|
|
Consolidated
Net Income
|
|
(in
thousands)
|
Net interest
income
|
$
|
13,609
|
|
$
|
5,288
|
|
$
|
2,230
|
|
$
|
15,431
|
|
$
|
3,004
|
|
$
|
—
|
|
|
$
|
39,562
|
Less: reconciling
adjustments(1)(2)(3)
|
(2,131)
|
|
(433)
|
|
602
|
|
(1,068)
|
|
(305)
|
|
3,335
|
|
|
—
|
Net effective
spread
|
11,478
|
|
4,855
|
|
2,832
|
|
14,363
|
|
2,699
|
|
3,335
|
|
|
—
|
Guarantee and
commitment fees(2)
|
4,236
|
|
130
|
|
476
|
|
93
|
|
|
|
(1,621)
|
|
|
3,314
|
Other
income/(expense)(3)(4)
|
214
|
|
9
|
|
5
|
|
—
|
|
233
|
|
524
|
|
|
985
|
Non-interest
income/(loss)
|
4,450
|
|
139
|
|
481
|
|
93
|
|
233
|
|
(1,097)
|
|
|
4,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses
|
(270)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(270)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for reserve
for losses
|
(114)
|
|
|
|
|
|
|
|
|
|
—
|
|
|
(114)
|
Other non-interest
expense
|
(4,077)
|
|
(1,080)
|
|
(608)
|
|
(1,670)
|
|
(3,067)
|
|
—
|
|
|
(10,502)
|
Non-interest
expense(5)
|
(4,191)
|
|
(1,080)
|
|
(608)
|
|
(1,670)
|
|
(3,067)
|
|
—
|
|
|
(10,616)
|
Core earnings before
income taxes
|
11,467
|
|
3,914
|
|
2,705
|
|
12,786
|
|
(135)
|
|
2,238
|
|
(6)
|
32,975
|
Income tax
(expense)/benefit
|
(4,014)
|
|
(1,370)
|
|
(947)
|
|
(4,475)
|
|
396
|
|
(783)
|
|
|
(11,193)
|
Core earnings before
preferred
stock dividends and attribution of
income to non-controlling interest
|
7,453
|
|
2,544
|
|
1,758
|
|
8,311
|
|
261
|
|
1,455
|
|
(6)
|
21,782
|
Preferred stock
dividends
|
—
|
|
—
|
|
—
|
|
—
|
|
(3,295)
|
|
—
|
|
|
(3,295)
|
Segment core
earnings/(losses)
|
$
|
7,453
|
|
$
|
2,544
|
|
$
|
1,758
|
|
$
|
8,311
|
|
$
|
(3,034)
|
|
$
|
1,455
|
|
(6)
|
$
|
18,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at
carrying value
|
$
|
4,128,778
|
|
$
|
2,165,749
|
|
$
|
1,073,525
|
|
$
|
7,612,572
|
|
$
|
2,709,614
|
|
$
|
—
|
|
|
$
|
17,690,238
|
Total on- and
off-balance sheet
program assets at principal balance
|
$
|
6,557,030
|
|
$
|
2,298,956
|
|
$
|
1,886,445
|
|
$
|
7,901,842
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
18,644,273
|
|
|
(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 to be a partial settlement of the
respective derivatives contracts rather than as pledged collateral,
and accounted for as realized gains and losses. See "Use of
Non-GAAP Measures" above for more information about this rule
change. 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. This 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 September 30,
2017
|
|
As of December 31,
2016
|
|
(in thousands)
|
On-balance
sheet:
|
|
|
|
Farm &
Ranch:
|
|
|
|
Loans
|
$
|
2,739,681
|
|
$
|
2,381,488
|
Loans held in
trusts:
|
|
|
|
Beneficial interests
owned by third party investors
|
1,329,212
|
|
1,132,966
|
USDA
Guarantees:
|
|
|
|
USDA
Securities
|
2,041,466
|
|
1,954,800
|
Farmer Mac Guaranteed
USDA Securities
|
30,688
|
|
35,599
|
Rural
Utilities:
|
|
|
|
Loans
|
1,066,482
|
|
999,512
|
Institutional
Credit
|
|
|
|
AgVantage
Securities(1)
|
7,588,628
|
|
6,004,472
|
Total on-balance
sheet
|
$
|
14,796,157
|
|
$
|
12,508,837
|
Off-balance
sheet:
|
|
|
|
Farm &
Ranch:
|
|
|
|
LTSPCs
|
2,133,314
|
|
2,209,409
|
Guaranteed
Securities
|
354,823
|
|
415,441
|
USDA
Guarantees:
|
|
|
|
Farmer Mac Guaranteed
USDA Securities
|
226,802
|
|
103,976
|
Rural
Utilities:
|
|
|
|
LTSPCs(2)
|
819,963
|
|
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
|
$
|
3,848,116
|
|
$
|
4,890,638
|
Total
|
$
|
18,644,273
|
|
$
|
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
September 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 nine
months 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017(1)
|
$
|
11,478
|
|
1.75%
|
|
$
|
4,855
|
|
0.92%
|
|
$
|
2,832
|
|
1.09%
|
|
$
|
14,363
|
|
0.78%
|
|
$
|
2,699
|
|
0.41%
|
|
$
|
36,227
|
|
0.92%
|
June 30,
