The Federal Agricultural Mortgage Corporation (Farmer Mac, NYSE: AGM and AGMA) today announced diluted earnings per share of $0.25 for fourth quarter 2000 and $0.92 for the year, a 47 percent increase over fourth quarter 1999 diluted earnings of $0.17 per share and a 48 percent increase over 1999 diluted earnings of $0.62. Net income was $2.9 million for the quarter and $10.4 million for the year, compared to $1.9 million and $6.9 million for the same periods in 1999.
Farmer Mac President and Chief Executive Officer Henry D. Edelman observed, “Farmer Mac registered another strong earnings increase in the fourth quarter of 2000, bringing quarterly and annual Corporate results to new record levels. Despite industry-wide weakness in new agricultural mortgage volume during the last quarter, we continued our pattern of earnings advances. Though Farmer Mac I loan purchases and guarantees of $226 million during the fourth quarter represented a fallback from the $451 million level of the third quarter, this was consistent with the expected variability of volume from quarter to quarter, largely due to the unpredictability of swap and standby business. Nevertheless, reflecting the cumulative nature of our business, outstanding guarantee volume for all programs at the end of the quarter was up 32 percent over the year-earlier level.”
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“Although swap and standby commitment volume came in about 10 percent short of our expectations, we continue to see significant swap and standby opportunities for 2001,” Mr. Edelman continued. “Agricultural mortgage business during the quarter was adversely affected by a generally higher interest rate environment, which dampened demand for farm mortgages overall, and long-term fixed-rate products in particular, and caused swap and standby commitment participants to pull back. If interest rates continue their recent downward trend, we would expect an increase in long-term, fixed-rate agricultural mortgage demand. This, in turn, would create incentives for lenders to enter into loan sales, swaps and long-term standby commitments with Farmer Mac to address their interest rate risk management and capital leverage concerns.”
Mr. Edelman noted, “Growing inventories and weak markets for agricultural commodities and products worldwide, along with low prices and economic uncertainty in the agricultural sector, followed the trend of the last several years throughout 2000. The outlook for 2001 is for this trend to continue. These conditions suppressed the volume of agricultural land transfers and led to the enactment of legislation that provided substantial government financial support to farmers in 2000. It is too early to predict what federal agricultural support will be forthcoming in 2001, but we believe that preservation of the economic stability of the agricultural sector will continue to be a high priority for Congress and the new Administration. Similar support maintained farm sector income during recent years and contributed to stable farmland values in most regions of the nation. Though increased reliance on government payments enabled many farmers and ranchers to meet their existing mortgage obligations more easily, it also combined with economic uncertainty to mute farmer demand for new agricultural mortgage loans. We believe that Farmer Mac has responded effectively to these market conditions by expanding its product offerings to include short-term interest rate and adjustable rate mortgages, and by re-emphasizing to agricultural lenders the opportunity to reduce their concentrated exposures to local agricultural credit risks. Farmer Mac is well-positioned to benefit from the current rate environment and from anticipated interest rate reductions during 2001. Accordingly, our view is that the Corporation is on track to meet or exceed market analyst projections as of the date of this release for its financial performance in 2001.”
Net Interest Income
Net interest income was $4.5 million for fourth quarter 2000, and $17.7 million for the year, compared to $3.6 million and $15.0 million for the same periods in 1999. The net interest yield, exclusive of guarantee fees, was 0.60 percent for fourth quarter 2000 and 0.63 percent for 2000, compared to 0.60 percent for third quarter 2000 and 0.54 percent for fourth quarter 1999 and 0.64 percent for 1999. The increase in net interest income was attributable to continued growth in our retained portfolio of Farmer Mac guaranteed securities (AMBS), augmented by the ongoing rebalancing of Farmer Mac’s debt obligations and investment portfolio in response to developments in the financial markets.
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By GlobalDataOther Income
Other income, which is comprised of guarantee fee income and miscellaneous income, totaled $3.5 million for fourth quarter 2000 and $12.1 million for the year, compared to $2.5 million and $7.6 million, respectively, in 1999. Guarantee fee income, the largest component of other income, was $3.4 million for fourth quarter 2000, compared to $2.4 million for fourth quarter 1999 and $3.0 million for third quarter 2000. The relative increases in guarantee fees reflect an increase in the average balance of outstanding guarantees. Miscellaneous income was $149 thousand for fourth quarter 2000, compared to $110 thousand and $78 thousand for fourth quarter 1999 and third quarter 2000, respectively.
