Exhibit 99
FARMER MAC NEWS
FOR IMMEDIATE RELEASE CONTACT
July 29, 2004 Jerome Oslick
202-872-7700
Farmer Mac Reports Second Quarter Results
Credit Quality Continues to Improve
Washington, D.C. -- The Federal Agricultural Mortgage Corporation (Farmer
Mac, NYSE: AGM and AGM.A) today reported U.S. GAAP net income for second quarter
2004 of $2.0 million or $0.16 per diluted share, compared to $7.8 million or
$0.64 per diluted share for first quarter 2004 and $8.4 million or $0.70 per
diluted share for second quarter 2003. For the six months ended June 30, 2004,
net income was $9.8 million or $0.80 per diluted share, compared to $16.8
million or $1.40 per diluted share for the six months ended June 30, 2003. Core
earnings were $6.2 million or $0.51 per diluted share for second quarter 2004,
compared to $5.9 million or $0.48 per diluted share for first quarter 2004 and
$5.8 million or $0.48 per diluted share for second quarter 2003. For the six
months ended June 30, 2004, core earnings were $12.1 million or $0.99 per
diluted share, compared to $11.7 million or $0.97 per diluted share for the
corresponding period in the prior year.
Farmer Mac reports its "core earnings," a non-GAAP measure, in addition to
GAAP earnings. Core earnings 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.
Farmer Mac President and Chief Executive Officer Henry D. Edelman stated,
"Farmer Mac's new business volume for second quarter 2004 was $189.3 million.
While Farmer Mac's new business has been slowed by economic factors, including
the increased liquidity of agricultural borrowers and the increased available
capital and liquidity of agricultural lenders, Farmer Mac sees developing
opportunities for longer-term business prospects, including a strategic
alliance, product enhancements and refined security structures, that could
result in renewed growth for Farmer Mac.
"The positive trend of the performance of the portfolio of loans underlying
our guarantees and LTSPCs continues. Taking into account our expectation that
90-day delinquencies will fluctuate from quarter to quarter, 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 many
Farmer Mac I loans, we are pleased that, at June 30, 2004, 90-day delinquencies
in Farmer Mac's portfolio were at their lowest second quarter levels in three
years, in terms of both dollars and percentages. This underscores the
effectiveness of Farmer Mac's ongoing credit risk management and the strength in
the U.S. agricultural economy. As of June 30, 2004, those delinquencies totaled
$32.8 million, representing 0.68 percent of the portfolio, down from $51.3
million and 1.06 percent as of June 30, 2003, and $50.3 million and 1.12 percent
as of June 30, 2002. Likewise, real estate owned (REO) was reduced to $9.2
million as of June 30, 2004, from $17.2 million as of June 30, 2003.
"Other factors affecting the business outlook are regulatory actions by the
Farm Credit Administration (FCA), the federal regulator of both Farmer Mac and
the primary lenders in the Farm Credit System (FCS) and the Farm Credit System
Insurance Corporation (FCSIC), a U.S. Government controlled corporation managed
by a three-member board of directors composed of the members of the FCA Board,
which may diminish Farmer Mac's business prospects. Statements by either FCA or
FCSIC, or both, have cautioned other entities they regulate about doing business
with GSEs, including Farmer Mac, and have raised objections to FCS institutions'
use of Farmer Mac swaps. More recently, FCA proposed a regulation that, if
adopted as proposed, could adversely affect Farmer Mac's business by
establishing a new risk-weight allocation of capital applicable to Farmer Mac
transactions with FCS institutions, a major segment of Farmer Mac's customer
base. Farmer Mac disagrees with the proposed regulation as it would affect
Farmer Mac, viewing it as inconsistent with regulations currently in effect at
other federal regulators with respect to secondary market GSEs and not in the
best interests of America's farmers, ranchers, and rural homeowners, the
constituency Farmer Mac was mandated by Congress to serve; and, therefore, it is
hoped that this proposed regulation will not be adopted in its current form.
"Notwithstanding the demonstrated credit strength of the loans underlying
our guarantees and LTSPCs and the annuity-like nature of our income streams,
Farmer Mac's reduced business volume and current market and regulatory
conditions lead us now to believe the Corporation's 2004 core earnings per
diluted share will be at approximately the same level as in 2003."
