Farmer Mac New Business Volume
Reached $3 Billion in 2006
Portfolio Reflects Strength of Ag Economy As
Farmer Mac Reports 4th Quarter and Full Year 2006 Results
Washington, D.C. — The Federal Agricultural Mortgage Corporation (Farmer Mac, NYSE: AGM and AGM.A) today reported that it attained record new business volume of $3.0 billion in 2006. Farmer Mac noted that this growth was achieved with a portfolio of loans underlying its guarantees and standbys that continues to perform well, with delinquencies remaining at low levels in terms of both dollars and percentages. This is ongoing evidence of the effectiveness of Farmer Mac’s marketing strategies and credit risk management, the strength of the U.S. agricultural economy and the increasing value of U.S. agricultural land.
For the year ended December 31, 2006, GAAP net income was $29.8 million or $2.68 per diluted share, compared to $47.0 million or $4.09 per diluted share for the year ended December 31, 2005. For fourth quarter 2006, GAAP net income was $7.6 million or $0.70 per diluted share, compared to a GAAP net loss of $6.3 million or $0.58 per diluted share for third quarter 2006 and $11.9 million or $1.04 per diluted share for fourth quarter 2005.
For the year ended December 31, 2006, core earnings were $25.9 million or $2.33 per diluted share, compared to $28.7 million or $2.50 per diluted share for the year ended December 31, 2005. Core earnings were $6.9 million or $0.65 per diluted share for fourth quarter 2006, compared to $6.5 million or $0.58 per diluted share for third quarter 2006 and $7.2 million or $0.63 per diluted share for fourth quarter 2005. Core earnings for the year ended December 31, 2005 include the after-tax benefit of a change in accounting estimate related to the allowance for losses of $3.1 million or $0.27 per diluted share. Core earnings for the three and twelve months ended December 31, 2006 include the after-tax expense for stock options of $0.5 million and $1.6 million, respectively, in accordance with SFAS 123(R). A table setting forth a more detailed analysis of core earnings for the referenced periods appears below.
Farmer Mac President and Chief Executive Officer Henry D. Edelman observed, “2006’s new business volume of $3.0 billion is an important measure of the increased liquidity and lending capacity Farmer Mac is providing to agricultural lenders who make mortgage loans throughout rural America.
“Farmer Mac’s record business volume for 2006 was attributable principally to its marketing strategies focused on large, high asset quality program transactions, backed by increasing numbers of mortgage loans to farmers, ranchers and rural homeowners. These transactions achieve greater protection for Farmer Mac against adverse credit performance with commensurately lower compensation for the assumption of credit risk and administrative costs, resulting in projected risk-adjusted marginal returns on equity approximately equal to those of other Farmer Mac program transactions. That new volume brought the Farmer Mac portfolio of loans, guarantees, and standbys to $7.2 billion, a 37 percent net increase for the year.
“Farmer Mac’s net interest yield, adjusted for the effects of SFAS 133, was 77 basis points ($34.9 million) for 2006, compared to 88 basis points ($34.0 million) for 2005, principally due to narrowing spreads available in eligible capital markets investments. Throughout 2006, Farmer Mac’s long-term interest rate sensitivity remained low, despite the significant change in the slope of the yield curve that occurred during the year. Farmer Mac’s effective duration gap was plus 0.7 months as of December 31, 2006, compared to plus 0.5 months as of December 31, 2005.
“The combination of continued strong business volume, effective loan administration and conservative asset/liability management reflected in our 2006 results demonstrates the direction in which the Board and management of Farmer Mac seek to guide the Corporation. Continuation of these results should advance our Congressional mission for agriculture and rural America while enhancing stockholder value.”
Non-GAAP Performance Measures
Farmer Mac reports its financial results in accordance with GAAP. In addition to GAAP measures, Farmer Mac presents “core earnings,” a non-GAAP performance measure. Core earnings are net income available to common stockholders, less the after-tax effects of unrealized gains and losses on financial derivatives resulting from the application of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities. The GAAP measure most comparable to core earnings is net income available to common stockholders. Unlike core earnings, however, GAAP net income is affected by unrealized gains or losses in the value of financial derivatives used to hedge Farmer Mac’s interest rate risks, notwithstanding that those hedges were economically effective. Farmer Mac uses core earnings to develop financial plans, to measure corporate economic performance and to set incentive compensation because, in management’s view, core earnings more accurately represent Farmer Mac’s economic performance, transaction economics and business trends. Investors and the investment analyst community have previously relied upon similar measures to evaluate Farmer Mac’s historical and future performance. Farmer Mac’s disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.
The Corporation’s reconciliation of GAAP net income available to common stockholders to core earnings is presented in the following table. A further reconciliation of 2005 to 2006 core earnings shows 2005 results adjusted for: (a) the effect of a change in accounting estimate related to the allowance for losses recorded in 2005; and (b) estimates of expenses related to stock options, had they been expensed in 2005.