Operating Expenses
During fourth quarter 2000, operating expenses totaled $2.3 million, compared to $1.9 million for fourth quarter 1999, and $2.1 million for third quarter 2000. Operating expenses were consistent as a percentage of total revenues for the same quarters at 28 percent, compared to 31 percent and 28 percent, respectively, in the prior periods.
Credit
As of December 31, 2000, Farmer Mac I loans purchased or guaranteed after the enactment in 1996 of changes to Farmer Mac’s statutory charter (“post-1996 Act loans”) that were 90 days or more past due, in foreclosure or in bankruptcy represented 1.25 percent of the principal balance of all post-1996 Act loans, compared to 1.05 percent as of December 31, 1999, and 1.80 percent at September 30, 2000. (Farmer Mac assumes 100 percent of the credit risk on post-1996 Act loans; pre-1996 Act loans are supported by mandatory 10 percent subordinated interests that mitigate Farmer Mac’s credit exposure.) Farmer Mac anticipates fluctuations in the delinquency rate from quarter to quarter, with higher levels likely to be reported during the first and third quarters of each year due to the semi-annual payment characteristics of most Farmer Mac loans. Congress provided significant income support to the agricultural sector for 2000, which, based on reports issued by the U.S. Department of Agriculture, resulted in farm income in 2000 being at levels greater than in 1999. This income support should help to moderate delinquencies as we enter 2001. The federal income support is not allocated equally to producers of all agricultural commodities, however, and farmers and ranchers producing agricultural commodities that do not receive significant federal income support are more likely to become delinquent on their agricultural mortgage loans than those receiving such support. Further, it is expected that additional federal support will be provided to the agricultural sector in 2001, although the specific amount has not yet been determined.
Farmer Mac’s provision for principal and interest losses was $1.3 million for fourth quarter 2000 and $4.7 million for the year, compared to $1.2 million and $3.7 million, respectively, for the comparable periods in 1999. At December 31, 2000, Farmer Mac’s reserve for losses totaled $11.3 million, or 0.45 percent of outstanding post-1996 Act loans, compared to $6.6 million (0.35 percent) at December 31, 1999. Farmer Mac did not incur any credit loss charge-offs in the fourth quarter 2000. Although Farmer Mac expects to incur credit losses on the existing post-1996 Act delinquent loans, Farmer Mac believes those losses are adequately covered by the reserve for losses, based on the value of the collateral securing the loans. As of December 31, 2000, the weighted average loan-to-value ratio for all post-1996 Act loans was 51 percent, and the weighted average loan-to-value ratio for all post-1996 Act loans that were 90 days or more past due, in foreclosure or in bankruptcy was 57 percent.
Provision for Income Taxes
The provision for income taxes totaled $1.6 million for fourth quarter 2000, and $5.7 million for the year, compared to $1.1 million and $3.7 million for the same periods in 1999. Farmer Mac’s effective tax rates for the years 2000 and 1999 were 35.5 percent and 34.7 percent, respectively.
Capital
As of December 31, 2000, Farmer Mac’s regulatory core capital was $101.3 million, compared with $88.8 million at December 31, 1999, and $98.3 million at September 30, 2000. The regulatory core capital balance at December 31, 2000 exceeded Farmer Mac’s regulatory minimum capital requirements by approximately $4.1 million. Based on the current minimum capital requirements established by the Farm Credit Administration, Farmer Mac’s current capital surplus would support additional guarantee growth in amounts ranging from $149 million of on-balance sheet guarantees to $546 million of off-balance sheet guarantees. Furthermore, should Farmer Mac deem it appropriate, on-balance sheet non-program assets of $1.4 billion could be replaced with on- and off-balance sheet program guarantees, resulting in the ability to carry further additional guarantees ranging from approximately $1.4 billion of on-balance sheet guarantees to over $5.1 billion of off-balance sheet guarantees. Ultimately, Farmer Mac could sell on-balance sheet program assets of $1.6 billion in order to support further increases of on- and off-balance sheet program guarantees, resulting in the cumulative ability to carry an additional $9.9 billion of off-balance sheet guarantees. Any of these transactions would, of course, be evaluated to optimize Farmer Mac’s return on equity and capital flexibility.