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 the latter measures to develop financial plans, to
gauge corporate performance and to set incentive compensation because, in
management's view, the non-GAAP measures 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 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 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"). The GAAP measure most comparable to core
earnings is net income available to common stockholders. Unlike core earnings,
however, the GAAP measure is 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. Due in part to the effects of FAS 133, Farmer Mac's
GAAP net income available to common stockholders decreased to $2.0 million for
second quarter 2004, compared to $8.4 million for second quarter 2003, while its
core earnings were $6.2 million for second quarter 2004, compared to $5.8
million for second quarter 2003. Because the effects of financial derivatives
under FAS 133 included in the GAAP measure are driven by fluctuations in
interest rates that cannot reliably be predicted, Farmer Mac does not project
GAAP net income available to common stockholders.
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 Six Months Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
--------------------- -------------------- --------------------- --------------------
(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 $ 1,960 $ 0.16 $ 8,366 $ 0.70 $ 9,787 $0.80 $ 16,790 $ 1.40
Less the effects of FAS 133:
Unrealized gains/(losses)
on financial derivatives and
trading assets, net of tax (4,336) (0.36) 2,521 0.21 (2,511) (0.20) 4,963 0.41
Benefit from non-amortization
of premium payments
on financial derivatives,
net of tax 76 0.01 81 0.01 152 0.01 162 0.02
---------- ---------- ---------- --------- ----------- --------- ------------ ----------
Core earnings $ 6,220 $ 0.51 $ 5,764 $ 0.48 $ 12,146 $0.99 $ 11,665 $ 0.97
---------- ---------- ---------- --------- ----------- --------- ------------ ----------
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 $4.3 million in second quarter 2004.
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 $7.8 million for first quarter 2004, compared to $9.5 million for first
quarter 2004 and $9.4 million for second quarter 2003. The net interest yield
was 81 basis points for second quarter 2004, compared to 93 basis points for
first quarter 2004 and 94 basis points for second quarter 2003. The effects of
FAS 140 for second quarter 2004, first quarter 2004 and second quarter 2003
were, in each quarter, the reclassification of guarantee fee income as interest
income in the amount of approximately $1.1 million (11 basis points in second
quarter 2004 and 2003 and 10 basis points in first quarter 2004).
In 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, Farmer
Mac has reclassified the net interest income and expense realized on financial
derivatives that are not in fair value or cash flow hedge relationships from net
interest income into gains and losses on financial derivatives and trading
assets. In second quarter 2004, first quarter 2004 and second quarter 2003, this
reclassification resulted in a reduction of the net interest yield of 5 basis
points, a reduction of 4 basis points and an increase of 2 basis points,
respectively.
The net interest yields for second quarter 2004, first quarter 2004 and
second quarter 2003 included the benefits of yield maintenance payments of 13
basis points, 11 basis points and 12 basis points, respectively. For second
quarter 2004, yield maintenance payments increased net income by $0.8 million or
$0.07 per diluted share, compared to $0.8 million or $0.06 per diluted share for
first quarter 2004 and $0.8 million or $0.06 per diluted share for second
quarter 2003.
Guarantee and Commitment Fees
Guarantee and commitment fees were $5.3 million for second quarter 2004,
compared to $5.2 million for first quarter 2004 and $5.1 million for second
quarter 2003. 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 second quarter 2004, first quarter 2004 and
second quarter 2003, $1.1 million of guarantee fee income was reclassified as
interest income in each quarter, in accordance with FAS 140.
Gain on Sale of Farmer Mac Guaranteed Securities
During second quarter 2004, through a competitive bid process, the
Corporation sold Farmer Mac Guaranteed Securities in the amount of $26.9 million
to a related party in a transaction that resulted in a $0.4 million gain on
sale.
Miscellaneous Income
Miscellaneous income for second quarter 2004 was $2.0 million, compared to
$0.5 million for first quarter 2004 and $0.1 million for second quarter 2003.
During second quarter 2004, Farmer Mac received $1.8 million from two sellers
for breaches of representations and warranties associated with prior sales of
agricultural mortgage loans to Farmer Mac. Farmer Mac had previously charged off
these amounts as losses on the related loans.
