EX-99 2 exhibit-pressrelease10k2012.htm EXHIBIT Exhibit - Press Release 10K 2012


NEWS


FOR IMMEDIATE RELEASE
CONTACTS
March 18, 2013
Richard Eisenberg
 
(Investor Inquiries)
 
 
 
Chris Bohanon
 
(Media Inquiries)
 
 
 
202-872-7700

Farmer Mac's 2012 Outstanding Business Volume and
Core Earnings Reach Record Levels

Washington, DC - The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced that it achieved record business volume and core earnings for the year ended December 31, 2012. Farmer Mac' outstanding business volume, consisting of loans, guarantees, and commitments, rose to $13.0 billion as of December 31, 2012, up from $11.9 billion as of December 31, 2011. Farmer Mac's 2012 core earnings, a non-GAAP measure, increased 15.7 percent to $49.6 million ($4.51 per diluted common share), continuing the upward trend from $42.9 million ($3.97 per diluted common share) in 2011. Farmer Mac's core earnings for fourth quarter 2012 were $11.6 million, compared to $12.6 million for fourth quarter 2011.
Core earnings for 2012 benefited from higher net effective spread of $106.6 million (95 basis points), compared to $89.4 million (96 basis points) in 2011. This higher net effective spread was

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partially offset by net provisions to the allowance for losses of $1.9 million in 2012, compared to net releases from the allowance for losses of $2.3 million in 2011. Both GAAP net income and core earnings for fourth quarter and full year 2012 were negatively affected by the severance payment made to a former executive in connection with the termination of his employment in October 2012, which resulted in a net after-tax expense of $1.0 million during fourth quarter 2012.
Farmer Mac's GAAP net income attributable to common stockholders was $9.6 million ($0.87 per diluted common share) for fourth quarter 2012 and $43.9 million ($3.98 per diluted common share) for the year ended December 31, 2012, compared to $13.3 million ($1.23 per diluted common share) and $13.8 million ($1.28 per diluted common share) for the same periods in 2011. Farmer Mac's GAAP results for fourth quarter 2012 compared to fourth quarter 2011 were lower primarily due to fair value adjustments on loans held for sale and the severance payment to a former executive, offset partially by gains on financial derivatives and hedging activities for fourth quarter 2012, compared to losses for fourth quarter 2011. Farmer Mac's GAAP results for 2012 were significantly higher compared to 2011 primarily due to decreased losses on financial derivatives and hedging activities, as Farmer Mac designated $950.0 million notional amount of interest rate swaps in hedging relationships with related assets and the volatility of interest rates declined for the year. Farmer Mac uses financial derivatives, primarily interest rate swaps, to mitigate its exposure to interest rate risk and often times to achieve an overall lower effective cost of borrowing.
Farmer Mac President and Chief Executive Officer Tim Buzby stated, "2012 was a great year for Farmer Mac. New business from all of our product lines raised the aggregate outstanding business volume to $13.0 billion. Credit quality also remained high, with 90-day delinquencies down again in b

2


oth dollar and percentage terms. We believe that our Farm & Ranch and Rural Utilities lines of business have opportunities for growth over the next several years based on expected increases in capital requirements for lenders under new regulatory frameworks, trends toward borrower preferences for longer-term fixed rate loans, and an expected general economic recovery."
Business Results
     For the year ended December 31, 2012, Farmer Mac's net effective spread was $106.6 million (95 basis points), compared to $89.4 million (96 basis points) for 2011. The yield of the net effective spread remained consistent with the prior year while the dollar amount increased driven by the growth in interest earning assets. Farmer Mac's guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac Guaranteed Securities and long-term standby purchase commitments (LTSPCs), were $25.0 million for 2012, compared to $24.8 million for 2011. Business Volume
Farmer Mac conducts its secondary market activities through three lines of business – Farm & Ranch (formerly referred to as the Farmer Mac I program), USDA Guarantees (formerly referred to as the Farmer Mac II program), and Rural Utilities. The loans eligible for the Farm & Ranch line of business are mortgage loans secured by first liens on agricultural real estate and rural housing. The USDA Guarantees line of business involves the purchase of agricultural and rural development loans guaranteed by the United States Department of Agriculture ("USDA Guaranteed Securities"). The loans eligible for the Rural Utilities line of business are loans made by cooperative lenders to finance electrification and telecommunications systems in rural areas. During 2012, Farmer Mac added $2.9 billion of new business volume from a broad range of sources. Specifically, during the year Farmer Mac:
•
purchased $570.3 million of newly originated Farm & Ranch loans;
•
added $744.1 million of Farm & Ranch loans under LTSPCs;
•
purchased $601.0 million of Farm & Ranch AgVantage securities;
•
purchased $166.1 million of Rural Utilities loans;

