UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 22, 2003
Federal Agricultural Mortgage Corporation
----------------------------------------------
(Exact name of registrant as specified in its charter)
Federally chartered
instrumentality of
the United States 0-17440 52-1578738
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1133 21st Street, N.W., Suite 600, Washington, D.C. 20036
--------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 872-7700
No change
--------------------
(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
99 Press release dated October 22, 2003.
Item 9. Regulation FD Disclosure.
On October 22, 2003, the Registrant issued a press release to announce the
Registrant's financial results for third quarter 2003. A copy of the press
release is attached to this report as Exhibit 99 and is incorporated herein by
reference.
The information set forth above is being furnished under "Item 9.
Regulation FD Disclosure" and "Item 12. Results of Operations and Financial
Condition" and shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section. The information in this Form 8-K shall not be incorporated by reference
in any other filing under the Securities Exchange Act of 1934 or the Securities
Act of 1933 except as shall be expressly set forth by specific reference to this
Form 8-K in such a filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By: /s/ Jerome G. Oslick
---------------------------------
Name: Jerome G. Oslick
Title: Vice President - General Counsel
Dated: October 22, 2003
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
99 Press Release Dated October 22, 2003 5
Exhibit 99
FARMER MAC
NEWS
FOR IMMEDIATE RELEASE CONTACT
October 22, 2003 Jerome Oslick
202-872-7700
Farmer Mac Reports Third Quarter Results
Year-to-Date Earnings Up, Delinquencies at 2-Year Low
Washington, D.C. -- The Federal Agricultural Mortgage Corporation (Farmer
Mac, NYSE: AGM and AGM.A) today reported U.S. GAAP net income for third quarter
2003 of $3.3 million or $0.28 per diluted share, compared to $8.4 million or
$0.70 per diluted share for second quarter 2003 and $5.0 million or $0.42 per
diluted share for third quarter 2002. For the nine months ended September 30,
2003, net income was $20.1 million or $1.68 per diluted share, compared to $18.5
million or $1.54 per diluted share for the nine months ended September 30, 2002.
Farmer Mac President and Chief Executive Officer Henry D. Edelman stated,
"Farmer Mac's third quarter performance evidences the fundamental strength of
its business model as it fulfills its Congressionally-mandated mission to serve
America's farmers, ranchers and rural homeowners.
"In addition to GAAP earnings, Farmer Mac reports its `core earnings,' a
non-GAAP measure. That measure was developed by Farmer Mac to present net income
available to common stockholders less the after-tax effects of unrealized gains
and losses on financial derivatives resulting from the application of the
derivative accounting standards, and less the after-tax net gains and losses on
the repurchase of debt. Core earnings were $5.5 million or $0.46 per diluted
share for third quarter 2003, compared to $5.8 million or $0.48 per diluted
share for second quarter 2003 and $5.9 million or $0.49 per diluted share for
third quarter 2002. For the nine months ended September 30, 2003, core earnings
were $17.2 million or $1.43 per diluted share, compared to $17.0 million or
$1.41 per diluted share for the corresponding period in the prior year.
"We are pleased by the continued improvements in the performance of the
portfolio of loans underlying our guarantees and LTSPCs. As a result of Farmer
Mac's ongoing credit risk management efforts, 90-day delinquencies in Farmer
Mac's portfolio were at their lowest levels in more than two years: $47.1
million, representing 0.98 percent of the portfolio as of September 30, 2003,
down from the September 30, 2002 levels of $79.8 million and 1.77 percent, and
the September 30, 2001 levels of $66.5 million and 2.00 percent.
"Quarterly new business volume improved to $349.1 million for third quarter
2003, compared to $322.3 million for second quarter and $267.5 million for first
quarter. Lender interest in Farmer Mac is producing a steady stream of new
volume in the form of Farmer Mac I and II individual loan purchases and
additions to existing long-term standby purchase commitments ("LTSPCs"), and
prospects for larger portfolio transactions exist. We believe the recent release
of the October 2003 GAO Report on Farmer Mac has cleared the way for significant
new marketing opportunities.
"Based upon these considerations, we believe that Farmer Mac's financial
condition and business prospects are strong and that 2003 core earnings per
diluted share will meet or exceed 2002 core earnings per diluted share of
$1.90."
Core earnings, the measure most comparable to GAAP net income available to
common stockholders, are not heavily influenced by unrealized gains or losses in
the value of financial derivatives used to hedge interest rate risk in Farmer
Mac's mortgage portfolio. Since the value of those financial derivatives is
driven by fluctuations in interest rates that cannot reliably be projected,
Farmer Mac is unable to project GAAP net income available to common
stockholders.
