Farmer Mac Reports Third Quarter 2019 Results

WASHINGTON, Nov. 6, 2019 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation ((Farmer Mac, NYSE:AGM), the nation's secondary market provider that increases the availability and affordability of credit for the benefit of rural America, today announced its results for the fiscal quarter ended September 30, 2019.

Farmer Mac Logo (PRNewsFoto/Farmer Mac) (PRNewsfoto/Farmer Mac)

Third Quarter 2019 Highlights

  • Sequential net business volume growth of $185.6 million to total outstanding business volume of $20.9 billion, primarily driven by the Farm & Ranch and Rural Utilities lines of business
  • Net income attributable to common stockholders of $14.4 million, or $1.33 per diluted common share
  • Core earnings, a non-GAAP measure, grew 5% year-over-year to $23.4 million, or $2.17 per diluted common share
  • Net interest income of $40.1 million, compared to $45.1 million for the prior-year period
  • Net effective spread, a non-GAAP measure, increased 9% from the prior-year period to $42.5 million
  • 90-day delinquencies were 0.81% of the $7.4 billion Farm & Ranch portfolio and 0.29% of total outstanding business volume as of September 30, 2019

"Our third quarter 2019 results continued our strong momentum from the first half of the year with another quarter of solid core earnings and portfolio growth in our core lines of business," said President and Chief Executive Officer Brad Nordholm. "Farmer Mac continues to be fundamentally healthy as we are in excellent financial condition in all facets of our operations, consistently leverage our inherent cost of funding advantage, and are seeing some early successes from organizational changes that allow us to be more commercially focused and enhance our emphasis on customer service. All these factors allow us to continue to succeed in filling our mission to increase the availability and affordability of credit for rural America while delivering value for our shareholders."

Third Quarter 2019 Results

Business Volume

Outstanding business volume was $20.9 billion as of September 30, 2019, which represents a sequential increase of $185.6 million from June 30, 2019 after taking into account all new business, maturities, and paydowns on existing assets.  This increase was driven by net growth of $102.4 million in Farm & Ranch, $76.9 million in Rural Utilities, and $46.4 million in USDA Guarantees, partially offset by a net decrease of $40.1 million in Institutional Credit.

The $102.4 million net increase in Farm & Ranch was comprised of an $82.7 million net increase in outstanding loan purchase volume and a $19.7 million net increase in loans under long-term standby purchase commitments (LTSPCs).  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.

Net growth in Rural Utilities was primarily due to the purchase of multiple loans that totaled $117.3 million. These purchases were partially offset by repayments of $40.3 million during the quarter.

USDA Guarantees grew by $46.4 million in third quarter 2019, compared to net growth of $36.6 million in second quarter 2019. This increase in growth reflects Farmer Mac's ability to more effectively meet customer demands in an increasingly competitive environment.

Institutional Credit decreased by $40.1 million, primarily related to the maturity of one $75.0 million AgVantage security that did not renew.  This maturity was partially offset by net growth of $52.6 million from two of Farmer Mac's financial fund counterparties.

Spreads

Net interest income was $40.1 million for third quarter 2019, compared to $45.1 million for third quarter 2018, primarily due to a $5.5 million decrease in net fair value changes from fair value hedge accounting relationships and a $2.2 million increase in funding and liquidity costs.  These factors were partially offset by a $3.3 million increase in interest income generated from new business volume.  Overall net interest yield was 0.78% for third quarter 2019, compared to 0.99% for third quarter 2018.  The 21 basis point year-over-year decrease was primarily attributable to an 11 basis point decrease in net fair value changes from fair value hedge accounting relationships and a 9 basis point increase in funding and liquidity costs.

Net effective spread, a non-GAAP measure, grew 9% to $42.5 million in third quarter 2019, compared to $39.1 million in third quarter 2018, primarily due to a $3.8 million increase in net effective spread from new business volume.   In percentage terms, net effective spread was 0.90% in third quarter 2019, compared to 0.93% in third quarter 2018.

Earnings

Net income attributable to common stockholders for third quarter 2019 was $14.4 million ($1.33 per diluted common share), compared to $26.5 million ($2.46 per diluted common share) for third quarter 2018.  The difference was primarily due to a $6.3 million after-tax decrease in the fair value of undesignated financial derivatives, a $3.9 million after-tax decrease in net interest income, a $1.4 million after-tax increase in operating expenses, and a $0.5 million after-tax provision for total loan losses.