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•
purchased $383.4 million of Rural Utilities AgVantage securities; and
•
purchased $484.7 million of USDA Guaranteed Securities. 
Farmer Mac's outstanding business volume was $13.0 billion as of December 31, 2012, an increase of $1.1 billion from December 31, 2011, as new volume exceeded maturities and principal paydowns on existing assets during the year. During 2012, for the first time in its history, Farmer
Mac purchased $1.1 billion of Farm & Ranch loans and USDA Guaranteed Securities in a single calendar year. This purchase volume is more than double the level of purchase volume only five years ago, when Farmer Mac purchased $501 million of Farm & Ranch loans and USDA Guaranteed Securities during 2008. During fourth quarter 2012, Farmer Mac added $0.9 billion of new business volume, compared to $0.4 billion in fourth quarter 2011. That increase was driven by an increase in LTSPC volume during fourth quarter 2012 compared to the same period in the prior year.
Credit Quality 
In the Farm & Ranch portfolio, 90-day delinquencies declined to $33.3 million (0.70% of the non-AgVantage Farm & Ranch portfolio) as of December 31, 2012, compared to $40.6 million (0.93%) as of December 31, 2011. Farmer Mac recorded charge-offs of $2.5 million in 2012, compared to $0.3 million in 2011. The increase was driven primarily by a $1.7 million charge-off on one loan in fourth quarter 2012.
When analyzing the overall risk profile of its business, Farmer Mac takes into account more than the Farm & Ranch loan delinquency percentages provided above. The total volume related to Farmer Mac's three lines of business also includes AgVantage securities and rural utilities loans, neither of which have any delinquencies, and USDA Guaranteed Securities, which 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 0.26% of total business volume as of December 31, 2012, compared to 0.34% as of December 31, 2011.
The agricultural sector remained profitable across a variety of industries through 2012. The drought conditions experienced in the Midwest and Great Plains during 2012 resulted in substantial yield

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reductions in the grain crop. However, as of December 31, 2012, the drought has had no measurable impact on the credit quality of Farmer Mac's portfolio. In general, Farmer Mac does not expect the drought to have a significant negative effect on grain producers because of the widespread use of crop insurance and the increased grain prices that helped to offset reduced yields, although grain producers may experience increased costs in the future from possible higher premiums for crop insurance. At the same time, these increased grain prices, together with the diminished quality and availability of adequate grazing land, may adversely affect the profitability of producers in many other agricultural industries that depend on feed grains as an input commodity to production, including livestock, dairy, and ethanol producers, which have already experienced prolonged periods of economic stress. Farmer Mac continues to monitor closely the effects of drought on all segments of its portfolio. Farmer Mac believes that it generally remains well-collateralized on its exposures in drought areas.
Capital and Liquidity
Farmer Mac is required to hold capital at the higher of its statutory minimum capital requirement or the amount required by the risk-based capital stress test prescribed by Farm Credit Administration (FCA) regulations. As of December 31, 2012, Farmer Mac's core capital totaled $519.0 million and exceeded its statutory minimum capital requirement of $374.0 million by $145.0 million. As of December 31, 2012, Farmer Mac's risk-based capital stress test generated a risk-based capital requirement of $58.1 million.  Farmer Mac's regulatory capital of $535.9 million exceeded that amount by approximately $477.8 million. 
As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 60 days of liquidity. As of December 31, 2012, Farmer Mac had 164 days of liquidity, as calculated in accordance with FCA regulations. 