Operating Expenses
Compensation and employee benefits for second quarter 2004 were $1.7
million, compared to $1.8 million for first quarter 2004 and $1.5 million for
second quarter 2003. General and administrative expenses for second quarter 2004
were $1.8 million, compared to $2.1 million for first quarter 2004 and $1.2
million for second quarter 2003. The year-to-year increases in compensation and
employee benefits and general and administrative expenses were due, in large
part, to greater staffing levels necessary for increased regulatory compliance
activities, including requirements of the Sarbanes-Oxley Act of 2002 and the
Farm Credit Administration ("FCA"), as well as heightened focus on the
regulatory environment for government-sponsored enterprises generally.
Regulatory fees for second quarter 2004 were $0.6 million, compared to $0.4
million for first quarter 2004 and $0.4 million for second quarter 2003. The
increase in regulatory fees includes an accrual for FCA's current estimate of
its supplemental assessment for the current federal fiscal year ending September
30, 2004, in the amount of $0.3 million.
Farmer Mac's net real estate owned ("REO") operating costs for second
quarter 2004 were $0.3 million, compared to $0.1 million for first quarter 2004.
Net REO operating costs in prior periods were nominal. Discussion of the
provision for losses is covered under the topic of "Credit" later in this
release.
Capital
Farmer Mac's core capital totaled $226.3 million as of June 30, 2004,
compared to $223.7 million as of March 31, 2004 and $202.9 million as of June
30, 2003. The regulatory methodology for calculating core capital excludes the
effects on capital 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 June 30, 2004
exceeded the statutory minimum capital requirement of $136.4 million by $89.9
million.
Farmer Mac is required to meet the capital standards of a risk-based
capital stress test promulgated by FCA ("RBC test") pursuant to federal statute.
The RBC test determines the amount of regulatory capital (core capital plus the
allowance for losses excluding the REO valuation allowance) 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 note rate. The RBC test
then adds to the resulting capital requirement an additional 30 percent for
management and operational risk.
As of June 30, 2004, the RBC test generated an estimated risk-based capital
requirement of $50.4 million, compared to the risk-based capital requirement of
$42.1 million as of March 31, 2004. Farmer Mac's regulatory capital of $247.5
million as of June 30, 2004 exceeded the RBC requirement by approximately $197.1
million. 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 June 30, 2004, Farmer Mac's 90-day delinquencies totaled $32.8
million, representing 0.68 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 $51.3 million (1.06 percent) as
of June 30, 2003. 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 June 30, 2004, non-performing assets totaled $69.8 million,
representing 1.43 percent of the principal balance of all loans held and loans
underlying post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs, compared
to $80.2 million (1.64 percent) as of June 30, 2003. Non-performing assets are
loans 90 days or more past due, in foreclosure, restructured after delinquency,
in bankruptcy, or REO. The principal balance of non-performing assets includes
certain segments of the portfolio that have cycled through foreclosure and into
the REO asset category, which completes the involuntary loan liquidation
process. Also included is 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.
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 many Farmer Mac I loans.
As of June 30, 2004, Farmer Mac had $9.2 million of REO, compared to $12.3
million as of March 31, 2004 and $17.2 million as of June 30, 2003. 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 geographic areas and in agricultural commodities that do not
receive significant government support. Prior to acquisition of property
securing a loan, Farmer Mac develops 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.
As of June 30, 2004, Farmer Mac analyzed the following three categories of
assets for impairment, based on the fair value of the underlying collateral: (1)
the $69.8 million of non-performing assets; (2) the $32.9 million of loans for
which Farmer Mac has adjusted the timing of borrowers' payment schedules within
the past three years, but still expects to collect all amounts due and has not
made economic concessions; and (3) the additional $54.4 million of performing
loans that have previously been delinquent or are secured by real estate that
produces commodities currently under stress. Those individual assessments
covered a total of $157.1 million of assets measured for impairment against
updated appraised values, other updated collateral valuations or discounted
values. Of the $157.1 million of assets analyzed, $135.8 million were adequately
collateralized. For the $21.3 million that were not adequately collateralized,
individual collateral shortfalls totaled $2.4 million. Accordingly, Farmer Mac
allocated specific allowances of $2.4 million to those under-collateralized
assets as of June 30, 2004. After the allocation of specific allowances from the
total allowance for losses of $21.8 million, the non-specific or general
allowance and the contingent obligation for inherent probable losses were $19.4
million.