Non-GAAP core earnings for third quarter 2019 were $23.4 million ($2.17 per diluted common share), an increase of $1.0 million compared to $22.4 million in third quarter 2018 ($2.08 per diluted common share).  The year-over-year increase in core earnings was primarily due to a $2.7 million after-tax increase in net effective spread, partially offset by a $1.5 million after-tax increase in operating expenses.

See "Use of Non-GAAP Measures" below for more information about core earnings, core earnings per share, and net effective spread and for reconciliations of the comparable GAAP measures to these non-GAAP measures.

Credit

As of September 30, 2019, Farmer Mac's allowance for losses was $9.8 million (0.13% of the Farm & Ranch portfolio), compared to $9.1 million (0.13% of the Farm & Ranch portfolio) as of June 30, 2019 and $9.0 million (0.13% of the Farm & Ranch portfolio) as of September 30, 2018.  The increase in the total allowance for losses from second quarter 2019 was primarily related to idiosyncratic factors of a few large loans and less related to systemic, macroeconomic factors.  Idiosyncratic factors include death, divorce, or health issues experienced by a borrower or the borrower's family, or economic conditions unique to a single entity.

As of September 30, 2019, Farmer Mac's 90-day delinquencies were $59.7 million (0.81% of the Farm & Ranch portfolio), compared to $28.0 million (0.38% of the Farm & Ranch portfolio) as of June 30, 2019 and $37.5 million (0.53% of the Farm & Ranch portfolio) as of September 30, 2018.  The sequential increase in 90-day delinquencies is 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.  Higher levels are generally observed at the end of the first and third quarters and lower levels are generally observed at the end of the second and fourth quarters of each year.

As of September 30, 2019, Farmer Mac had no delinquent AgVantage securities or delinquent Rural Utilities loans held or underlying LTSPCs.  USDA Securities are backed by the full faith and credit of the United States.  Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.29% of total business volume as of September 30, 2019, compared to 0.14% as of June 30, 2019 and 0.19% as of September 30, 2018.

As of September 30, 2019, Farmer Mac's substandard assets were $290.5 million (3.9% of the Farm & Ranch portfolio), compared to $242.7 million (3.3% of the Farm & Ranch portfolio) as of June 30, 2019 and $216.0 million (3.1% of the Farm & Ranch portfolio) as of September 30, 2018. The $47.8 million sequential increase in substandard assets in third quarter 2019 was primarily due to the downgrade of more assets into the substandard category than those that were paid off or migrated to a more favorable category.  Quarterly fluctuations in the total amount of substandard assets continue to be driven by idiosyncratic factors of a few large loans migrating into and out of the substandard asset pool and less related to systemic, macroeconomic factors.

Farmer Mac's 90-day delinquencies rate and substandard assets rate at the end of third quarter 2019 each remained below Farmer Mac's historical averages of 1.0% and 4.0%, respectively.

Capital

As of September 30, 2019, Farmer Mac's core capital level was $793.3 million, which was $184.9 million above the minimum capital level required by Farmer Mac's statutory charter. Farmer Mac's Tier 1 capital ratio was 13.2% as of September 30, 2019.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's third quarter 2019 financial results will be held beginning at 11:00 a.m. Eastern time on Wednesday, November 6, 2019 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/

When dialing in to the call, please ask for the "Farmer Mac Earnings Conference Call." 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 2019 is in Farmer Mac's Quarterly Report on Form 10-Q for the period ended September 30, 2019 filed today with the SEC.

Use of Non-GAAP Measures

In the accompanying analysis of its financial information, 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 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.

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.

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; (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"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge relationship.

Net effective spread also principally differs from net interest income and net interest yield because it includes: (1) the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge relationships ("undesignated financial derivatives"); and (2) the net effects of terminations or net settlements on financial derivatives.  More information about Farmer Mac's use of non-GAAP measures is available in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 filed today with the SEC.

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, and net interest income and net interest yield to net effective spread, see "Reconciliations" below.

Forward-Looking Statements

Management's expectations for Farmer Mac's future necessarily involve 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 in this release, including uncertainties about:

  • 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 and geopolitics on agricultural mortgage lending or on borrower repayment capacity, including fluctuations in interest rates, changes in U.S. trade policies, and fluctuations in export demand for U.S. agricultural products;
  • 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;
  • developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac;
  • the effect of any changes in Farmer Mac's executive leadership; and
  • other factors that could have a negative effect on agricultural mortgage lending or borrower repayment capacity, including volatility in commodity prices, the effects of flooding and other weather-related conditions, and fluctuations in agricultural real estate values.