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Reconciliation of Core and GAAP Earnings
Farmer Mac uses core earnings, a non-GAAP financial measure, to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. Core earnings differs from GAAP net income by excluding the effects of fair value accounting guidance, which are not expected to have a permanent effect on capital. Core earnings also differs from GAAP net income 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 the Corporation's core business. This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.

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A reconciliation of Farmer Mac's GAAP net income attributable to common stockholders to core earnings is presented in the following table:

Reconciliation of GAAP Net Income Attributable to Common Stockholders to Core Earnings
 
For the Three Months Ended December 31,
 
2012
 
2011
 
(in thousands, except per share amounts)
GAAP net income attributable to common stockholders
$
9,601

 
$
13,323

Less the after-tax effects of:
 

 
 

Unrealized gains on financial derivatives and hedging activities
4,719

 
386

Unrealized gains on trading assets
1,778

 
2,476

Amortization of premiums and deferred gains on assets consolidated at fair value
(4,534
)
 
(1,875
)
Net effects of settlements on agency forward contracts
(102
)
 
(240
)
Lower of cost or fair value adjustment on loans held for sale
(3,863
)
 
—

      Sub-total
(2,002
)
 
747

Core earnings
$
11,603

 
$
12,576

 
 
 
 
Core earnings per share:
 
 
 
  Basic
$
1.10

 
$
1.21

  Diluted
1.05

 
1.16

Weighted-average shares:
 
 
 
  Basic
10,591

 
10,357

  Diluted
11,075

 
10,837

 
 
 
 
 
For the Year Ended December 31,
 
2012
 
2011
 
(in thousands, except per share amounts)
GAAP net income attributable to common stockholders
$
43,894

 
$
13,784

Less the after-tax effects of:
 

 
 

Unrealized gains/(losses) on financial derivatives and hedging activities
4,325

 
(30,930
)
Unrealized gains on trading assets
200

 
2,246

Amortization of premiums and deferred gains on assets consolidated at fair value
(7,266
)
 
(3,692
)
Net effects of settlements on agency forward contracts
856

 
(2,523
)
Lower of cost or fair value adjustment on loans held for sale
(3,863
)
 
5,776

      Sub-total
(5,748
)
 
(29,123
)
Core earnings
$
49,642

 
$
42,907

 
 
 
 
Core earnings per share:
 
 
 
  Basic
$
4.74

 
$
4.15

  Diluted
4.51

 
3.97

Weighted-average shares:
 
 
 
  Basic
10,479

 
10,335

  Diluted
11,019

 
10,802

More complete information on Farmer Mac's performance for 2012 is set forth in the Annual Report on Form 10-K filed by Farmer Mac earlier today with the Securities and Exchange Commission (SEC).

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Forward-Looking Statements
In addition to historical information, this release includes forward-looking statements that reflect 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 a number of assumptions and estimates and the evaluation of risks and uncertainties. Various factors or events could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including uncertainties regarding: (1) the availability to Farmer Mac and Farmer Mac II LLC of debt financing and, if available, the reasonableness of rates and terms; (2) legislative or regulatory developments that could affect Farmer Mac or its sources of business, including but not limited to developments in relation to agricultural policies and programs contained in the current Farm Bill (the Food, Conservation and Energy Act of 2008), which is currently scheduled to expire in September 2013, or reduced funding for agricultural policies and programs as a result of federal budget cuts; (3) fluctuations in the fair value of assets held by Farmer Mac and Farmer Mac II LLC; (4) the rate and direction of development of the secondary market for agricultural mortgage and rural utilities loans, including lender interest in Farmer Mac credit products and the Farmer Mac secondary market; (5) the general rate of growth in agricultural mortgage and rural utilities indebtedness; (6) the impact 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; (7) developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving GSEs, including Farmer Mac; (8) financial market volatility; (9) 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; and (10) volatility in commodity prices and/or export demand for U.S. agricultural products. Other risk factors are discussed in Farmer

