Federally chartered instrumentality of the United States | 001-14951 | 52-1578738 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
1999 K Street, N.W., 4th Floor, Washington D.C. | 20006 | |||
(Address of Principal Executive Offices) | (Zip Code) |
• | Net income attributable to common stockholders grew 33% year-over-year to $94.9 million, or $8.83 per diluted common share |
• | Core earnings, a non-GAAP measure, increased 28% year-over-year to $84.0 million, or $7.82 per diluted common share |
• | Added $5.2 billion of gross business volume, resulting in net growth of $717.2 million |
• | Net interest income increased 11% from the prior year to $174.4 million |
• | Net effective spread, a non-GAAP measure, increased 7% from the prior year to $151.2 million |
• | 90-day delinquencies were 0.37% of the $7.2 billion Farm & Ranch portfolio as of December 31, 2018, compared to 0.71% as of December 31, 2017 |
• | Entered into a master participation agreement with CoBank on February 13, 2019 |
◦ | Purchased a portfolio of participations in seasoned Rural Utilities loans in the amount of $546 million on February 19, 2019 |
◦ | Represents Farmer Mac's first direct loan participation purchase with CoBank |
• | On February 19, 2019, Farmer Mac's board of directors declared a quarterly dividend of $0.70 per common share for first quarter 2019 |
◦ | Reflects an increase of $0.12 per common share, or 21%, over the quarterly dividend payout in 2018 |
◦ | Board of directors increased our common stock dividend payout target, as a percentage of annual core earnings, from 30% for 2018 to 35% for 2019 and beyond |
• | purchased $3.0 billion of AgVantage securities; |
• | renewed a $300.0 million revolving floating rate AgVantage facility; |
• | purchased $960.8 million of newly originated Farm & Ranch loans; |
• | added $430.1 million of Farm & Ranch loans under LTSPCs; |
• | purchased $332.3 million of USDA Securities; |
• | issued $127.9 million of Farmer Mac Guaranteed USDA Securities; and |
• | purchased $11.6 million of Rural Utilities loans. |
• | purchased $585.8 million of AgVantage securities; |
• | purchased $285.0 million of newly originated Farm & Ranch loans; |
• | added $80.8 million of Farm & Ranch loans under LTSPCs; |
• | purchased $68.1 million of USDA Securities; |
• | issued $22.2 million of Farmer Mac Guaranteed USDA Securities; and |
• | purchased $3.0 million of Rural Utilities loans. |
• | the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms; |
• | legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural or rural utilities industries; |
• | fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries; |
• | the rate and direction of development of the secondary market for agricultural mortgage and rural utilities loans, including lender interest in Farmer Mac's products and the secondary market provided by Farmer Mac; |
• | the general rate of growth in agricultural mortgage and rural utilities indebtedness; |
• | the effect of economic conditions, including the effects of drought and other weather-related conditions and fluctuations in agricultural real estate values, on agricultural mortgage lending and borrower repayment capacity; |
• | the effect of any changes in Farmer Mac's executive leadership; |
• | developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac; |
• | changes in the level and direction of interest rates, which could, among other things, affect the value of collateral securing Farmer Mac's agricultural mortgage loan assets; |
• | the degree to which Farmer Mac is exposed to basis risk, which results from fluctuations in Farmer Mac's borrowing costs relative to market indexes; and |
• | volatility in commodity prices relative to costs of production, changes in U.S. trade policies, or fluctuations in export demand for U.S. agricultural products. |
