Federal Agricultural Mortgage Corporation: Farmer Mac Reports Second Quarter 2019 Results

Tickers: AGM
Farmer Mac Reports Second Quarter 2019 Results

- Grew Outstanding Business Volume to $20.7 Billion -

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- Net Growth Across All Four Lines of Business -

- Credit Quality Remains Favorable -

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WASHINGTON, August 1, 2019 - The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A), the nation's largest 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 June 30, 2019.

Second Quarter 2019 Highlights

  • • Net business volume growth of $239.8 million, with growth across all four lines of business

  • • Net income attributable to common stockholders grew 7% year-over-year to $28.3 million, or $2.63 per diluted common share

  • • Core earnings, a non-GAAP measure, grew 22% year-over-year to $23.6 million, or $2.20 per diluted common share

  • • Net interest income of $43.1 million

  • • Net effective spread, a non-GAAP measure, increased 14% from the prior year period to $41.4 million

  • • 90-day delinquencies were 0.38% of the $7.3 billion Farm & Ranch portfolio as of June 30, 2019, compared to 0.61% as of June 30, 2018

  • • Issued $100.0 million of Tier 1 capital through the public offering of 5.700% Series D non-cumulative preferred stock

◦ Used $75.0 million of the net proceeds to redeem the aggregate outstanding 6.875% Series B non-cumulative preferred stock

"We had another strong quarter of performance at Farmer Mac, as we grew our portfolio across all lines of business while maintaining our rigorous credit quality and robust capital base," said President and Chief Executive Officer Brad Nordholm. "In addition to our consistent growth, we completed a successful preferred stock offering that enabled us to strengthen our Tier 1 capital position and demonstrate strong market access for low cost capital. Looking ahead, we are well positioned to further grow our outstanding business volume and expand our market share as we continue to fulfill our mission of increasing the availability and affordability of credit for rural America while delivering value for our shareholders."

Second Quarter 2019 Results

Business Volume

During second quarter 2019, Farmer Mac added $1.2 billion of gross new business volume, compared to $1.3 billion in second quarter 2018, encompassing:

  • • purchase of $659.4 million of AgVantage securities;

  • • purchase of $248.2 million of newly originated Farm & Ranch loans;

  • • purchase of $105.0 million of Rural Utilities loans;

  • • purchase of $88.9 million of USDA Securities;

  • • addition of $57.3 million of Farm & Ranch loans under LTSPCs; and

  • • issuance of $29.4 million of Farmer Mac Guaranteed USDA Securities.

After approximately $1.0 billion of maturities and principal paydowns on existing business during second quarter 2019, net outstanding business volume increased $239.8 million from March 31, 2019 to $20.7 billion as of June 30, 2019, driven by net growth across all four lines of business - $81.0 million in Rural Utilities, $75.8 million in Farm & Ranch, $46.5 million in Institutional Credit, and $36.6 million in USDA Guarantees.

Net growth in our Rural Utilities line of business was primarily due to the purchase of four loans, including a $50.0 million loan purchase, partially offset by repayments of $7.0 million during the quarter.

Net growth in our Farm & Ranch line of business was comprised of a $143.4 million net increase in outstanding loan purchase volume, partially offset by a $67.6 million net decrease in loans under LTSPCs.

The Institutional Credit line of business grew during the second quarter through the purchase of $25.0 million in AgVantage securities from one of Farmer Mac's large counterparties and the purchase of $45.7 million in AgVantage securities from two smaller financial fund counterparties, partially offset by repayments of $17.4 million in AgVantage securities backed by Rural Utilities loans

The USDA Guarantees line of business grew more rapidly than in the second quarter of 2018, reflecting increased loan volume being processed through the USDA since the government shut-down during January 2019.

Spreads

Net interest income was $43.1 million for second quarter 2019, compared to $43.9 million in second quarter 2018. The year-over-year decrease was primarily driven by a $3.3 million decrease in fair value on financial derivatives and hedged items in fair value hedge accounting relationships and a $2.3 million decrease in income from interest earning assets indexed to LIBOR. These factors were mostly offset by a $2.6 million increase in interest income generated from new business volume and the absence of a $2.0 million premiumamortization that occurred in the prior period related to the payoff of an interest-only security. Overall net interest yield was 0.87% for second quarter 2019, compared to 0.96% for second quarter 2018.

Net effective spread, a non-GAAP measure, grew 14% to $41.4 million in second quarter 2019, compared to $36.2 million in second quarter 2018, primarily due to growth in outstanding business volume, which increased net effective spread by $2.6 million, and the absence of a $2.0 million premium amortization from the payoff of an interest-only security in second quarter 2018. In percentage terms, net effective spread was 0.91% in second quarter 2019, compared to 0.86% in second quarter 2018.