Non-GAAP Performance Measures
Farmer Mac reports its financial results in accordance with GAAP. In
addition to GAAP measures, Farmer Mac presents certain non-GAAP performance
measures. Farmer Mac uses these non-GAAP performance measures to develop
financial plans, to measure corporate performance and to set incentive
compensation. They provide relatively less volatile financial information and
are a more accurate representation of Farmer Mac's economic performance,
transaction economics and business trends. Investors and the investment analyst
community have previously used similar measures to evaluate Farmer Mac's
historical and future performance. Farmer Mac's disclosure of non-GAAP measures
is not intended to replace GAAP information but, rather, to supplement it.
Core earnings is one such non-GAAP measure that Farmer Mac developed to
present net income available to common stockholders less: (a) the after-tax
effects of unrealized gains and losses on financial derivatives resulting from
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"), and (b) the after-tax net gains
and losses on the repurchase of debt that, prior to January 1, 2003, were
reported as extraordinary items. Due in part to the adverse effects of FAS 133,
Farmer Mac's GAAP net income available to common stockholders decreased to $3.3
million for third quarter 2003, compared to $5.0 million for third quarter 2002,
while its less volatile core earnings were $5.5 million for third quarter 2003,
compared to $5.9 million for third quarter 2002. The reconciliation of GAAP net
income available to common stockholders to core earnings is presented in the
following table:
Reconciliation of GAAP Net Income Available to Common Stockholders to Core Earnings
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------------------------------------- ----------------------------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------------------- ------------------------ ----------------------- ---------------------
(in thousands, except per share amounts)
Per Per Per Per
Diluted Diluted Diluted Diluted
Share Share Share Share
---------- ---------- ---------- ---------
GAAP net income available
to common stockholders $ 3,345 $ 0.28 $ 5,030 $ 0.42 $ 20,139 $ 1.68 $ 18,518 $ 1.54
Less the effects of FAS 133:
Unrealized gains and (losses)
on financial derivatives and
trading assets, net of tax (2,269) (0.19) (943) (0.08) 2,695 0.22 (947) (0.08)
Benefit from non-amortization
of premium payments
on financial derivatives,
net of tax 76 0.01 92 0.01 238 0.02 294 0.03
Less gains on the repurchase of
debt previously reported as
extraordinary items, net of tax - - - - - - 2,203 0.18
-------------- ---------- ------------- ---------- ------------- -------- --------- --------
Core earnings $ 5,538 $ 0.46 $ 5,881 $ 0.49 $ 17,206 $ 1.43 $ 16,968 $ 1.41
-------------- ---------- ------------- ---------- ------------- -------- --------- --------
Later in this release, Farmer Mac provides additional information about the
impact of FAS 133, which decreased GAAP net income available to common
stockholders by $2.2 million in third quarter 2003.
Net Interest Income
Net interest income, which does not include guarantee fees from loans
purchased and retained prior to April 1, 2001 (the effective date of Statement
of Financial Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities ("FAS 140")),
was $8.9 million for third quarter 2003, compared to $9.4 million for second
quarter 2003 and $11.1 million for third quarter 2002. The net interest yield
was 89 basis points for third quarter 2003, compared to 92 basis points for
second quarter 2003 and 114 basis points for third quarter 2002. The effects of
FAS 140 for third quarter 2003, second quarter 2003 and third quarter 2002 were
the reclassification of guarantee fee income as interest income in the amount of
approximately $1.1 million (11 basis points), $1.1 million (10 basis points) and
$1.0 million (10 basis points), respectively.
During third quarter 2003, the Chief Accountant at the U.S. Securities and
Exchange Commission ("SEC") provided additional guidance to all registrants
regarding the classification on the statement of operations of realized gains
and losses resulting from financial derivatives that are not in fair value or
cash flow hedge relationships. All registrants were requested to comply with
this guidance in future filings and to reclassify this activity for all prior
periods presented. As a result of the application of this additional guidance,
the net interest income and expense realized on financial derivatives that are
not in fair value or cash flow hedge relationships has been reclassified from
net interest income into gains and losses on financial derivatives and trading
assets. For third quarter 2003, second quarter 2003 and third quarter 2002, this
reclassification resulted in the reduction of the net interest yield of 1 basis
point, an increase of 3 basis points and an increase of 11 basis points,
respectively.