As of | |||||||
December 31, 2018 | December 31, 2017 | ||||||
(in thousands) | |||||||
Assets: | |||||||
Cash and cash equivalents | $ | 425,256 | $ | 302,022 | |||
Investment securities: | |||||||
Available-for-sale, at fair value | 2,217,852 | 2,215,405 | |||||
Held-to-maturity, at amortized cost | 45,032 | 45,032 | |||||
Total Investment Securities | 2,262,884 | 2,260,437 | |||||
Farmer Mac Guaranteed Securities: | |||||||
Available-for-sale, at fair value | 5,974,497 | 5,471,914 | |||||
Held-to-maturity, at amortized cost | 2,096,618 | 2,126,274 | |||||
Total Farmer Mac Guaranteed Securities | 8,071,115 | 7,598,188 | |||||
USDA Securities: | |||||||
Trading, at fair value | 9,999 | 13,515 | |||||
Held-to-maturity, at amortized cost | 2,166,174 | 2,117,850 | |||||
Total USDA Securities | 2,176,173 | 2,131,365 | |||||
Loans: | |||||||
Loans held for investment, at amortized cost | 4,004,968 | 3,873,755 | |||||
Loans held for investment in consolidated trusts, at amortized cost | 1,517,101 | 1,399,827 | |||||
Allowance for loan losses | (7,017 | ) | (6,796 | ) | |||
Total loans, net of allowance | 5,515,052 | 5,266,786 | |||||
Real estate owned, at lower of cost or fair value | 128 | 139 | |||||
Financial derivatives, at fair value | 7,487 | 7,093 | |||||
Interest receivable (includes $19,783 and $17,373, respectively, related to consolidated trusts) | 180,080 | 155,278 | |||||
Guarantee and commitment fees receivable | 40,366 | 39,895 | |||||
Deferred tax asset, net | 6,369 | 2,048 | |||||
Prepaid expenses and other assets | 9,418 | 29,023 | |||||
Total Assets | $ | 18,694,328 | $ | 17,792,274 | |||
Liabilities and Equity: | |||||||
Liabilities: | |||||||
Notes payable: | |||||||
Due within one year | $ | 7,757,050 | $ | 8,089,826 | |||
Due after one year | 8,486,647 | 7,432,790 | |||||
Total notes payable | 16,243,697 | 15,522,616 | |||||
Debt securities of consolidated trusts held by third parties | 1,528,957 | 1,404,945 | |||||
Financial derivatives, at fair value | 19,633 | 26,599 | |||||
Accrued interest payable (includes $17,125 and $14,631, respectively, related to consolidated trusts) | 96,743 | 75,402 | |||||
Guarantee and commitment obligation | 38,683 | 38,400 | |||||
Accounts payable and accrued expenses | 11,891 | 14,096 | |||||
Deferred tax liability, net | — | — | |||||
Reserve for losses | 2,167 | 2,070 | |||||
Total Liabilities | 17,941,771 | 17,084,128 | |||||
Commitments and Contingencies (Note 6) | |||||||
Equity: | |||||||
Preferred stock: | |||||||
Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding | 58,333 | 58,333 | |||||
Series B, par value $25 per share, 3,000,000 shares authorized, issued and outstanding | 73,044 | 73,044 | |||||
Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding | 73,382 | 73,382 | |||||
Common stock: | |||||||
Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding | 1,031 | 1,031 | |||||
Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding | 500 | 500 | |||||
Class C Non-Voting, $1 par value, no maximum authorization, 9,137,550 shares and 9,087,670 shares outstanding, respectively | 9,138 | 9,088 | |||||
Additional paid-in capital | 118,822 | 118,979 | |||||
Accumulated other comprehensive income, net of tax | 24,956 | 51,085 | |||||
Retained earnings | 393,351 | 322,704 | |||||
Total Equity | 752,557 | 708,146 | |||||
Total Liabilities and Equity | 18,694,328 | 17,792,274 |
For the Three Months Ended | For the Year Ended | ||||||||||||||
December 31, 2018 | December 31, 2017 | December 31, 2018 | December 31, 2017 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Interest income: | |||||||||||||||
Investments and cash equivalents | $ | 16,498 | $ | 9,752 | $ | 55,179 | $ | 34,586 | |||||||
Farmer Mac Guaranteed Securities and USDA Securities | 77,474 | 56,818 | 290,953 | 203,796 | |||||||||||