As of December 31, 2000, Farmer Mac’s balance sheet stockholders’ equity was $132.7 million, reflecting $31.5 million of net unrealized gains on securities available for sale. Such gains were recognized in fourth quarter 2000 pursuant to Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity Securities.
As a result of the large net unrealized gains on AMBS of $30.2 million recognized in fourth quarter 2000, the return on average equity was 10.6 percent during fourth quarter 2000, compared to 8.8 percent during fourth quarter 1999 and 11.3 percent during third quarter 2000. Exclusive of the net effects of unrealized gains, the fourth quarter return on average equity would have been 11.5 percent.
Change in Accounting Principle
Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, became effective as of January 1, 2001. Farmer Mac is fully in compliance with SFAS 133, the adoption of which by reporting companies was mandatory. SFAS 133 requires derivative instruments, which Farmer Mac uses primarily to hedge interest rate risk, to be marked to their market values and included on the balance sheet. Previously, Farmer Mac accounted for derivative instruments off-balance sheet and disclosed them in the financial statement footnotes, in accordance with generally accepted accounting principles. The cumulative net effect of this change in accounting principle, which requires the acceleration of certain expenses associated with derivative instruments to January 1, 2001 and had no effect on fourth quarter 2000 results, is a negative adjustment to earnings of approximately $1 million for the first quarter of 2001. Farmer Mac has determined that this adjustment will be offset over time (predominantly over the next two years) as the Corporation recognizes income that is hedged by the derivative instruments.
The adoption of SFAS 133 will also produce a change to stockholders’ equity during the first quarter of 2001 in the form of an approximately $8.5 million reduction in other comprehensive income that partially offsets the $31.5 million of net unrealized gains recognized in fourth quarter 2000. Those unrealized gains resulted from the appreciation of the Corporation’s AMBS portfolio during fourth quarter 2000 due to the decline in interest rates in the fourth quarter.
Forward-Looking Statements
In addition to historical information, this release includes forward-looking statements reflecting management’s current expectations for Farmer Mac’s future financial results, business prospects and business developments. Management’s expectations for Farmer Mac’s future necessarily involve assumptions, estimates and the evaluation of risks and uncertainties. Various factors could cause actual events or results to differ materially from those expectations. Some of the important factors that could cause Farmer Mac’s actual results to differ materially from management’s expectations include: (1) uncertainties regarding the rate and direction of the development of the secondary market for agricultural mortgage loans; (2) uncertainties in the agricultural economy resulting from low commodity prices, weak demand for U.S. agricultural products and crop damage from natural disasters; and (3) the possibility of additional statutory or regulatory restrictions applicable to Farmer Mac, such as the imposition of regulatory risk-based capital requirements in excess of the statutory minimum and critical capital levels or restrictions on Farmer Mac’s investment authority. These and other factors are discussed in Farmer Mac’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, as filed with the Securities and Exchange Commission on November 14, 2000. The forward-looking statements contained herein represent management’s expectations as of the date of this release. Farmer Mac undertakes no obligation to release publicly the results of any revisions to the forward-looking statements included herein to reflect events or circumstances after today, or to reflect the occurrence of unanticipated events.
Farmer Mac is a stockholder-owned instrumentality of the United States chartered by Congress to establish a secondary market for agricultural real estate and rural housing mortgage loans, and to facilitate capital market funding for U.S. Department of Agriculture guaranteed farm program and rural development loans. Farmer Mac’s Class C and Class A common stocks are listed on the New York Stock Exchange under the symbols AGM and AGMA, respectively. Additional information about Farmer Mac (as well as the Form 10-Q referenced above) is available on Farmer Mac’s website at www.farmermac.com . An audio recording of the conference call to discuss Farmer Mac’s fourth quarter 2000 earnings and this press release will be available on Farmer Mac’s website after 2 p.m. eastern time, Thursday, January 18, 2001.