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, 2018, as filed with the SEC on February 21, 2019. Considering 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 required by applicable law or regulation. The information in this release is not necessarily indicative of future results.

About Farmer Mac

Farmer Mac is a vital part of the agricultural credit markets and works to increase the availability and affordability of credit for the benefit of American agricultural and rural communities. As the nation's 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 thirty years, Farmer Mac has been delivering the capital and commitment rural America deserves. More information about Farmer Mac (including the Quarterly Report on Form 10-Q and the Annual Report on Form 10-K 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,











2019

2018













(in thousands)

Assets:























Cash and cash equivalents

$

587,941





$

425,256





Investment securities



















Available-for-sale, at fair value



3,111,632







2,217,852







Held-to-maturity, at amortized cost



45,032







45,032









Total Investment Securities



3,156,664







2,262,884





Farmer Mac Guaranteed Securities



















Available-for-sale, at fair value



7,182,541







5,974,497







Held-to-maturity, at amortized cost



1,452,616







2,096,618









Total Farmer Mac Guaranteed Securities



8,635,157







8,071,115





USDA Securities



















Trading, at fair value



8,943







9,999







Held-to-maturity, at amortized cost



2,164,064







2,166,174









Total USDA Securities



2,173,007







2,176,173





Loans:























Loans held for investment, at amortized cost



4,998,526







4,004,968







Loans held for investment in consolidated trusts, at amortized cost



1,526,718







1,517,101







Allowance for loan losses



(8,024)







(7,017)









Total loans, net of allowance



6,517,220







5,515,052





Real estate owned, at lower of cost or fair value



1,770







128





Financial derivatives, at fair value



5,589







7,487





Interest receivable (includes $13,385 and $19,783, respectively, related to consolidated trusts)



158,720







180,080





Guarantee and commitment fees receivable



39,136







40,366





Deferred tax asset, net



23,803







6,369





Prepaid expenses and other assets



16,227







9,418











Total Assets

$

21,315,234





$

18,694,328





























Liabilities and Equity:















Liabilities:





















Notes Payable:



















Due within one year

$

9,885,633





$

7,757,050







Due after one year



8,940,989







8,486,647









Total notes payable



18,826,622







16,243,697





Debt securities of consolidated trusts held by third parties



1,532,401







1,528,957





Financial derivatives, at fair value



30,542







19,633





Accrued interest payable (includes $11,462 and $17,125, respectively, related to consolidated trusts)



104,340







96,743





Guarantee and commitment obligation



37,449







38,683





Accounts payable and accrued expenses



31,878







11,891





Reserve for losses



1,743







2,167











Total Liabilities



20,564,975







17,941,771



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 as of

December 31, 2018 (redemption value $75,000,000)



-







73,044







Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding



73,382







73,382







Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding



96,659







-





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, 9,179,053 shares and 9,137,550

shares outstanding, respectively



9,179







9,138





Additional paid-in capital



118,720







118,822





Accumulated other comprehensive income, net of tax



(43,024)







24,956





Retained earnings



435,479







393,351











Total Equity



750,259







752,557













Total Liabilities and Equity

$

21,315,234





$

18,694,328





























 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)









For the Three Months Ended



For the Nine Months Ended







September 30,

2019



September 30,

2018



September 30,

2019



September 30,

2018







(in thousands, except per share amounts)

Interest income:

















Investments and cash equivalents

$

22,855





$

15,123





$

61,718





$

38,681





Farmer Mac Guaranteed Securities and USDA Securities



81,649







76,870







252,629







213,479





Loans



56,992







50,622







167,792







145,671







Total interest income



161,496







142,615







482,139







397,831





Total interest expense



121,384







97,557







358,374







265,611







Net interest income



40,112







45,058







123,765







132,220





Provision for loan losses



(760)







(99)







(1,074)







(92)







Net interest income after provision for loan losses



39,352







44,959







122,691







132,128



Non-interest income:

















Guarantee and commitment fees



3,349







3,490







10,265







10,470





(Losses)/gains on financial derivatives



(7,360)







628







1,193







(688)





Gains/(losses) on trading securities



49







(3)