The net interest yields for third quarter 2003, second quarter 2003 and
third quarter 2002 included the benefits of yield maintenance payments of 11
basis points, 11 basis points and 15 basis points, respectively. For third
quarter 2003, the effects of yield maintenance payments on net income and
diluted earnings per share were $0.7 million or $0.6 per diluted share,
respectively, compared to $0.8 million or $0.06 per diluted share for second
quarter 2003 and $0.9 million or $0.08 per diluted share for third quarter 2002.
Guarantee and Commitment Fees
Guarantee and commitment fees were $5.1 million for third quarter 2003,
compared to $5.1 million for second quarter 2003 and $4.9 million for third
quarter 2002. The year-to-year increase in guarantee and commitment fees
reflects an increase in the average balance of outstanding guarantees and
commitments. As discussed above, for third quarter 2003, $1.1 million of
guarantee fee income was reclassified as interest income in accordance with FAS
140, compared to $1.1 million for second quarter 2003 and $1.0 million for third
quarter 2002.
Operating Expenses
Compensation and employee benefits for third quarter 2003 were $1.6
million, compared to $1.5 million for second quarter 2003 and $1.3 million for
third quarter 2002. The increase was due, in large part, to increased staffing
levels for administrative activities and compliance with regulatory
requirements, including those of the Sarbanes-Oxley Act of 2002. General and
administrative expenses for third quarter 2003 were $1.6 million, compared to
$1.2 million for second quarter 2003 and $2.2 million for third quarter 2002.
For the nine months ended September 30, 2003, general and administrative
expenses were $3.9 million, compared to $4.8 million for the nine months ended
September 30, 2002. Farmer Mac expects to continue to reduce those expenses
during the next twelve months, reflecting declining needs for the services of
outside consultants retained in connection with adverse publicity and
misinformation about the Corporation disseminated in 2002 and with the October
2003 GAO Report.
Regulatory fees for third quarter 2003 were $0.4 million, compared to $0.4
million for second quarter 2003 and $0.4 million for third quarter 2002. Farmer
Mac's federal regulator, the Farm Credit Administration ("FCA"), has advised
Farmer Mac that its estimated assessment level for the year ending September 30,
2004 will be $1.7 million, up from its $1.4 million estimated assessment level
for the year ended September 30, 2003. After the end of a federal government
fiscal year, FCA may revise its prior year estimated assessments to reflect
actual costs incurred, and has issued both additional assessments and refunds in
the past.
Discussion of the provision for losses is covered under the topic of
"Credit" later in this release.
Capital
Farmer Mac's core capital totaled $206.4 million as of September 30, 2003,
compared to $202.9 million as of June 30, 2003 and $181.1 million as of
September 30, 2002. The regulatory methodology for calculating core capital
excludes the effects of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("FAS 115") and
FAS 133, which are reported on Farmer Mac's balance sheet as accumulated other
comprehensive income/(loss). Farmer Mac's core capital as of September 30, 2003
exceeded the statutory minimum capital requirement of $137.7 million by $68.7
million.
Farmer Mac is required to meet the capital standards of a risk-based
capital stress test promulgated by FCA ("RBC test"). The RBC test determines the
amount of regulatory capital (core capital plus the allowance for losses) Farmer
Mac would need to maintain positive capital during a ten-year stress period
while incurring credit losses equivalent to the highest historical two-year
agricultural mortgage loss rates and an interest rate shock at the lesser of 600
basis points or 50 percent of the ten-year U.S. Treasury rate. The RBC test then
adds to the resulting capital requirement an additional 30 percent for
management and operational risk.
As of September 30, 2003, the RBC test generated an estimated risk-based
capital requirement of $45.5 million. Farmer Mac's regulatory capital of $229.1
million as of September 30, 2003 exceeded that amount by approximately $183.6
million. The $45.5 million estimated risk-based capital requirement as of
September 30, 2003 is consistent with the risk-based capital requirement of
$45.4 million as of June 30, 2003. Farmer Mac is required to hold capital at the
higher of the statutory minimum capital requirement or the amount required by
the RBC test.
Credit
As of September 30, 2003, Farmer Mac's 90-day delinquencies totaled $47.1
million, representing 0.98 percent of the principal balance of all loans held
and loans underlying post-Farm Credit System Reform Act ("1996 Act") Farmer Mac
I Guaranteed Securities and LTSPCs, compared to $79.8 million and 1.77 percent,
respectively, as of September 30, 2002. The 90-day delinquencies are loans 90
days or more past due, in foreclosure, restructured after delinquency, or in
bankruptcy, excluding loans performing under either their original loan terms or
a court-approved bankruptcy plan.