2017
|
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%
|
|
(1) Net effective spread is a
non-GAAP measure. See above 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
|
|
September
2017
|
|
June
2017
|
|
March
2017
|
|
December
2016
|
|
September
2016
|
|
June
2016
|
|
March
2016
|
|
December
2015
|
|
September
2015
|
|
(in
thousands)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effective
spread
|
$
|
36,227
|
|
$
|
35,610
|
|
$
|
32,866
|
|
$
|
31,928
|
|
$
|
32,199
|
|
$
|
31,026
|
|
$
|
29,949
|
|
$
|
29,949
|
|
$
|
30,387
|
Guarantee and
commitment fees
|
4,935
|
|
4,942
|
|
5,317
|
|
5,158
|
|
4,533
|
|
4,810
|
|
4,669
|
|
4,730
|
|
4,328
|
Other
|
429
|
|
(197)
|
|
1,061
|
|
1,189
|
|
(32)
|
|
(125)
|
|
(517)
|
|
(284)
|
|
(93)
|
Total
revenues
|
41,591
|
|
40,355
|
|
39,244
|
|
38,275
|
|
36,700
|
|
35,711
|
|
34,101
|
|
34,395
|
|
34,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit related
expense/(income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for/(release of) losses
|
384
|
|
466
|
|
444
|
|
512
|
|
(31)
|
|
458
|
|
63
|
|
(49)
|
|
(303)
|
REO operating
expenses
|
—
|
|
23
|
|
—
|
|
—
|
|
—
|
|
—
|
|
39
|
|
44
|
|
48
|
(Gains)/losses on
sale of REO
|
(32)
|
|
(757)
|
|
5
|
|
—
|
|
(15)
|
|
—
|
|
—
|
|
—
|
|
—
|
Total credit
related
expense/(income)
|
352
|
|
(268)
|
|
449
|
|
512
|
|
(46)
|
|
458
|
|
102
|
|
(5)
|
|
(255)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
employee
benefits
|
5,987
|
|
6,682
|
|
6,317
|
|
5,949
|
|
5,438
|
|
5,611
|
|
5,774
|
|
5,385
|
|
5,236
|
General and
administrative
|
3,890
|
|
3,921
|
|
3,800
|
|
4,352
|
|
3,474
|
|
3,757
|
|
3,526
|
|
3,238
|
|
3,676
|
Regulatory
fees
|
625
|
|
625
|
|
625
|
|
625
|
|
613
|
|
612
|
|
613
|
|
613
|
|
600
|
Total operating
expenses
|
10,502
|
|
11,228
|
|
10,742
|
|
10,926
|
|
9,525
|
|
9,980
|
|
9,913
|
|
9,236
|
|
9,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
30,737
|
|
29,395
|
|
28,053
|
|
26,837
|
|
27,221
|
|
25,273
|
|
24,086
|
|
25,164
|
|
25,365
|
Income tax
expense
|
10,410
|
|
10,297
|
|
9,166
|
|
9,581
|
|
9,497
|
|
8,956
|
|
8,444
|
|
8,855
|
|
8,924
|
Net (loss)/income
attributable to non-
controlling interest(1)
|
—
|
|
(150)
|
|
(15)
|
|
28
|
|
(18)
|
|
(16)
|
|
(28)
|
|
(60)
|
|
(36)
|
Preferred stock
dividends
|
3,295
|
|
3,296
|
|
3,295
|
|
3,296
|
|
3,295
|
|
3,296
|
|
3,295
|
|
3,296
|
|
3,295
|
Core
earnings
|
$
|
17,032
|
|
$
|
15,952
|
|
$
|
15,607
|
|
$
|
13,932
|
|
$
|
14,447
|
|
$
|
13,037
|
|
$
|
12,375
|
|
$
|
13,073
|
|
$
|
13,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(losses) on
financial
derivatives and hedging activities
due to fair value changes
|
2,737
|
|
2,221
|
|
4,805
|
|
17,233
|
|
1,460
|
|
(2,076)
|
|
(2,989)
|
|
2,743
|
|
(6,906)
|
Unrealized
(losses)/gains on
trading assets
|
—
|
|
(2)
|
|
(82)
|
|
(474)
|
|
1,182
|
|
394
|
|
358
|
|
696
|
|
(8)
|
Amortization of
premiums/discounts and deferred
gains on assets consolidated at
fair value
|
(954)
|
|
(117)
|
|
(127)
|
|
(40)
|
|
(157)
|
|
(371)
|
|
(281)
|
|
(263)
|
|
(117)
|
Net effects of
settlements on
agency forward contracts
|
456
|
|
261
|
|
32
|
|
1,024
|
|
464
|
|
466
|
|
(255)
|
|
(162)
|
|
(390)
|
Income tax effect
related to reconciling items
|
(784)
|
|
(827)
|
|
(1,620)
|
|
(6,210)
|
|
(1,032)
|
|
556
|
|
1,109
|
|
(1,055)
|
|
2,598
|
Net income
attributable to
common stockholders
|
$
|
18,487
|
|
$
|
17,488
|
|
$
|
18,615
|
|
$
|
25,465
|
|
$
|
16,364
|
|
$
|
12,006
|
|
$
|
10,317
|
|
$
|
15,032
|
|
$
|
8,359
|
|
(1) As of May 1, 2017, Farmer Mac
transferred its entire 65% ownership interest in AgVisory back to
the limited liability company.
|
View original content with
multimedia:http://www.prnewswire.com/news-releases/farmer-mac-reports-third-quarter-2017-financial-results-300552208.html
SOURCE Farmer Mac