154







24





Losses on sale of real estate owned



-







(41)







-







(7)





Other income



530







365







1,378







1,259







Non-interest (loss)/income



(3,432)







4,439







12,990







11,058



Non-interest expense:

































Compensation and employee benefits



7,654







6,777







22,030







20,367





General and administrative



5,253







4,350







14,538







13,878





Regulatory fees



688







625







2,063







1,875





Real estate owned operating costs, net



-







-







64







16





(Release of)/provision for reserve for losses



(137)







(102)







(424)







77







Non-interest expense



13,458







11,650







38,271







36,213







Income before income taxes



22,462







37,748







97,410







106,973



Income tax expense



4,629







7,979







20,362







21,749





Net income attributable to Farmer Mac



17,833







29,769







77,048







85,224



Preferred stock dividends



(3,427)







(3,295)







(10,508)







(9,886)



Loss on retirement of preferred stock



-







-







(1,956)







-







Net income attributable to common stockholders

$

14,406





$

26,474







64,584







75,338







































Earnings per common share:



































Basic earnings per common share

$

1.34





$

2.48





$

6.04





$

7.07







Diluted earnings per common share

$

1.33





$

2.46





$

5.99





$

7.01







































 

Reconciliations

Reconciliations 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 information about 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, 2019



June 30, 2019



September 30, 2018









(in thousands, except per share amounts)

Net income attributable to common stockholders



$

14,406





$

28,304





$

26,474



Less reconciling items:



























(Losses)/gains on undesignated financial derivatives due to fair value changes





(7,117)







10,485







3,625





(Losses)/gains on hedging activities due to fair value changes





(4,535)







(1,438)







1,051





Unrealized gains/(losses) on trading securities





49







61







(3)





Amortization of premiums/discounts and deferred gains on assets consolidated at fair value



(7)







(139)







(38)





Net effects of terminations or net settlements on financial derivatives



232







(592)







546





Issuance costs on the retirement of preferred stock





-







(1,956)







-





Income tax effect related to reconciling items





2,389







(1,759)







(1,088)







Sub-total





(8,989)







4,662







4,093



Core earnings



$

23,395





$

23,642





$

22,381





























Composition of Core Earnings:

























Revenues:



























Net effective spread(1)



$

42,461





$

41,355





$

39,077





Guarantee and commitment fees(2)





5,208







5,276







5,170





Other(3)





389







777







110







Total revenues





48,058







47,408







44,357

































Credit related expense (GAAP):



























Provision for/(release of) losses





623







420







(3)





REO operating expenses





-







64







-





Losses on sale of REO





-







-







41







Total credit related expense





623







484







38

































Operating expenses (GAAP):



























Compensation and employee benefits





7,654







6,770







6,777





General and administrative





5,253







4,689







4,350





Regulatory fees





688







687







625







Total operating expenses





13,595







12,146







11,752





































Net earnings





33,840







34,778







32,567





Income tax expense(4)





7,018







7,351







6,891





Preferred stock dividends (GAAP)





3,427







3,785







3,295







Core earnings



$

23,395





$

23,642





$

22,381

































Core earnings per share:



























Basic



$

2.19





$

2.21





$

2.10





Diluted





2.17







2.20







2.08



































(1)

Net effective spread is a non-GAAP measure.  See "Use of Non-GAAP Measures—Net Effective Spread" above for an explanation of net effective spread.  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 terminations or net settlements on financial derivatives and hedging activities, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.

(4)

Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

 

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings









For the Nine Months Ended









September 30, 2019



September 30, 2018









(in thousands, except per share amounts)

Net income attributable to common stockholders



$

64,584





$

75,338



Less reconciling items:



















Gains on undesignated financial derivatives due to fair value changes





5,608







8,055





(Losses)/gains on hedging activities due to fair value changes





(8,790)







5,302





Unrealized gains on trading securities





154







24





Amortization of premiums/discounts and deferred gains on assets consolidated at fair value



(162)







(528)





Net effects of terminations or net settlements on financial derivatives



(250)







2,020





Issuance costs on the retirement of preferred stock





(1,956)







-





Income tax effect related to reconciling items





722







(3,123)







Sub-total





(4,674)







11,750



Core earnings



$

69,258





$

63,588

























Composition of Core Earnings:

















Revenues:



















Net effective spread(1)



$

122,617





$

112,340





Guarantee and commitment fees(2)





15,903







15,424





Other(3)