8


Mac's Annual Report on Form 10‑K for the year ended December 31, 2012, as 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. 
Farmer Mac is a stockholder-owned instrumentality of the United States chartered by Congress to help increase the availability of credit in rural America through the operation of a secondary market for eligible loans to agricultural and rural borrowers. Farmer Mac's Class C non-voting and Class A voting common stocks are listed on the New York Stock Exchange under the symbols AGM and AGM.A, respectively. Additional information about Farmer Mac is available on Farmer Mac's website at www.farmermac.com. Farmer Mac II LLC is a subsidiary of Farmer Mac that operates the USDA Guarantees line of business of purchasing and holding USDA-guaranteed loans. Additional information about Farmer Mac II LLC is available on its website at www.farmermac2.com.

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Earnings Conference Call Information
The conference call to discuss Farmer Mac's 2012 financial results and the Corporation's
Form 10-K for 2012 will be held beginning at 11:00 a.m. eastern time on Tuesday, March 19, 2013 and can be accessed as follows:
Dial-in:    800-860-2442
Reference:    Farmer Mac
The conference call will be webcast live on Farmer Mac's website, and an audio recording of the call will be available on Farmer Mac's website at http://www.farmermac.com/Investors/ConferenceCall/ for two weeks after the call is concluded.
* * * *




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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(unaudited)
 
December 31,
2012
 
December 31,
2011
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
785,564

 
$
817,046

Investment securities:
 

 
 

Available-for-sale, at fair value
2,498,382

 
2,182,694

Trading, at fair value
1,247

 
1,796

Total investment securities
2,499,629

 
2,184,490

Farmer Mac Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
4,766,258

 
4,289,272

 
 
 
 
USDA Guaranteed Securities:
 

 
 

Available-for-sale, at fair value
1,486,595

 
1,279,546

Trading, at fair value
104,188

 
212,359

Total USDA Guaranteed Securities
1,590,783

 
1,491,905

Loans:
 

 
 

Loans held for sale, at lower of cost or fair value
673,991

 
541,447

Loans held for investment, at amortized cost
1,503,559

 
1,241,311

Loans held for investment in consolidated trusts, at amortized cost
563,575

 
1,121,559

Allowance for loan losses
(11,351
)
 
(10,161
)
Total loans, net of allowance
2,729,774

 
2,894,156

Real estate owned, at lower of cost or fair value
3,985

 
3,136

Financial derivatives, at fair value
31,173

 
40,250

Interest receivable
103,414

 
110,339

Guarantee and commitment fees receivable
41,789

 
31,384

Deferred tax asset, net
3,123

 
—

Prepaid expenses and other assets
66,709

 
21,530

Total Assets
$
12,622,201

 
$
11,883,508

 
 
 
 
Liabilities and Equity:
 

 
 

Liabilities:
 

 
 

Notes payable:
 

 
 

Due within one year
$
6,567,366

 
$
6,087,879

Due after one year
5,034,739

 
4,104,882

Total notes payable
11,602,105

 
10,192,761

Debt securities of consolidated trusts held by third parties
167,621

 
701,583

Financial derivatives, at fair value
150,682

 
160,024

Accrued interest payable
51,779

 
60,854

Guarantee and commitment obligation
37,803

 
27,440

Accounts payable and accrued expenses
13,710

 
178,708

Deferred tax liability, net
—

 
250

Reserve for losses
5,539

 
7,355

Total Liabilities
12,029,239

 
11,328,975

Equity:
 

 
 

Preferred stock:
 

 
 

Series C
57,578

 
57,578

Common stock:
 