As of September 30, 2003, non-performing assets totaled $84.6 million,
representing 1.74 percent of the principal balance of all loans held and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs, compared
to $91.3 million (2.03 percent) as of September 30, 2002. Non-performing assets
are loans 90 days or more past due, in foreclosure, restructured after
delinquency, in bankruptcy, or real estate owned ("REO"). The principal balance
of non-performing assets reflects a group of loans that are current under the
original loan terms or a court-approved bankruptcy plan, though the borrowers on
those loans have filed for bankruptcy protection, and certain segments of the
portfolio that have cycled through foreclosure and into the REO asset category,
which completes the involuntary loan liquidation process.
The difference between the non-performing asset and 90-day delinquency
measures is the exclusion of REO and loans performing in bankruptcy from 90-day
delinquencies. Unlike the non-performing asset measure, the 90-day delinquency
measure takes into account only those outstanding loans on which borrowers are
not current on their required payments and does not include loans that have been
liquidated.
From quarter to quarter, Farmer Mac anticipates that 90-day delinquencies
and non-performing assets will fluctuate, both in dollars and as a percentage of
the outstanding portfolio, with higher levels likely at the end of the first and
third quarters of each year corresponding to the semi-annual (January 1st and
July 1st) payment characteristics of most Farmer Mac I loans.
As of September 30, 2003, Farmer Mac had $16.4 million of REO, compared to
$17.2 million as of June 30, 2003 and $3.7 million as of September 30, 2002. The
commodity and geographic diversification of the REO properties is consistent
with the commodity and geographic diversification of the non-performing assets.
Analysis of the portfolio by geographic and commodity distribution indicates
that non-performing assets, including REO, have been and are expected to be most
prevalent in the loans concentrated in geographic areas and commodities that do
not receive significant government support. Prior to acquisition of property
securing a loan, Farmer Mac devises a liquidation strategy that results in
either an immediate sale or retention pending later sale. Farmer Mac evaluates
these and other alternatives based upon the economics of the transactions and
the requirements of local law.
Farmer Mac analyzes each asset in its portfolio of non-performing assets to
measure impairment, based on the fair value of the underlying collateral. As of
September 30, 2003, Farmer Mac's analysis of its $84.6 million of non-performing
assets and their updated appraisals or other collateral valuations indicated
that $68.0 million of non-performing assets were adequately collateralized. On
the remaining $16.6 million of non-performing assets, loan-by-loan analyses
considering updated collateral values indicated individual collateral shortfalls
that totaled $3.4 million. Accordingly, Farmer Mac allocated specific allowances
of $3.4 million to those loans. As of September 30, 2003, after the allocation
of specific allowances to under-collateralized loans, Farmer Mac had remaining
non-specific or general allowances and contingent obligation for inherent
probable losses of $19.4 million, with the total allowance for losses of $22.7
million.
During third quarter 2003, Farmer Mac charged off $1.3 million in losses
against the allowance for losses. In certain collateral liquidation scenarios,
Farmer Mac may recover amounts previously charged off or incur additional
losses, if liquidation proceeds vary from previous estimates. During third
quarter 2003, Farmer Mac recovered $0.1 million of losses previously charged
off. Farmer Mac's total provision for losses was $2.1 million for third quarter
2003, compared to $2.1 million for second quarter 2003 and $2.0 million for
third quarter 2002. As of September 30, 2003, Farmer Mac's allowance for losses
and contingent obligation for probable losses totaled $22.7 million, or 47 basis
points on the outstanding balance of loans held and loans underlying post-1996
Act Farmer Mac I Guaranteed Securities and LTSPCs, compared to $21.9 million (45
basis points) as of June 30, 2003 and $19.1 million (42 basis points) as of
September 30, 2002. Based on Farmer Mac's analysis of its entire portfolio,
individual loan-by-loan analyses, and loan collection experience, Farmer Mac
believes that specific and inherent probable losses are covered adequately by
its allowance for losses.
During third quarter 2003, at the request of a program participant, Farmer
Mac converted an LTSPC that had been established prior to January 1, 2003 into a
Farmer Mac Guaranteed Security. In accordance with Financial Accounting
Standards Board Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, Farmer Mac recorded the fair value of its obligation to stand ready to
perform under the new Farmer Mac Guaranteed Security. The fair value of this
obligation includes Farmer Mac's estimate of the losses that are anticipated
over the life of each contractual obligation. The change in accounting for this
obligation, from a probable loss model to a fair value model, has resulted in a
reduction in the reserve for losses of approximately $4.9 million. Since Farmer
Mac believes that these losses remain probable, they have been included in the
determination of the fair value of the contractual obligation.