1,675







649







Total revenues





140,195







128,413

























Credit related expenses (GAAP):



















Provision for losses





650







169





REO operating expenses





64







16





Losses on sale of REO





-







7







Total credit related expenses





714







192

























Operating expenses (GAAP):



















Compensation and employee benefits





22,030







20,367





General and administrative





14,538







13,878





Regulatory fees





2,063







1,875







Total operating expenses





38,631







36,120





























Net earnings





100,850







92,101





Income tax expense(4)





21,084







18,627





Preferred stock dividends (GAAP)





10,508







9,886







Core earnings



$

69,258





$

63,588

























Core earnings per share:



















Basic



$

6.48





$

5.97





Diluted





6.43







5.92



























(1)

Net effective spread is a non-GAAP measure.  See "Use of Non-GAAP Measures—Net Effective Spread" above for an explanation of net effective spread.  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 terminations or net settlements on financial derivatives and hedging activities, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.

(4)

Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

 

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,

2019



June 30,

2019



September 30,

2018



September 30,

2019



September 30,

2018







(in thousands, except per share amounts)

GAAP - Basic EPS

$

1.34





$

2.65





$

2.48





$

6.04





$

7.07



Less reconciling items:









































(Losses)/gains on undesignated financial derivatives due to fair value changes



(0.66)







0.98







0.34







0.52







0.76





(Losses)/gains on hedging activities due to fair value changes



(0.42)







(0.13)







0.10







(0.82)







0.50





Unrealized gains on trading securities



-







0.01













0.01







-





Amortization of premiums/discounts and deferred gains on assets consolidated at fair

value



-







(0.01)













(0.02)







(0.05)





Net effects of terminations or net settlements on financial derivatives



0.02







(0.06)







0.05







(0.02)







0.19





Issuance costs on the retirement of preferred stock



-







(0.18)













(0.18)











Income tax effect related to reconciling items



0.21







(0.17)







(0.11)







0.07







(0.30)







Sub-total



(0.85)







0.44







0.38







(0.44)







1.10



Core Earnings - Basic EPS

$

2.19





$

2.21





$

2.10





$

6.48





$

5.97















































Shares used in per share calculation (GAAP and Core Earnings)



10,706







10,698







10,668







10,691







10,650



 

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,

2019



June 30,

2019



September 30,

2018



September 30,

2019



September 30,

2018







(in thousands, except per share amounts)

GAAP - Diluted EPS

$

1.33





$

2.63





$

2.46





$

5.99





$

7.01



Less reconciling items:









































(Losses)/gains on undesignated financial derivatives due to fair value changes



(0.66)







0.96







0.33







0.52







0.75





(Losses)/gains on hedging activities due to fair value changes



(0.42)







(0.14)







0.10







(0.82)







0.49





Unrealized gains on trading securities



-







0.01













0.01











Amortization of premiums/discounts and deferred gains on assets consolidated at fair

value



-







(0.01)













(0.02)







(0.05)





Net effects of terminations or net settlements on financial derivatives and hedging

activities



0.02







(0.05)







0.05







(0.02)







0.19





Issuance costs on the retirement of preferred stock



-







(0.18)













(0.18)











Income tax effect related to reconciling items



0.22







(0.16)







(0.10)







0.07







(0.29)







Sub-total



(0.84)







0.43







0.38







(0.44)







1.09



Core Earnings - Diluted EPS

$

2.17





$

2.20





$

2.08





$

6.43





$

5.92















































Shares used in per share calculation (GAAP and Core Earnings)



10,776







10,770







10,744







10,774







10,743



 

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,

2019



June 30,

2019



September 30,

2018



September 30,

2019



September 30,

2018







Dollars



Yield



Dollars



Yield



Dollars



Yield



Dollars



Yield



Dollars



Yield







(dollars in thousands)

































Net interest income/yield

$

40,112





0.78



%



$

43,054





0.87



%



$

45,058





0.99



%



$

123,765





0.84



%



$

132,220





0.98



%

Net effects of consolidated trusts



(1,859)





0.02



%





(1,873)





0.03



%





(1,681)





0.05



%





(5,638)





0.03



%





(4,953)





0.04



%

Expense related to undesignated financial derivatives



(268)





-



%





(1,557)





(0.03)



%





(3,223)





(0.08)



%





(4,370)





(0.03)



%





(9,523)





(0.08)