 
 

Class A Voting
1,031

 
1,031

Class B Voting
500

 
500

Class C Non-Voting
9,171

 
8,826

Additional paid-in capital
106,617

 
102,821

Accumulated other comprehensive income
73,969

 
79,370

Retained earnings
102,243

 
62,554

Total Stockholders' Equity
351,109

 
312,680

Non-controlling interest - preferred stock
241,853

 
241,853

Total Equity
592,962

 
554,533

Total Liabilities and Equity
$
12,622,201

 
$
11,883,508




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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 
For the Three Months Ended
 
For the Year Ended
 
December 31,
 
December 31,
 
2012
 
2011
 
2012
 
2011
 
(in thousands, except per share amounts)
Interest income:
 
 
 
 
 
 
 
Investments and cash equivalents
$
6,036

 
$
7,017

 
$
24,729

 
$
28,117

Farmer Mac Guaranteed Securities and USDA Guaranteed Securities
27,767

 
35,863

 
136,297

 
127,394

Loans
22,348

 
29,762

 
103,644

 
119,176

Total interest income
56,151

 
72,642

 
264,670

 
274,687

Total interest expense
33,358

 
39,277

 
142,690

 
153,382

Net interest income
22,793

 
33,365

 
121,980

 
121,305

(Provision for)/release of loan losses
(4,354
)
 
482

 
(3,691
)
 
(610
)
Net interest income after (provision for)/release of loan losses
18,439

 
33,847

 
118,289

 
120,695

Non-interest income/(loss):
 
 
—

 
 

 
 

Guarantee and commitment fees
6,568

 
5,966

 
24,963

 
24,821

Gains/(losses) on financial derivatives and hedging activities
3,505

 
(10,277
)
 
(19,829
)
 
(92,645
)
Gains on trading assets
2,735

 
3,809

 
307

 
3,455

(Losses)/gains on sale of available-for-sale investment securities
(10
)
 
—

 
18

 
269

Gains on sale of real estate owned
629

 
254

 
878

 
974

Lower of cost or fair value adjustment on loans held for sale
(5,943
)
 
—

 
(5,943
)
 
8,887

Other income
890

 
1,102

 
3,341

 
6,850

Non-interest income/(loss)
8,374

 
854

 
3,735

 
(47,389
)
Non-interest expense:
 
 
—

 
 

 
 

Compensation and employee benefits
5,752

 
3,916

 
19,186

 
17,884

General and administrative
2,913

 
2,315

 
11,123

 
9,732

Regulatory fees
594

 
563

 
2,281

 
2,277

Real estate owned operating costs, net
47

 
82

 
134

 
823

(Release of)/provision for losses
(3,197
)
 
364

 
(1,816
)
 
(2,957
)
Other expense
—

 
—

 
—

 
900

Non-interest expense
6,109

 
7,240

 
30,908

 
28,659

Income before income taxes
20,704

 
27,461

 
91,116

 
44,647

Income tax expense
4,837

 
7,872

 
22,156

 
5,797

Net income
15,867

 
19,589

 
68,960

 
38,850

Less: Net income attributable to non-controlling interest - preferred stock dividends
(5,546
)
 
(5,546
)
 
(22,187
)
 
(22,187
)
Net income attributable to Farmer Mac
10,321

 
14,043

 
46,773

 
16,663

Preferred stock dividends
(720
)
 
(720
)
 
(2,879
)
 
(2,879
)
Net income attributable to common stockholders
$
9,601

 
$
13,323

 
$
43,894

 
$
13,784

 
 
 
 
 
 
 
 
Earnings per common share and dividends:
 
 
 
 
 

 
 

Basic earnings per common share
$
0.91

 
$
1.29

 
$
4.19

 
$
1.33

Diluted earnings per common share
$
0.87

 
$
1.23

 
$
3.98

 
$
1.28

Common stock dividends per common share
$
0.10

 
$
0.05

 
$
0.40

 
$
0.20


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