The following table summarizes the changes in the components of Farmer
Mac's allowance for losses and contingent obligation for probable losses for the
three months ended September 30, 2003. The contingent obligation for probable
losses is a component of Farmer Mac's guarantee and commitment obligation.
Contingent
Allowance REO Obligation
for Loan Valuation Reserve for Probable
Losses Allowance for Losses Losses Total
------------ ------------ ------------ --------------- -------------
(in thousands)
Beginning balance $ 3,102 $ 592 $ 18,169 $ - $21,863
Provision for losses 3,391 1,368 (7,577) 4,940 2,122
Net charge-offs (322) (920) - - (1,242)
------------ ------------ ------------ --------------- -------------
Ending balance $ 6,171 $ 1,040 $ 10,592 $ 4,940 $22,743
------------ ------------ ------------ --------------- -------------
Interest Rate Risk
Farmer Mac measures its interest rate risk through several tests, including
the sensitivity of Market Value of Equity ("MVE") and Net Interest Income
("NII") to uniform or "parallel" yield curve shocks. As of September 30, 2003, a
parallel increase of 100 basis points across the entire U.S. Treasury yield
curve would have increased MVE by 0.7 percent, while a parallel decrease of 100
basis points would have decreased MVE by 1.5 percent. As of September 30, 2003,
a parallel increase of 100 basis points would have increased Farmer Mac's NII, a
shorter-term measure of interest rate risk, by 2.3 percent, while a parallel
decrease of 100 basis points would have decreased NII by 4.7 percent. Farmer Mac
also measures the sensitivity of both MVE and NII to a variety of non-parallel
interest rate shocks. As of September 30, 2003, Farmer Mac's MVE and NII were
less sensitive to those non-parallel shocks than to parallel shocks. Farmer
Mac's duration gap, another measure of interest rate risk, was minus 0.7 months
as of September 30, 2003.
The economic effects of derivatives, including interest rate swaps, are
included in the MVE, NII and duration gap analyses. As an alternative to
long-term fixed-rate debt issuance, Farmer Mac issues short-term debt and enters
into contracts to pay fixed rates of interest and receive floating rates of
interest from counterparties. These "floating-to-fixed interest rate swaps" are
used to adjust the characteristics of Farmer Mac's short-term debt to match more
closely the cash flow and duration characteristics of its longer-term mortgage
assets, thereby reducing interest rate risk, and also to derive an overall lower
effective fixed-rate cost of borrowing than would otherwise be available in the
conventional debt market. As of September 30, 2003, Farmer Mac had $695.4
million notional amount of floating-to-fixed interest rate swaps for terms
ranging from two months to 15 years. In addition, Farmer Mac enters into
interest rate swaps to adjust the characteristics of its assets and liabilities
to match more closely, on a cash flow and duration basis, thereby reducing
interest rate risk. As of September 30, 2003, Farmer Mac had $533.9 million of
such interest rate swaps.
Farmer Mac uses derivatives for hedging purposes, not for speculative
purposes. All of Farmer Mac's derivative transactions are conducted through
standard, collateralized agreements that limit Farmer Mac's potential credit
exposure to any counterparty. As of September 30, 2003, Farmer Mac had no
uncollateralized net exposure to any counterparty.
Derivatives and Financial Statement Effects of FAS 133
Farmer Mac accounts for its derivatives under FAS 133, which became
effective January 1, 2001. The implementation of FAS 133 resulted in significant
accounting changes to both the consolidated statements of operations and balance
sheets. During third quarter 2003, the decrease in net after-tax income
resulting from FAS 133 was $2.2 million and the net after-tax increase in
accumulated other comprehensive income was $11.5 million. During second quarter
2003, the increase in net after-tax income resulting from FAS 133 was $2.6
million and the net after-tax decrease in accumulated other comprehensive income
was $6.5 million. For third quarter 2002, the decreases in net after-tax income
and accumulated other comprehensive income resulting from FAS 133 were $0.9
million and $19.0 million, respectively. Accumulated other comprehensive income
is not a component of Farmer Mac's regulatory core capital.