Earnings

Net income attributable to common stockholders for second quarter 2019 grew 7% to $28.3 million ($2.63 per diluted common share), compared to $26.3 million ($2.45 per diluted common share) in second quarter 2018. The growth was primarily due to a $5.0 million after-tax increase in fair value on undesignated financial derivatives and partially offset by the recognition of $2.0 million in deferred issuance costs for the redeemed Series B preferred stock, a decrease in net interest income of $0.7 million after tax, and a $0.5 million increase in preferred stock dividends.

Our non-GAAP core earnings for second quarter 2019 were $23.6 million ($2.20 per diluted common share), an increase of $4.2 million compared to $19.4 million in second quarter 2018 ($1.80 per diluted common share). The year-over-year increase in core earnings was primarily due to a $4.1 million after-tax increase in net effective spread and a $0.5 million after-tax decrease in operating expenses. The decrease in operating expenses was primarily due to a decrease in hiring expenses and servicing advances. These positive factors were partially offset by the $0.5 million increase in preferred stock dividends.

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 June 30, 2019, Farmer Mac's allowance for losses was $9.1 million (0.13% of the Farm & Ranch portfolio), compared to $8.8 million (0.12% of the Farm & Ranch portfolio) as of March 31, 2019 and $9.0 million (0.13% of the Farm & Ranch portfolio) as of June 30, 2018. The $0.3 million increase in the total allowance for losses from first quarter 2019 was primarily due to an increase in Farm & Ranch outstanding business volume and slightly lower credit quality.

As of June 30, 2019, Farmer Mac's 90-day delinquencies were $28.0 million (0.38% of the Farm & Ranch portfolio), compared to $52.4 million (0.73% of the Farm & Ranch portfolio) as of March 31, 2019 and $43.1 million (0.61% of the Farm & Ranch portfolio) as of June 30, 2018. The sequential decrease 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, withhigher 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 of June 30, 2019, 90-day delinquencies had improved across all major commodity groups compared to March 31, 2019.

As of June 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 0.14% of total business volume as of June 30, 2019, compared to 0.26% as of March 31, 2019 and 0.22% as of June 30, 2018.

As of June 30, 2019, Farmer Mac's substandard assets were $242.7 million (3.3% of the Farm & Ranch portfolio), compared to $246.7 million (3.4% of the Farm & Ranch portfolio) as of March 31, 2019 and $226.5 million (3.2% of the Farm & Ranch portfolio) as of June 30, 2018. The $4.0 million sequential improvement in substandard assets in second quarter 2019 was primarily due to the paydown of an existing substandard loan.

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

Capital

As of June 30, 2019, Farmer Mac's core capital level was $786.6 million, which was $191.6 million above the minimum capital level required by Farmer Mac's statutory charter. Farmer Mac's Tier 1 capital ratio was 13.6% as of June 30, 2019.

Preferred Stock

On May 13, 2019, Farmer Mac issued 4.0 million shares of 5.700% Non-Cumulative Preferred Stock, Series D ("Series D Preferred Stock"), which has a par value and liquidation preference of $25.00 per share, or $100.0 million aggregate outstanding. Farmer Mac incurred direct costs of $3.3 million related to the issuance of the Series D Preferred Stock. The dividend rate on the Series D Preferred Stock is a fixed rate of 5.700% per year for the life of the security. Dividends on the Series D Preferred Stock are payable when, as, and if declared by the Board of Directors of Farmer Mac and are non-cumulative, so dividends that are not declared for a quarterly payment date will not accrue. The Series D Preferred Stock has no maturity date, but Farmer Mac has the option to redeem the preferred stock on any quarterly dividend payment date on and after July 17, 2024.

On June 12, 2019, Farmer Mac used part of the net proceeds from the sale of the Series D Preferred Stock to redeem and repurchase all $75.0 million aggregate outstanding of Farmer Mac's 6.875% Non-Cumulative Preferred Stock, Series B ("Series B Preferred Stock"), plus any declared and unpaid dividends through and including the redemption date. As a result of the retirement of the Series B Preferred Stock, Farmer Mac recognized $2.0 million of deferred issuance costs, which is presented as "Loss on retirement of preferred stock" on the consolidated statements of operations.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's second quarter 2019 financial results will be held beginning at 11:00 a.m. Eastern time on Thursday, August 1, 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 second quarter 2019 is in Farmer Mac's Quarterly Report on Form 10-Q for the period ended June 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

Disclaimer

Federal Agricultural Mortgage Corporation published this content on 01 August 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 August 2019 12:48:01 UTC