During second quarter 2004, Farmer Mac charged off $2.0 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 second
quarter 2004, Farmer Mac received $1.8 million from two sellers for breaches of
representations and warranties associated with prior sales of agricultural
mortgage loans to Farmer Mac. Those recoveries are reported as miscellaneous
income on the Consolidated Statements of Operations. Farmer Mac had previously
charged off these amounts as losses on the related loans. Farmer Mac's total
provision for losses was $1.6 million for second quarter 2004, compared to $1.6
million for first quarter 2004 and $1.9 million for second quarter 2003. As of
June 30, 2004, Farmer Mac's allowance for losses and contingent obligation for
probable losses totaled $21.8 million, or 45 basis points of the outstanding
balance of loans held and loans underlying post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCs, compared to $22.2 million (45 basis points) as of March
31, 2004 and $21.9 million (45 basis points) as of June 30, 2003. 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.
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 June 30, 2004. 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 $ 7,671 $ 193 $ 11,952 $ 2,343 $ 22,159
Provision for losses (230) 452 1,235 158 1,615
Net charge-offs (1,876) (100) - - (1,976)
------------ ------------ ------------ --------------- -------------
Ending balance $ 5,565 $ 545 $ 13,187 $ 2,501 $ 21,798
------------ ------------ ------------ --------------- -------------
Interest Rate Risk
Farmer Mac measures its interest rate risk through several tests, including
the sensitivity of its Market Value of Equity ("MVE") and Net Interest Income
("NII") to uniform or "parallel" yield curve shocks. As of June 30, 2004, a
parallel increase of 100 basis points across the entire U.S. Treasury yield
curve would have decreased MVE by 1.7 percent, while a parallel decrease of 100
basis points would have increased MVE by 0.2 percent. As of June 30, 2004, a
parallel increase of 100 basis points would have increased Farmer Mac's NII, a
shorter-term measure of interest rate risk, by 8.2 percent, while a parallel
decrease of 100 basis points would have decreased NII by 9.8 percent. Farmer
Mac's duration gap, another measure of interest rate risk, was positive 0.6
months as of June 30, 2004.
The economic effects of financial 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
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 June 30, 2004, Farmer Mac had $625.3 million
notional amount of floating-to-fixed interest rate swaps for terms ranging from
1 to 15 years. In addition, Farmer Mac enters into "fixed-to-floating" interest
rate swaps and "basis 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 June 30, 2004, Farmer Mac had $905.1 million
of such interest rate swaps.
Farmer Mac uses financial derivatives for hedging purposes, not for
speculative purposes. All of Farmer Mac's financial derivative transactions are
conducted through standard, collateralized agreements that limit Farmer Mac's
potential credit exposure to any counterparty. As of June 30, 2004, Farmer Mac
had no uncollateralized net exposure to any counterparty.
Financial Derivatives and Financial Statement Effects of
FAS 133
Farmer Mac accounts for its financial 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 second quarter 2004, the decrease in net after-tax
income resulting from FAS 133 was $4.3 million and the net after-tax increase in
accumulated other comprehensive income was $27.1 million. During first quarter
2004, the increase in net after-tax income resulting from FAS 133 was $1.9
million and the net after-tax decrease in accumulated other comprehensive income
was $12.4 million. For second quarter 2003, the increase in net after-tax income
resulting from FAS 133 was $2.4 million and the net after-tax decrease in
accumulated other comprehensive income was $6.5 million. Accumulated other
comprehensive income is not a component of Farmer Mac's regulatory core capital.
Regulatory Matters
During second quarter 2004, FCA published a proposed regulation relating to
Farmer Mac's investments and liquidity. Farmer Mac expects to be able to comply
with the regulation, but is preparing comments on procedural aspects of the
proposal. The public comment period on this proposed regulation ends on
September 13, 2004.
Additionally, on June 10, 2004, the FCA Board approved a proposed
regulation that would establish a new risk-weight allocation of capital
applicable to Farmer Mac transactions with FCS institutions, a major segment of
Farmer Mac's customer base. Congress received the proposed regulation in early
July for a 30-day review period prior to publication in the Federal Register,
after which it will be subject to a 90-day public comment period and, as
drafted, an effective date eighteen months after the final regulation is
published. Currently, all banking regulators and FCA accord a 20 percent
risk-weight to assets backed by guarantees of government sponsored enterprises
(GSEs) such as Fannie Mae, Freddie Mac or Farmer Mac. The proposed regulation
would require an FCS institution to risk-weight assets on its books that are
guaranteed by a GSE based on the financial strength rating of the GSE as
determined by a nationally recognized statistical rating organization (NRSRO).