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 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
uncertainties regarding: (1) the rate and direction of development of the
secondary market for agricultural mortgage loans; (2) the possible establishment
of additional statutory or regulatory restrictions on Farmer Mac that could
hamper its growth or restrain its profitability; (3) substantial changes in
interest rates, agricultural land values, commodity prices, export demand for
U.S. agricultural products and the general economy; (4) protracted adverse
weather, market or other conditions affecting particular geographic regions or
particular commodities related to agricultural mortgage loans backing Farmer Mac
I Guaranteed Securities or under LTSPCs; (5) legislative or regulatory
developments or interpretations of Farmer Mac's statutory charter that could
adversely affect Farmer Mac or the ability of certain lenders to participate in
its programs or the terms of any such participation; (6) Farmer Mac's access to
the debt markets at favorable rates and terms; (7) the possible effect of the
risk-based capital requirement, which could, under certain circumstances, be in
excess of the statutory minimum capital level; (8) borrower preferences for
fixed-rate agricultural mortgage indebtedness; (9) lender interest in Farmer Mac
credit products and the Farmer Mac secondary market; (10) competitive pressures
in the purchase of agricultural mortgage loans and the sale of agricultural
mortgage-backed and debt securities; or (11) the effects on the agricultural
economy of any changes in federal assistance for agriculture. Other factors are
discussed in Farmer Mac's Annual Report on Form 10-K for the year ended December
31, 2002, as filed with the SEC on March 27, 2003 and Farmer Mac's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003, as filed with the SEC
on August 14, 2003. 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, except as
otherwise mandated by the SEC.
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 USDA-guaranteed farm program and rural development loans. 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 (as well as the Form 10-K and Form 10-Q referenced above) is
available on Farmer Mac's website at www.farmermac.com. The conference call to
discuss Farmer Mac's third quarter 2003 earnings and this press release will be
webcast on Farmer Mac's website beginning at 11:00 a.m. eastern time, Thursday,
October 23, 2003, and an audio recording of that call will be available for two
weeks on Farmer Mac's website after the call is concluded.
* * * *
Federal Agricultural Mortgage Corporation
Consolidated Balance Sheets
(in thousands)
September 30, December 31, September 30,
2003 2002 2002
-------------------- ------------------- ------------------
(unaudited) (audited) (unaudited)
Assets:
Cash and cash equivalents $ 513,370 $ 723,800 $ 493,202
Investment securities 1,083,477 830,409 942,827
Farmer Mac Guaranteed Securities 1,521,167 1,608,507 1,636,639
Loans 979,643 966,123 878,845
Allowance for loan losses (6,171) (2,662) (4,228)
-------------------- ------------------- ------------------
Loans, net 973,472 963,461 874,617
Real estate owned, net of valuation allowance
of $1.0 million, $0.6 million and zero 16,413 5,031 3,678
Financial derivatives 2,816 317 3,660
Interest receivable 42,290 65,276 47,854
Guarantee and commitment fees receivable 14,729 5,938 4,368
Deferred tax asset 10,408 9,666 8,183
Prepaid expenses and other assets 18,229 10,510 16,596
-------------------- ------------------- ------------------
Total Assets $ 4,196,371 $ 4,222,915 $ 4,031,624
-------------------- ------------------- ------------------
Liabilities and Stockholders' Equity:
Notes payable:
Due within one year $ 2,763,811 $ 2,895,746 $ 2,589,382
Due after one year 1,074,070 985,318 1,118,338
-------------------- ------------------- ------------------
Total notes payable 3,837,881 3,881,064 3,707,720
Financial derivatives 82,112 94,314 67,688
Accrued interest payable 29,782 29,756 31,803
Guarantee and commitment obligation 15,659 - -
Accounts payable and accrued expenses 16,279 17,453 15,125
Reserve for losses 10,592 16,757 13,772
-------------------- ------------------- ------------------
Total Liabilities 3,992,305 4,039,344 3,836,108
Preferred stock 35,000 35,000 35,000
Common stock at par 11,796 11,638 11,629
Additional paid-in capital 84,655 82,527 82,445
Accumulated other comprehensive income/(loss) (2,336) (407) 14,407
Retained earnings 74,951 54,813 52,035