Federal Agricultural Mortgage Corporation
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
2000 1999
(unaudited) (audited)
Assets:
Cash and cash equivalents $ 537,871 $ 336,282
Investment securities 836,757 847,220
Farmer Mac guaranteed securities 1,679,993 1,306,223
Loans 30,279 38,509
Interest receivable 55,681 42,900
Guarantee fees receivable 5,494 4,358
Prepaid expenses and other assets 14,824 14,918
Total assets $ 3,160,899 $ 2,590,410
Liabilities and stockholders’ equity:
Notes payable:
Due within one year $ 2,141,548 $ 1,712,161
Due after one year 827,635 760,237
Total notes payable 2,969,183 2,472,398
Accrued interest payable 20,852 18,549
Accounts payable and accrued
expenses 26,880 5,736
Reserve for losses 11,323 6,584
Total liabilities 3,028,238 2,503,267
Stockholders’ equity 132,661 87,143
Total liabilities and stockholders’
equity $3,160,899 $ 2,590,410
Federal Agricultural Mortgage Corporation
Consolidated Statements of Income
(in thousands, except per share amounts)
Quarter Ended Year Ended
December 31, December 31, December 31, December 31,
2000 1999 2000 1999
unaudited audited unaudited audited
Interest income:
Investments and
cash equivalents $23,147 $20,048 $91,905 $70,554
Farmer Mac guaranteed
securities 28,886 20,689 100,649 63,054
Loans 534 951 2,866 6,769
Total interest income 52,567 41,688 195,420 140,377
Interest expense 48,061 38,070 177,722 125,419
Net interest income 4,506 3,618 17,698 14,958
Other income:
Guarantee fees 3,368 2,388 11,677 7,396
Miscellaneous 149 110 399 220
Total other income 3,517 2,498 12,076 7,616
Total revenues 8,023 6,116 29,774 22,574
Other expenses:
Compensation and
employee benefits 1,168 1,190 4,521 4,577
Regulatory fees 133 150 584 502
General and
administrative 966 572 3,744 3,232
Total operating expenses 2,267 1,912 8,849 8,311
Provision for losses 1,297 1,230 4,739 3,672
Total expenses 3,564 3,142 13,588 11,983
Income before income taxes 4,459 2,974 16,186 10,591
Income tax provision 1,586 1,082 5,749 3,670
Net income $2,873 $1,892 $10,437 $6,921
Earnings per share:
Basic earnings
per share $0.26 $0.17 $0.94 $0.64
Diluted earnings
per share $0.25 $0.17 $0.92 $0.62
Federal Agricultural Mortgage Corporation
Supplemental Information
The following tables set forth quarterly activity regarding: loan purchase commitments; loan purchases and loan guarantees; AMBS issuances; delinquencies; and outstanding guarantees.
Commitments to Purchase or Guarantee Farmer Mac I Loans (1) (2)
Long- 5 and 7
Term Year
Fixed Resets
Rate ARMs
For the quarter ended:
December 31, 2000 $ 159,039 $ 2,261 $ 70,454
September 30, 2000 288,274 126,909 40,097
June 30, 2000 45,838 2,822 32,361
March 31, 2000 10,369 16,835 32,438
December 31,1999 317,357 6,882 75,326
September 30, 1999 26,623 19,384 34,170
June 30, 1999 56,010 17,025 48,791
For the year ended:
December 31, 2000 503,520 148,827 175,350
December 31, 1999 537,190 58,065 203,536
Commitments to Purchase or Guarantee Farmer Mac I Loans (1) (2)
Total Outstanding
For the quarter ended:
December 31, 2000 $231,753 13,223
September 30, 2000 455,280 10,983
June 30, 2000 81,021 8,641
March 31, 2000 59,642 10,707
December 31,1999 399,565 12,470
September 30, 1999 80,177 17,010
June 30, 1999 121,826 12,069
For the year ended:
December 31, 2000 827,695 13,223
December 31, 1999 798,791 12,470
Purchases and Guarantees of Farmer Mac I Loans (1)(2)
Long-Term 5 and 7 Year
Fixed Rate Resets ARMs Total
(in thousands)
For the quarter ended:
December 31, 2000 $ 160,706 $ 1,176 $ 64,344 $ 226,227
September 30, 2000 286,303 126,845 37,801 450,949
June 30, 2000 43,508 5,702 30,778 79,987