Under the proposed regulation: (a) the 20 percent risk-weight would apply to
such assets only if the GSE guarantor had a AAA or AA rating from an NRSRO; (b)
an A rating would result in a 50 percent risk-weight; and (c) a lower rating (or
no rating) would result in a 100 percent risk-weight. If the proposed regulation
is adopted as a final rule in its current form and Farmer Mac does not receive a
rating of at least AA within the period provided for in the proposed regulation,
not only would the benefit to an FCS institution of doing business with Farmer
Mac be diminished greatly after the adoption of the regulation, but also, based
on the language of the proposed regulation, a significant portion of the current
$2.8 billion of outstanding Farmer Mac I guarantees and commitments currently in
place with FCS institutions might be subject to early termination. There can be
no assurance that the regulation will not be adopted as a final rule in its
current form, or in a modified form with substantially the same effect.
Likewise, Farmer Mac currently is not rated, and there can be no assurance that
Farmer Mac would receive a AAA or AA rating from an NRSRO. Farmer Mac believes
there are good and sufficient reasons the proposed regulation should not be
adopted in its current form and, as part of the formal rule-making process, will
provide written comments to FCA setting forth those reasons. Farmer Mac's
comments will include the facts that the proposed regulation is inconsistent
with regulations currently in effect at other federal regulators with respect to
secondary market GSEs; that it would defeat the legislative intent of Congress
that Farmer Mac should be able reliably to increase the lending capacity of
agricultural lenders; and that its logic is essentially circular, in that Farmer
Mac's financial strength would become a function of the NRSRO's rating of its
financial strength.
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 could cause Farmer Mac's actual results or events
to differ materially from the expectations as expressed or implied by the
forward-looking statements, including 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 or constraints on Farmer Mac that could hamper its growth or
diminish its profitability; (3) legislative or regulatory developments or
interpretations of Farmer Mac's statutory charter that could adversely affect
Farmer Mac or the ability or motivation of certain lenders to participate in its
programs or the terms of any such participation, or increase the cost of
regulation and related corporate activities; (4) possible reaction in the
financial markets to events involving government-sponsored enterprises other
than Farmer Mac; (5) Farmer Mac's access to the debt markets at favorable rates
and terms; (6) the possible effect of the risk-based capital requirement, which
could, under certain circumstances, be in excess of the statutory minimum
capital requirement; (7) the rate of growth in agricultural mortgage
indebtedness; (8) lender interest in Farmer Mac credit products and the Farmer
Mac secondary market; (9) borrower preferences for fixed-rate agricultural
mortgage indebtedness; (10) competitive pressures in the purchase of
agricultural mortgage loans and the sale of agricultural mortgage backed and
debt securities; (11) substantial changes in interest rates, agricultural land
values, commodity prices, export demand for U.S. agricultural products and the
general economy; (12) 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; (13) the willingness of investors to invest in agricultural
mortgage-backed securities; or (14) the effects on the agricultural economy or
the value of agricultural real estate 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, 2003, as filed with the SEC on March 15,
2004 and Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended March
31, 2004, as filed with the SEC on May 10, 2004. 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 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 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 Forms 10-K and 10-Q referenced above) is
available on Farmer Mac's website at www.farmermac.com. The conference call to
discuss Farmer Mac's second quarter 2004 earnings and this press release will be
webcast on Farmer Mac's website beginning at 9:00 a.m. eastern time, Thursday,
