Farmer Mac Reports Third Quarter 2017 Financial Results Record Outstanding Business Volume of $18.6 Billion

WASHINGTON, November 9, 2017- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced its results for the fiscal quarter ended September 30, 2017, which included $385.4 million in net new business volume growth that brought total outstanding business volume to $18.6 billion as of September 30, 2017. Farmer Mac's net income attributable to common stockholders for third quarter 2017 was $18.5 million ($1.71 per diluted common share), compared to $17.5 million ($1.62 per diluted common share) in second quarter 2017 and $16.4 million ($1.54 per diluted common share) in third quarter 2016. Farmer Mac's third quarter 2017 core earnings, a non-GAAP measure, were $17.0 million ($1.57 per diluted common share), compared to $16.0 million ($1.48 per diluted common share) in second quarter 2017 and $14.4 million ($1.36 per diluted common share) in third quarter 2016.

"Disciplined execution on our strategy, our success in business development efforts, and current industry dynamics that play to our strengths continue to help produce strong results for Farmer Mac," said President and Chief Executive Officer Tim Buzby. "Our third quarter 2017 results reflect these factors, as outstanding business volume reached a new record high of $18.6 billion and core earnings per share grew 15 percent year-over-year. We saw good business volume performance across all four of our lines of business, as growth in the agricultural credit market has remained strong throughout 2017. Some of Farmer Mac's credit metrics continued to show signs of normalization this quarter, although the modest deterioration was primarily due to borrower-specific factors. Farmer Mac continues to deliver upon its

mission throughout agricultural economic cycles, and this has never been more true than throughout the last two years."

Earnings

Farmer Mac's net income attributable to common stockholders for third quarter 2017 was

$18.5 million ($1.71 per diluted common share), compared to $16.4 million ($1.54 per diluted common share) for third quarter 2016. The $2.1 million increase compared to third quarter 2016 was driven by an increase in net interest income of $2.6 million, after tax. Also contributing to the year-over-year increase was a $0.8 million after-tax increase in gains in fair value of financial derivatives and hedged assets. The increase was offset in part by a $0.8 million after-tax decrease in unrealized gains in fair value of trading securities and a $0.6 million after-tax increase in non-interest expense. The increase in non-interest expense was primarily attributable to higher general and administrative ("G&A") and compensation and employee benefits expenses.

Core earnings in third quarter 2017 were $17.0 million ($1.57 per diluted common share), compared to $16.0 million ($1.48 per diluted common share) in second quarter 2017 and $14.4 million ($1.36 per diluted common share) in third quarter 2016. The $1.0 million sequential increase in core earnings was primarily driven by an after-tax decrease of $0.5 million in compensation and employee benefits expenses caused by the absence in third quarter 2017 of payouts of annual variable incentive compensation that occurred during second quarter 2017. Also contributing to the sequential increase was a $0.4 million after-tax increase in net effective spread.

The $2.6 million year-over-year increase in core earnings was primarily attributable to (1) a $2.6 million after-tax increase in net effective spread; (2) a $0.3 million increase in tax benefits recognized from exercises of stock-based awards in third quarter 2017 which did not occur in third quarter 2016; and

  1. a $0.3 million after-tax increase in other income, primarily driven by a decrease in hedging costs. Partially offsetting the year-over-year increase was a $0.6 million after-tax increase in operating expenses attributable to both an increase in compensation and employee benefits and G&A expenses.

    See "Use of Non-GAAP Measures" below for more information about core earnings, core earnings per share, and net effective spread and for a reconciliation of the comparable GAAP measures to these non-GAAP measures.

    Business Volume Highlights

    During third quarter 2017, Farmer Mac added $0.9 billion of new business volume, compared to

    $1.1 billion in third quarter 2016. Specifically, Farmer Mac:

    • purchased $298.3 million of newly originated Farm & Ranch loans;

    • purchased $291.0 million of AgVantage securities;

    • added $102.8 million of Farm & Ranch loans under LTSPCs;

    • purchased $90.2 million of USDA Securities;

    • purchased $70.0 million of Rural Utilities loans; and

    • issued $41.1 million of Farmer Mac Guaranteed USDA Securities

After $507.9 million of maturities and principal paydowns on existing business during third quarter 2017, Farmer Mac's outstanding business volume increased by $385.4 million from June 30, 2017 to $18.6 billion as of September 30, 2017. The increase in Farmer Mac's outstanding business volume was driven by broad-based portfolio growth across most of Farmer Mac's products and lines of business, including Farm & Ranch loans, AgVantage securities, USDA Securities, and Rural Utilities loans.

The $190.4 million net increase in AgVantage securities for third quarter 2017 resulted from purchases of $225.0 million from Rabo AgriFinance LLC ("Rabo") and of $66.0 million from smaller institutional customers, including first-time transactions with two new counterparties. The purchases from Rabo resulted in net portfolio growth of $175.0 million and reflect the first time that Rabo has used Farmer Mac's AgVantage funding for its shorter-term (less than one year) funding needs. Farmer Mac grew its Farm & Ranch loan portfolio by $186.4 million during third quarter 2017, which was primarily driven by an increase in the average size of loans purchased, including several large loans with large borrowers. This growth outpaced the seasonally large amount of repayments that resulted from a July 1 payment date on most loans within the Farm & Ranch portfolio. The $61.9 million net increase in USDA

Securities reflected an increase in USDA Securities securitized and sold to lenders in the form of Farmer Mac Guaranteed USDA Securities. Farmer Mac grew its Rural Utilities loan portfolio by $42.4 million, which was primarily due to the purchases of a few larger loans in competitive situations as a result of an improvement in Farmer Mac's pricing on these types of loans.

Spreads

Net interest income was $39.6 million in third quarter 2017, compared to $35.6 million in third quarter 2016. In percentage terms, net interest income for third quarter 2017 was 0.92 percent, compared to 0.89 percent in third quarter 2016. The $4.0 million year-over-year increase in net interest income was driven by net growth in Farm & Ranch loans, USDA Securities, and on-balance sheet AgVantage securities. Another factor contributing to the increase was the effect of an increase in short-term interest rates on assets and liabilities indexed to LIBOR due to the Federal Reserve's decision to raise the target range for the federal funds rate in December 2016, March 2017, and June 2017. This effect on net interest income occurred because interest expense used to calculate net interest income does not include all the funding expenses related to these assets, specifically the expense on financial derivatives not designated in hedge accounting relationships. This increase in short-term rates on assets and liabilities indexed to LIBOR did not have a similar effect on net effective spread because net effective spread includes interest expense from all funding related to those assets, including interest expense from financial derivatives not designated in hedge accounting relationships. The increase in net interest income was offset in part by an increase in net yield adjustments related to amortization of premiums and discounts on assets consolidated at fair value and a decrease in the amount of cash basis interest income recognized on nonaccrual Farm & Ranch loans. The 3 basis point year-over-year increase in net interest income in percentage terms was primarily attributable to a reduction in the average balance of lower-earning cash and cash equivalents and investment securities.

Farmer Mac's net effective spread, a non-GAAP measure, was $36.2 million in third quarter 2017, compared to $35.6 million in second quarter 2017 and $32.2 million in third quarter 2016. In percentage

Federal Agricultural Mortgage Corporation published this content on 09 November 2017 and is solely responsible for the information contained herein.
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