FEDERAL AGRICULTURAL MORTGAGE CORPORATION WASHINGTON, D.C., November 9, 2015 - The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced its results for the quarter ended September 30, 2015, which included $498 million in net new business volume growth that brought total outstanding business volume to $15.6 billion. Farmer Mac's third quarter 2015 core earnings, a non-GAAP measure, were $13.2 million ($1.17 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) in second quarter 2015 and $9.3 million ($0.82 per diluted common share) in third quarter 2014.
'Farmer Mac's third quarter results demonstrate the company's success at helping to solve customers' needs by deploying the solutions Farmer Mac can offer, ' said President and Chief Executive Officer Tim Buzby. 'Our results were strong, as outstanding business volume grew nearly $500 million, core earnings increased to $13.2 million, and our credit quality remained very favorable. Our strong volume growth this quarter came from over $875 million in new business with our rural utilities partner, National Rural Utilities Cooperative Finance Corporation. During the quarter, we also implemented a share repurchase program, which authorized Farmer Mac to repurchase up to $25 million dollars of class C common stock over the next two years. We believe the share repurchase program provides us with the opportunity to return capital to stockholders and enhance earnings per share for our remaining stockholders, while still maintaining a strong capital position. Heading into the fourth quarter, the overall business environment for Farmer Mac is positive as we continue to develop innovative solutions that will meet the evolving needs of our expanding customer base.'
EarningsFarmer Mac's net income attributable to common stockholders for third quarter 2015 was
$8.4 million ($0.74 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) for third quarter 2014. The decrease compared to the previous year's quarter was primarily attributable to the effects of unrealized fair value changes on financial derivatives and hedged assets, which was a $4.5 million after-tax loss in third quarter 2015, compared to a $2.7 million after-tax gain in third quarter 2014. This year-over-year decline was partially offset by a decrease in preferred stock dividend expense of $3.5 million after-tax in third quarter 2015 compared to third quarter 2014, due to the redemption of all outstanding shares of Farmer Mac II LLC Preferred Stock on March 30, 2015.
Core earnings in third quarter 2015 were $13.2 million ($1.17 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) in second quarter 2015 and $9.3 million ($0.82 per diluted common share) in third quarter 2014. The increase in core earnings in third quarter 2015 compared to second quarter 2015 was driven primarily by a $1.0 million after-tax reduction in credit expenses and a $0.4 million dollar after-tax increase in net effective spread.
The year-over-year increase in core earnings was due in part to a $1.8 million after-tax increase in net effective spread excluding the impact of the loss of dividend income resulting from the redemption of
$78.5 million of high yielding preferred stock in Farmer Mac's investment portfolio in fourth quarter 2014, which was partially offset by a $0.7 million after-tax increase in operating expenses and a $0.4 million after-tax increase in credit expenses. The increase in operating expenses was related to consulting fees associated with corporate strategic initiatives and higher compensation costs related to the consolidation of Farmer Mac's appraisal subsidiary, Contour Valuation Services, LLC. Also contributing to the year-over-year increase in core earnings is the absence, as compared to third quarter 2014, of $3.5 million after-tax in preferred stock dividend expense resulting from the completion of the capital restructuring initiative and of $1.0 million after-tax in interest expense associated with the completion of the capital management and liquidity initiative.
See 'Non-GAAP Earnings Measures' below for more information about core earnings and for a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings.
Business Volume HighlightsDuring third quarter 2015, Farmer Mac added $1.4 billion of new business volume, with Rural Utilities loans under LTSPCs and AgVantage securities driving the volume. Specifically, Farmer Mac:
added $522.3 million Rural Utilities loans under LTSPCs;
added a $300.0 million revolving floating rate AgVantage facility;
purchased $206.6 million of AgVantage securities;
purchased $176.0 million of newly originated Farm & Ranch loans;
purchased $91.4 million of USDA Securities;
added $79.6 million of Farm & Ranch loans under LTSPCs; and
purchased $53.6 million of Rural Utilities loans.
After $931.5 million of maturities and principal paydowns on existing business during the quarter, which included $609.5 million in scheduled maturities of AgVantage securities, Farmer Mac's outstanding business volume increased a net $497.9 million from June 30, 2015 to $15.6 billion as of September 30, 2015.
During the third quarter 2015, Farmer Mac added $522.3 million of Rural Utilities loans under LTSPCs, which represents the first time Farmer Mac has provided LTSPCs under the Rural Utilities line of business. Third quarter business volume also included the addition of a $300 million revolving floating rate AgVantage facility with National Rural Utilities Cooperative Finance Corporation ('CFC'), which had not been drawn upon as of September 30, 2015. Farmer Mac believes that these two developments reflect industry dynamics that can increase demand for the solutions that Farmer Mac provides. For the first nine months of 2015, Farmer Mac's total business volume with CFC expanded to $3.9 billion, an increase of $1.2 billion since December 31, 2014. During the quarter, Farmer Mac also purchased $206.6 million of AgVantage securities, including $6.6 million of AgVantage securities that were purchased under Farm Equity AgVantage facilities. New business volume for loans within the Farm & Ranch line of business for the nine months ended September 30, 2015 was in line with the same period in 2014 and
demand seems stable. Additionally, prepayment rates remained low during third quarter 2015, which contributed to the continuation of favorable trends in net loan growth during the quarter.
Net Effective SpreadFarmer Mac's net effective spread was $30.4 million (88 basis points) in third quarter 2015, compared to $29.8 million (88 basis points) in second quarter 2015 and $29.8 million (97 basis points) in third quarter 2014. The increase in net effective spread in third quarter 2015 compared to second quarter 2015 was primarily due to growth in outstanding business volume. In percentage terms, net effective spread remained unchanged in sequential quarters due to stable new business pricing and the relatively low rate of prepayments on loan assets.
The increase in net effective spread in third quarter 2015 compared to third quarter 2014 was attributable to growth in outstanding business volume. In percentage terms, the year-over-year reduction was driven primarily by the loss of $2.1 million in preferred dividend income (7 basis points) from the October 2014 redemption of high-yielding preferred stock held in Farmer Mac's investment portfolio.
Credit QualityFarmer Mac continues to maintain favorable credit metrics in its four lines of business. In the Farm & Ranch portfolio, 90-day delinquencies were $36.7 million (0.67 percent of the Farm & Ranch portfolio) as of September 30, 2015, compared to $31.9 million (0.58 percent) as of June 30, 2015, and
$24.7 million (0.46 percent) as of September 30, 2014. The increase in the 90-day delinquencies in third quarter 2015 as compared to second quarter 2015 was related to the new delinquency of one borrower on two canola facility loans underlying an LTSPC that had been categorized as substandard assets in second quarter 2015 and became delinquent for 90 days or more during third quarter 2015. As of September 30, 2015, Farmer Mac had $13.5 million of exposure to this borrower. Farmer Mac expects that over time its 90-day delinquency rate will eventually revert closer to Farmer Mac's historical averages due to macroeconomic and other potential factors, but Farmer Mac has not yet seen an impact on its portfolio or
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