July 29, 2004, 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
(unaudited)
(in thousands)
June 30, 2004 December 31, 2003 June 30, 2003
------------------ ------------------ ------------------
Assets:
Cash and cash equivalents $ 581,502 $ 623,674 $ 620,581
Investment securities 1,061,475 1,064,782 976,330
Farmer Mac Guaranteed Securities 1,384,814 1,508,134 1,543,039
Loans held for sale 24,243 46,662 51,848
Loans held for investment 919,645 942,929 953,555
Allowance for loan losses (5,565) (5,967) (3,102)
------------------ ------------------ ------------------
Loans, net 938,323 983,624 1,002,301
Real estate owned, net of valuation allowance
of $0.5 million, $0.2 million, and $0.6 million 9,179 15,478 17,241
Financial derivatives 2,662 961 4,751
Interest receivable 51,216 58,423 56,171
Guarantee and commitment fees receivable 18,554 16,885 4,648
Deferred tax asset, net 10,461 10,891 10,106
Prepaid expenses and other assets 22,364 16,798 32,679
------------------ ------------------ ------------------
Total Assets $ 4,080,550 $ 4,299,650 $ 4,267,847
------------------ ------------------ ------------------
Liabilities and Stockholders' Equity:
Notes payable:
Due within one year $ 2,364,793 $ 2,799,384 $ 2,863,112
Due after one year 1,360,338 1,136,110 1,026,864
------------------ ------------------ ------------------
Total notes payable 3,725,131 3,935,494 3,889,976
Financial derivatives 51,566 67,670 98,433
Accrued interest payable 25,201 26,342 29,349
Guarantee and commitment obligation 16,714 14,144 -
Accounts payable and accrued expenses 22,692 29,574 29,227
Reserve for losses 13,187 13,172 18,169
------------------ ------------------ ------------------
Total Liabilities 3,854,491 4,086,396 4,065,154
Preferred stock 35,000 35,000 35,000
Common stock at par 12,097 12,054 11,790
Additional paid-in capital 89,546 88,652 84,504
Accumulated other comprehensive income/(loss) (214) (2,295) (203)
Retained earnings 89,630 79,843 71,602
------------------ ------------------ ------------------
Total Stockholders' Equity 226,059 213,254 202,693
------------------ ------------------ ------------------
Total Liabilities and Stockholders' Equity $ 4,080,550 $ 4,299,650 $ 4,267,847
------------------ ------------------ ------------------
Federal Agricultural Mortgage Corporation
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
----------------------- -----------------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
---------- ------------ -------------- -------------
Interest income:
Investments and cash equivalents $ 8,109 $ 8,890 $ 16,445 $ 18,496
Farmer Mac Guaranteed Securities 16,239 18,688 32,866 38,200
Loans 12,565 13,288 26,690 26,137
---------- ------------ -------------- -------------
Total interest income 36,913 40,866 76,001 82,833
Interest expense 29,074 31,501 58,695 63,594
---------- ------------ -------------- -------------
Net interest income 7,839 9,365 17,306 19,239
Provision for loan losses 230 (1,416) (2,563) (2,624)
---------- ------------ -------------- -------------
Net interest income after provision for loan losses 8,069 7,949 14,743 16,615
Guarantee and commitment fees 5,251 5,111 10,473 10,205
Gains/(Losses) on financial derivatives
and trading assets (6,152) 3,669 (2,903) 7,003
Gain on sale of Farmer Mac Guaranteed Securities 367 - 367 -
Gains/(Losses) on the sale of real estate owned 30 (225) (252) (102)
Miscellaneous income 1,960 138 2,482 389
---------- ------------ -------------- -------------
Total revenues 9,525 16,642 24,910 34,110
---------- ------------ -------------- -------------
Expenses:
Compensation and employee benefits 1,717 1,465 3,512 2,905
General and administrative 1,820 1,213 3,893 2,404
Regulatory fees 649 382 1,061 765
REO operating costs, net 268 - 343 -
Provision for losses 1,845 472 668 1,490
---------- ------------ -------------- -------------
Total operating expenses 6,299 3,532 9,477 7,564
---------- ------------ -------------- -------------
Income before income taxes 3,226 13,110 15,433 26,546
Income tax expense 706 4,184 4,526 8,636
---------- ------------ -------------- -------------
Net income 2,520 8,926 10,907 17,910
Preferred stock dividends (560) (560) (1,120) (1,120)
---------- ------------ -------------- -------------
Net income available to common stockholders $ 1,960 $ 8,366 $ 9,787 $ 16,790
---------- ------------ -------------- -------------