March 31, 2000 11,917 13,185 33,181 58,283
December 31, 1999 319,478 9,522 73,030 402,030
September 30, 1999 26,670 14,862 29,029 70,561
June 30, 1999 58,406 16,975 52,244 127,625
For the year ended:
December 31, 2000 502,434 146,908 166,104 815,446
December 31, 1999 662,186 57,176 483,402 1,202,764
Federal Agricultural Mortgage Corporation
Supplemental Information (continued)
Farmer Mac I AMBS Issuances (1) (3)
Long-Term 5 and 7 Year ARMs Total
Fixed Rate Resets
(in thousands)
For the quarter ended:
December 31, 2000 $6,777 $1,176 $27,824 $35,777
September 30, 2000 5,589 3,790 35,916 45,295
June 30, 2000 15,122 4,950 36,749 56,821
March 31, 2000 6,582 14,616 45,880 67,078
December 31, 1999 128,641 8,084 17,069 153,794
September 30, 1999 95,121 33,532 24,744 153,397
June 30, 1999 1,018 — 44,397 45,415
For the year ended:
December 31, 2000 34,070 24,531 146,370 204,972
December 31, 1999 359,185 57,887 277,517 694,589
Farmer Mac I Delinquencies (4)
Distribution of Post-1996
Post-1996 Pre-1996 Act Delinquencies
As of: Act Act(5) Total as of December 31, 2000
By loan-to-value ratio:
December 31, 2000 1.25% 6.49% 1.44% 0.00% to 40.00% 15%
September 30, 2000 1.80% 5.55% 1.96% 40.01% to 50.00% 13%
June 30, 2000 1.25% 4.12% 1.41% 50.01% to 60.00% 39%
March 31, 2000 1.45% 4.89% 1.65% 60.01% to 70.00% 31%
December 31, 1999 1.05% 3.04% 1.18% 70.01% to 80.00% 2%
Total 100%
Federal Agricultural Mortgage Corporation
Supplemental Information (continued)
Outstanding Guarantees (5)
Farmer Mac I
Post-1996 Act Pre-1996
AMBS LTSPC Act
(in thousands)
As of:
December 31, 2000 $1,615,914 $862,804 $83,513
September 30, 2000 1,621,516 707,850 92,536
June 30, 2000 1,354,623 575,143 100,414
March 31, 2000 1,310,710 551,423 107,403
December 31,1999 1,266,522 575,097 118,214
September 30, 1999 1,118,266 367,934 130,452
June 30, 1999 984,538 375,915 142,842
Farmer Held in
Mac II Total Portfolio (6)
(in thousands)
As of:
December 31, 2000 $517,703 3,079,934 $1,581,905
September 30, 2000 491,820 2,913,721 1,571,315
June 30, 2000 467,352 2,497,532 1,292,359
March 31, 2000 387,992 2,357,529 1,268,889
December 31,1999 383,266 2,343,099 1,237,623
September 30, 1999 377,663 1,994,315 1,190,741
June 30, 1999 367,250 1,870,545 1,046,303
(1) Includes guarantees issued by Farmer Mac through swap transactions.
Such transactions totaled $103.2 million in fourth quarter 1999 and
$73.6 million in first quarter 1999.
(2) Includes long-term standby purchase commitments (LTSPC) of
$180.2 million committed to and executed in fourth quarter 2000,
$158.3 million committed to and executed in third quarter 2000, and
$34.4 million committed to and executed in second quarter 2000. Such
transactions obligate Farmer Mac to purchase loans in the pool at par
when they become four or more months delinquent. In exchange, Farmer
Mac receives an annual commitment fee on the outstanding balance of
the pool over the life of the loans.
(3) Includes AMBS issued and retained by Farmer Mac. Such transactions
totaled $20.7 million in fourth quarter 2000, $25.0 million in third
quarter 2000, $21.7 million in second quarter 2000, $46.5 million in
first quarter 2000, and $50.6 million in fourth quarter 1999.
(4) Includes loans 90 days or more past due, in foreclosure or in
bankruptcy.
(5) Pre-1996 Act loans back securities that are supported by unguaranteed
subordinated interests representing approximately 10 percent of the
balance of the loans. Farmer Mac assumes 100 percent of the credit
risk on post-1996 Act loans. Farmer Mac II loans are guaranteed by
the U.S. Department of Agriculture.
(6) Included in total outstanding guarantees.