%

Amortization of premiums/discounts on assets consolidated at fair value



28





-



%





289





0.01



%





49





-



%





341





-



%





555





0.01



%

Amortization of losses due to terminations or net settlements on financial derivatives



(42)





-



%





14





-



%





(75)





-



%





(98)





-



%





(207)





-



%

Fair value changes on fair value hedge relationships



4,490





0.10



%





1,428





0.03



%





(1,051)





(0.03)



%





8,617





0.06



%





(5,752)





(0.05)



%



Net effective spread

$

42,461





0.90



%



$

41,355





0.91



%



$

39,077





0.93



%



$

122,617





0.90



%



$

112,340





0.90



%

 

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, 2019:

 

Core Earnings by Business Segment

For the Three Months Ended September 30, 2019







Farm &

Ranch



USDA

Guarantees



Rural

Utilities



Institutional

Credit



Corporate



Reconciling

Adjustments



Consolidated

Net Income







(in thousands)

Net interest income

$

15,345





$

4,491





$

2,602





$

14,583





$

2,821





$





$

40,112





Less: reconciling adjustments(1)(2)(3)



(2,164)







(177)







1,900







2,954







(164)







(2,349)









Net effective spread



13,181







4,314







4,502







17,807







2,657







(2,349)









Guarantee and commitment fees(2)



4,523







250







348







87













(1,859)







3,349



Other income/(expense)(3)



390







92







17













(110)







(7,170)







(6,781)





Non-interest income/(loss)



4,913







342







365







87







(110)







(9,029)







(3,432)































































Provision for loan losses



(760)





































(760)































































Release of reserve for losses



137





































137



Other non-interest expense



(5,062)







(1,506)







(913)







(2,277)







(3,837)













(13,595)





Non-interest expense(4)



(4,925)







(1,506)







(913)







(2,277)







(3,837)













(13,458)



Core earnings before income taxes



12,409







3,150







3,954







15,617







(1,290)







(11,378)



(5)



22,462



Income tax (expense)/benefit



(2,606)







(662)







(830)







(3,280)







360







2,389







(4,629)





Core earnings before preferred stock

dividends 



9,803







2,488







3,124







12,337







(930)







(8,989)



(5)



17,833



Preferred stock dividends



























(3,427)













(3,427)



Loss on retirement of preferred stock











































Segment core earnings/(losses)

$

9,803





$

2,488





$

3,124





$

12,337





$

(4,357)





$

(8,989)



(5)

$

14,406































































Total assets at carrying value

$

4,934,887





$

2,238,558





$

1,692,835





$

8,651,264





$

3,797,690





$

-





$

21,315,234



Total on-and off-balance sheet program

assets at principal balance

$

7,393,728





$

2,567,763





$

2,232,602





$

8,738,266





$

-





$

-





$

20,932,359









(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 "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.

(4)

Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.

(5)

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 about 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, 2019



As of December 31, 2018











(in thousands)

Farm & Ranch:









Loans



$

3,310,248





$

3,071,222





Loans held in trusts:



















Beneficial interests owned by third party investors



1,526,718







1,517,101





LTSPCs



2,441,456







2,509,787





Guaranteed Securities



115,306







135,862



USDA Guarantees:

















USDA Securities



2,131,066







2,120,553





Farmer Mac Guaranteed USDA Securities



436,697







395,067



Rural Utilities:

















Loans





1,612,773







938,843





LTSPCs(1)



619,829







653,272



Institutional Credit:

















AgVantage securities



8,438,266







8,082,817





Revolving floating rate AgVantage facility(2)



300,000







300,000







Total

$

20,932,359





$

19,724,524





























(1)

Includes $20.0 million and $17.0 million related to one-year loan purchase commitments on which Farmer Mac receives a nominal unused commitment fee as of September 30, 2019 and December 31, 2018, respectively.