Earnings per common share:
Basic earnings per common share $ 0.16 $ 0.71 $ 0.81 $ 1.44
Diluted earnings per common share $ 0.16 $ 0.70 $ 0.80 $ 1.40
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 LTSPCs
- ---------------------------------------------------------------------------------------------
Farmer Mac I
------------------------------
Loans and
Guaranteed
Securities LTSPCs Farmer Mac II Total
-------------- --------------- ---------------- -------------
(in thousands)
For the quarter ended:
June 30, 2004 $ 27,520 $ 127,098 $ 34,671 $ 189,289
March 31, 2004 25,444 147,273 34,483 207,200
December 31, 2003 25,148 218,097 44,971 288,216
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
For the year ended:
December 31, 2003 192,577 763,342 271,229 1,227,148
December 31, 2002 747,881 1,155,479 173,011 2,076,371
Outstanding Balance of Farmer Mac Loans, Guarantees and LTSPCs (1)
- ----------------------------------------------------------------------------------------------------------------
Farmer Mac I
-----------------------------------------------
Post-1996 Act
-------------------------------
Loans and
Guaranteed Pre-1996
Securities LTSPCs Act Farmer Mac II Total
--------------- -------------- -------------- ---------------- ----------------
(in thousands)
As of:
June 30, 2004 $ 2,521,026 $2,390,779 $ 22,155 $ 715,750 $ 5,649,710
March 31, 2004 2,566,412 2,382,648 22,261 722,978 5,694,299
December 31, 2003 2,696,530 2,348,702 24,734 729,470 5,799,436
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
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:
June 30, 2004 $ 782,854 $ 978,531 $ 529,654 $ 2,291,039
March 31, 2004 818,497 978,263 548,134 2,344,894
December 31, 2003 860,874 1,045,217 542,024 2,448,115
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
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:
June 30, 2004 $ 4,882,505 $ 69,751 1.43% $ 36,978 $ 32,773 0.68%
March 31, 2004 4,922,759 91,326 1.86% 33,951 57,375 1.17%
December 31, 2003 5,020,032 69,964 1.39% 39,908 30,056 0.60%
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%
Distribution of Post-1996 Act Non-performing Assets
and 90-Day Delinquencies by Original LTV Ratio (5)
as of June 30, 2004
- --------------------------------------------------------------------------------------------------
(dollars in thousands)
Non-performing 90-Day
Original LTV Ratio Assets Percentage Delinquencies Percentage
- ----------------------- ------------------- ------------ ---------------- -------------
0.00% to 40.00% $ 6,939 10% $ 5,105 15%
40.01% to 50.00% 9,435 14% 3,485 11%
50.01% to 60.00% 33,696 48% 13,380 41%
60.01% to 70.00% 17,742 25% 9,722 30%
70.01% to 80.00% 1,762 3% 1,081 3%
80.01% + 177 0% - 0%
------------------- ------------ ---------------- -------------
Total $ 69,751 100% $ 32,773 100%
------------------- ------------ ---------------- -------------
Distribution of Post-1996 Act Non-performing Assets
and 90-Day Delinquencies by Loan Origination Date
as of June 30, 2004
- --------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Outstanding
Post-1996 Act
Loan Loans,
Origination Guarantees Non-performing 90-Day
Date and LTSPCs Assets Percentage Delinquencies Percentage
- ---------------- ------------------- ------------------ ------------------- ---------------- -----------------
Before 1994 $ 587,138 $ 2,455 0.42% $ 1,497 0.26%
1994 141,738 1,313 0.93% 1,313 0.93%
1995 142,385 2,860 2.01% 1,814 1.28%
1996 317,950 12,058 3.79% 6,045 1.94%
1997 380,076 10,201 2.68% 3,316 0.89%
1998 602,068 12,466 2.07% 3,938 0.66%
1999 619,048 12,673 2.05% 5,855 0.96%
2000 370,726 6,767 1.83% 2,736 0.75%
2001 565,216 8,450 1.50% 6,259 1.11%
2002 610,233 508 0.08% - 0.00%
2003 460,323 - 0.00% - 0.00%
2004 85,604 - 0.00% - 0.00%
------------------- ------------------ ------------------- ---------------- -----------------
Total $ 4,882,505 $ 69,751 1.43% $ 32,773 0.68%
------------------- ------------------ ------------------- ---------------- -----------------
<FN>
(1) Farmer Mac assumes 100 percent of the credit risk on post-1996 Act loans.
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 II loans are guaranteed by the U.S. Department of
Agriculture.
(2) The Loans and Guaranteed Securities and LTSPCs amounts reflect the
conversion of $722.3 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.
</FN>