-------------------- ------------------- ------------------
Total Stockholders' Equity 204,066 183,571 195,516
-------------------- ------------------- ------------------
Total Liabilities and Stockholders' Equity $ 4,196,371 $ 4,222,915 $ 4,031,624
-------------------- ------------------- ------------------
Federal Agricultural Mortgage Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------ -------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
Interest income:
Investments and cash equivalents $ 7,994 $ 10,658 $ 26,490 $ 32,528
Farmer Mac Guaranteed Securities 17,783 22,793 55,984 68,353
Loans 13,543 12,734 39,679 26,926
------------ -------------- ------------- -------------
Total interest income 39,320 46,185 122,153 127,807
Interest expense 30,402 35,096 93,995 98,213
------------ -------------- ------------- -------------
Net interest income 8,918 11,089 28,158 29,594
Provision for loan losses (3,391) - (6,015) -
------------ -------------- ------------- -------------
Net interest income after provision for loan losses 5,527 11,089 22,143 29,594
Guarantee and commitment fees 5,056 4,874 15,261 14,164
Gains/(Losses) on financial derivatives
and trading assets (3,348) (2,563) 3,653 (4,754)
Gains on the repurchase of debt - - - 3,389
Miscellaneous income 354 458 743 1,218
------------ -------------- ------------- -------------
Total revenues 7,589 13,858 41,800 43,611
------------ -------------- ------------- -------------
Expenses:
Compensation and employee benefits 1,582 1,325 4,488 3,904
General and administrative 1,550 2,168 3,949 4,765
Regulatory fees 383 397 1,148 790
Provision for losses (1,269) 2,037 323 6,075
------------ -------------- ------------- -------------
Total operating expenses 2,246 5,927 9,908 15,534
------------ -------------- ------------- -------------
Income before income taxes 5,343 7,931 31,892 28,077
Income tax expense 1,438 2,341 10,073 8,663
------------ -------------- ------------- -------------
Net income 3,905 5,590 21,819 19,414
Preferred stock dividends (560) (560) (1,680) (896)
------------ -------------- ------------- -------------
Net income available to common stockholders $ 3,345 $ 5,030 $ 20,139 $ 18,518
------------ -------------- ------------- -------------
Earnings per common share:
Basic earnings per common share $ 0.28 $ 0.43 $ 1.72 $ 1.60
Diluted earnings per common share $ 0.28 $ 0.42 $ 1.68 $ 1.54
Federal Agricultural Mortgage Corporation
Supplemental Information
The following tables present quarterly and annual information regarding
loan purchases, guarantees and LTSPCs, outstanding guarantees and LTSPCs and
non-performing assets and 90-day delinquencies.
Farmer Mac Purchases, Guarantees and Commitments
------------------------------------------------------------------------------------------
Farmer Mac I
------------------------------
Loans and
Guaranteed
Securities LTSPCs Farmer Mac II Total
--------------- -------------- ---------------- ---------------
(in thousands)
For the quarter ended:
September 30, 2003 $ 42,760 $ 199,646 $ 106,729 $ 349,135
June 30, 2003 65,615 179,025 77,636 322,276
March 31, 2003 59,054 166,574 41,893 267,521
December 31, 2002 62,841 395,597 38,714 497,152
September 30, 2002 58,475 140,157 37,374 236,006
June 30, 2002 551,690 280,904 57,769 890,363
March 31, 2002 74,875 338,821 39,154 452,850
December 31, 2001 62,953 237,292 51,056 351,301
September 30, 2001 75,135 246,472 42,396 364,003
June 30, 2001 85,439 499,508 57,012 641,959
March 31, 2001 48,600 49,695 47,707 146,002
For the year ended:
December 31, 2002 747,881 1,155,479 173,011 2,076,371
December 31, 2001 272,127 1,032,967 198,171 1,503,265
Outstanding Balance of Farmer Mac Loans, Guarantees and Commitments (1)
----------------------------------------------------------------------------------------------------------------
Farmer Mac I
-----------------------------------------------
Post-1996 Act
-------------------------------
Loans and
Guaranteed Pre-1996
Securities LTSPCs Act Farmer Mac II Total
--------------- -------------- -------------- ---------------- ----------------
(in thousands)
As of:
September 30, 2003 (2) $ 2,721,775 $2,174,182 $ 25,588 $ 720,584 $ 5,642,129
June 30, 2003 2,108,180 2,790,480 28,057 668,899 5,595,616
March 31, 2003 2,111,861 2,732,620 29,216 650,152 5,523,849
December 31, 2002 2,168,994 2,681,240 31,960 645,790 5,527,984
September 30, 2002 2,127,460 2,407,469 35,297 630,452 5,200,678
June 30, 2002 2,180,948 2,336,886 37,873 617,503 5,173,210