(2)

During the first nine months of both 2019 and 2018, $100.0 million of this facility was drawn and later repaid. 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, 2019(1)

$

13,181





1.66

%



$

4,314





0.79

%



$

4,502





1.16

%



$

17,807





0.84

%



$

2,657





0.30

%



$

42,461





0.90

%



June 30, 2019



13,335





1.72

%





4,097





0.76

%





3,996





1.10

%





17,371





0.82

%





2,556





0.34

%





41,355





0.91

%



March 31, 2019



12,737





1.70

%





3,964





0.74

%





3,233





1.12

%





16,373





0.79

%





2,494





0.35

%





38,801





0.89

%



December 31, 2018



13,288





1.79

%





4,630





0.85

%





2,833





1.19

%





15,751





0.80

%





2,353





0.36

%





38,855





0.93

%



September 30, 2018



13,887





1.91

%





4,627





0.86

%





2,877





1.18

%





15,642





0.78

%





2,044





0.30

%





39,077





0.93

%



June 30, 2018



13,347





1.86

%





4,398





0.83

%





2,923





1.15

%





15,220





0.76

%





274





0.04

%





36,162





0.86

%



March 31, 2018



12,540





1.80

%





4,400





0.82

%





2,950





1.12

%





14,824





0.78

%





2,387





0.36

%





37,101





0.91

%



December 31, 2017



12,396





1.80

%





4,979





0.93

%





3,057





1.14

%





14,800





0.78

%





2,235





0.35

%





37,467





0.93

%



September 30, 2017



11,303





1.73

%





4,728





0.90

%





2,765





1.07

%





14,455





0.78

%





2,725





0.41

%





35,976





0.91

%

























































































(1)

See above for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended September 30, 2019.

 

The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:

 

Core Earnings by Quarter End











September

2019



June

2019



March

2019



December

2018



September

2018



June

2018



March

2018



December

2017



September

2017











 (in thousands)

Revenues:





































































Net effective spread



$

42,461





$

41,355





$

38,801





$

38,855





$

39,077





$

36,162





$

37,101





$

37,467





$

35,976





Guarantee and commitment fees





5,208







5,276







5,419







5,309







5,170







5,171







5,083







5,157







4,935





Other





389







777







509







(129)







110







111







428







69







274







Total revenues





48,058







47,408







44,729







44,035







44,357







41,444







42,612







42,693







41,185



















































































Credit related expense/(income):











































































Provision for/(release of) losses





623







420







(393)







166







(3)







582







(410)







464







384





REO operating expenses





-







64







-







-







-







-







16







-







-





Losses/(gains) on sale of REO





-







-







-







-







41







(34)













(964)







(32)







Total credit related expense/(income)





623







484







(393)







166







38







548







(394)







(500)







352



















































































Operating expenses:











































































Compensation and employee benefits





7,654







6,770







7,606







7,167







6,777







6,936







6,654







5,247







5,987





General and administrative





5,253







4,689







4,596







5,829







4,350







5,202







4,326







4,348







3,890





Regulatory fees





688







687







688







687







625







625







625







625







625







Total operating expenses





13,595







12,146







12,890







13,683







11,752







12,763







11,605







10,220







10,502























































































Net earnings





33,840







34,778







32,232







30,186







32,567







28,133







31,401







32,973







30,331



Income tax expense





7,018







7,351







6,715







6,431







6,891







5,477







6,259







11,796







10,268



Preferred stock dividends





3,427







3,785







3,296







3,296







3,295







3,296







3,295







3,296







3,295







Core earnings



$

23,395





$

23,642





$

22,221





$

20,459





$

22,381





$

19,360





$

21,847





$

17,881





$

16,768



















































































Reconciling items:













































































(Losses)/gains on undesignated financial derivatives

due to fair value changes





(7,117)







10,485







2,240







(96)







3,625







6,709







(2,279)







(261)







995







(Losses)/gains on hedging activities due to fair value

changes





(4,535)







(1,438)







(2,817)







(853)







1,051







1,687







2,564







(3)







1,742







Unrealized gains/(losses) on trading assets





49







64







44







57







(3)







11







16







60







-







Amortization of premiums/discounts and deferred gains on assets consolidated at fair value





(7)







(139)







(16)







67







(38)







196







(686)







(129)







(954)







Net effects of terminations or net settlements on

financial derivatives





232







(592)







110







(312)







546







232







1,242







632







862







Issuance costs on the retirement of preferred stock











(1,956)

















































Re-measurement of net deferred tax asset due to

enactment of new tax legislation















































(1,365)













Income tax effect related to reconciling items





2,389







(1,759)







92







238







(1,088)







(1,855)







(180)







(105)







(926)









Net income attributable to common stockholders



$

14,406





$

28,304





$

21,874





$

19,560





$

26,474





$

26,340





$

22,524





$

16,710





$

18,487



















































































 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/farmer-mac-reports-third-quarter-2019-results-300952266.html

SOURCE Farmer Mac

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