March 31, 2002 1,655,485 2,126,485 41,414 592,836 4,416,220
December 31, 2001 1,658,716 1,884,260 48,979 595,156 4,187,111
September 30, 2001 1,605,160 1,731,861 58,813 608,944 4,004,778
Outstanding Balance of Loans Held and Loans Underlying
On-Balance Sheet Farmer Mac Guaranteed Securities
------------------------------------------------------------------------------------------------------------------------
Fixed Rate
(10-yr. Wtd. 5-to-10-Year 1-Month-to-3-Year
Avg. Term) ARMs and Resets ARMs Total
-------------------- ------------------ ----------------------- -------------------
(in thousands)
As of:
September 30, 2003 $ 865,817 $ 1,037,168 $ 535,915 $ 2,438,900
June 30, 2003 889,839 1,064,824 511,700 2,466,363
March 31, 2003 880,316 1,057,310 515,910 2,453,536
December 31, 2002 1,003,434 981,548 494,713 2,479,695
September 30, 2002 1,000,518 934,435 498,815 2,433,768
June 30, 2002 1,016,997 892,737 516,892 2,426,626
March 31, 2002 751,222 797,780 350,482 1,899,484
December 31, 2001 764,115 790,948 302,169 1,857,232
Non-performing Assets and 90-Day Delinquencies
------------------------------------------------------------------------------------------------------------------------------------
Outstanding
Post-1996 Act Less:
Loans, Non- REO and
Guarantees and Performing Performing 90-Day
LTSPCs Assets (3) Percentage Bankruptcies Delinquencies (4) Percentage
------------------ -------------- ------------- --------------- -------------------- --------------
(dollars in thousands)
As of:
September 30, 2003 $ 4,871,756 $ 84,583 1.74% $ 37,442 $ 47,141 0.98%
June 30, 2003 4,875,059 80,169 1.64% 28,883 51,286 1.06%
March 31, 2003 4,820,887 94,822 1.97% 18,662 76,160 1.58%
December 31, 2002 4,821,634 75,308 1.56% 17,094 58,214 1.21%
September 30, 2002 4,506,330 91,286 2.03% 11,460 79,826 1.77%
June 30, 2002 4,489,735 65,196 1.45% 14,931 50,265 1.12%
March 31, 2002 3,754,171 87,097 2.32% 7,903 79,194 2.11%
December 31, 2001 3,428,176 58,279 1.70% 3,743 54,536 1.59%
September 30, 2001 3,318,796 71,686 2.16% 5,183 66,503 2.00%
June 30, 2001 3,089,460 53,139 1.72% 4,274 48,865 1.58%
March 31, 2001 2,562,374 67,134 2.62% 2,154 64,980 2.54%
Distribution of Post-1996 Act
Non-performing Assets by Original LTV Ratio (5)
as of September 30, 2003
-----------------------------------------------------------------
(dollars in thousands)
Non-performing
Original LTV Ratio Assets Percentage
----------------------- ------------------- ----------------
0.00% to 40.00% $ 9,851 12%
40.01% to 50.00% 13,341 16%
50.01% to 60.00% 28,944 34%
60.01% to 70.00% 30,659 36%
70.01% to 80.00% 1,615 2%
80.01% + 173 0%
------------------- ----------------
Total $ 84,583 100%
------------------- ----------------
Distribution of Post-1996 Act Non-performing Assets
by Loan Origination Date
as of September 30, 2003
----------------------------------------------------------------------------
(dollars in thousands)
Outstanding
Loan Loans,
Origination Non-performing Guarantees
Date Assets and LTSPCs Percentage
---------------- ------------------- ---------------- ------------------
Before 1994 $ 3,458 $ 644,369 0.54%
1994 863 160,693 0.54%
1995 2,486 148,735 1.67%
1996 10,714 349,162 3.07%
1997 16,767 407,445 4.12%
1998 16,358 652,097 2.51%
1999 16,855 688,389 2.45%
2000 10,061 400,111 2.51%
2001 5,943 584,977 1.02%
2002 916 593,717 0.15%
2003 162 242,061 0.07%
------------------- ---------------- ------------------
Total $ 84,583 $ 4,871,756 1.74%
------------------- ---------------- ------------------
(1) 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.
(2) The Loans and Guaranteed Securities and LTSPCs amounts reflect the
conversion of $725 million of existing LTSPCs to Guaranteed Securities
during third quarter 2003 at the request of a program participant.
(3) Non-performing assets are loans 90 days or more past due, in foreclosure,
restructured after delinquency, in bankruptcy (including loans performing
under either their original loan terms or a court-approved bankruptcy plan)
or real estate owned.
(4) 90-day delinquencies are loans 90 days or more past due, in foreclosure,
restructured after delinquency, or in bankruptcy, excluding loans
performing under either their original loan terms or a court-approved
bankruptcy plan.
(5) Original LTV ratio is calculated by dividing the loan principal balance at
the time of guarantee, purchase or commitment by the appraised value at the
date of loan origination or, when available, the updated appraised value at
the time of guarantee, purchase or commitment.