Loans | 52,481 | 44,801 | 198,152 | 162,150 | |||||||||||
Total interest income | 146,453 | 111,371 | 544,284 | 400,532 | |||||||||||
Total interest expense | 104,237 | 70,088 | 369,848 | 242,885 | |||||||||||
Net interest income | 42,216 | 41,283 | 174,436 | 157,647 | |||||||||||
Provision for loan losses | (146 | ) | (474 | ) | (238 | ) | (1,708 | ) | |||||||
Net interest income after provision for loan losses | 42,070 | 40,809 | 174,198 | 155,939 | |||||||||||
Non-interest income: | |||||||||||||||
Guarantee and commitment fees | 3,506 | 3,484 | 13,976 | 14,114 | |||||||||||
(Losses)/gains on financial derivatives | (2,999 | ) | (1,777 | ) | (3,687 | ) | 753 | ||||||||
Gains/(losses) on trading securities | 57 | 60 | 81 | (24 | ) | ||||||||||
Gains/(losses) on sale of available-for-sale investment securities | — | — | — | 89 | |||||||||||
Gains/(losses) on sale of real estate owned | — | 964 | (7 | ) | 1,748 | ||||||||||
Other income | 118 | (58 | ) | 1,377 | 832 | ||||||||||
Non-interest income | 682 | 2,673 | 11,740 | 17,512 | |||||||||||
Non-interest expense: | |||||||||||||||
Compensation and employee benefits | 7,167 | 5,247 | 27,534 | 24,233 | |||||||||||
General and administrative | 5,829 | 4,348 | 19,707 | 15,959 | |||||||||||
Regulatory fees | 687 | 625 | 2,562 | 2,500 | |||||||||||
Real estate owned operating costs, net | — | — | 16 | 23 | |||||||||||
Provision for/(release of) reserve for losses | 20 | (10 | ) | 97 | 50 | ||||||||||
Non-interest expense | 13,703 | 10,210 | 49,916 | 42,765 | |||||||||||
Income before income taxes | 29,049 | 33,272 | 136,022 | 130,686 | |||||||||||
Income tax expense | 6,193 | 13,266 | 27,942 | 46,369 | |||||||||||
Net income | 22,856 | 20,006 | 108,080 | 84,317 | |||||||||||
Less: Net loss attributable to non-controlling interest | — | — | — | 165 | |||||||||||
Net income attributable to Farmer Mac | 22,856 | 20,006 | 108,080 | 84,482 | |||||||||||
Preferred stock dividends | (3,296 | ) | (3,296 | ) | (13,182 | ) | (13,182 | ) | |||||||
Net income attributable to common stockholders | $ | 19,560 | $ | 16,710 | $ | 94,898 | $ | 71,300 | |||||||
Earnings per common share and dividends: | |||||||||||||||
Basic earnings per common share | $ | 1.84 | $ | 1.57 | $ | 8.91 | $ | 6.73 | |||||||
Diluted earnings per common share | $ | 1.82 | $ | 1.55 | $ | 8.83 | $ | 6.60 | |||||||
Common stock dividends per common share | $ | 0.58 | $ | 0.36 | $ | 2.32 | $ | 1.44 |
Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings | |||||||||||
For the Three Months Ended | |||||||||||
December 31, 2018 | September 30, 2018 | December 31, 2017 | |||||||||
(in thousands, except per share amounts) | |||||||||||
Net income attributable to common stockholders | $ | 19,560 | $ | 26,474 | $ | 16,710 | |||||
Less reconciling items: | |||||||||||
(Losses)/gains on undesignated financial derivatives due to fair value changes | (96 | ) | 3,625 | (261 | ) | ||||||
(Losses)/gains on hedging activities due to fair value changes | (853 | ) | 1,051 | (3 | ) | ||||||
Unrealized gains/(losses) on trading securities | 57 | (3 | ) | 60 | |||||||
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 67 | (38 | ) | (129 | ) | ||||||
Net effects of terminations or net settlements on financial derivatives and hedging activities(1) | (312 | ) | 546 | 632 | |||||||
Re-measurement of net deferred tax asset due to enactment of new tax legislation | — | — | (1,365 | ) | |||||||
Income tax effect related to reconciling items | 238 | (1,088 | ) | (105 | ) | ||||||
Sub-total | (899 | ) | 4,093 | (1,171 | ) | ||||||
Core earnings | $ | 20,459 | $ | 22,381 | $ | 17,881 | |||||
Composition of Core Earnings: | |||||||||||
Revenues: | |||||||||||
Net effective spread(2) | $ | 38,855 | $ | 39,077 | $ | 37,467 | |||||
Guarantee and commitment fees(3) | 5,309 | 5,170 | 5,157 | ||||||||
Other(4) | (129 | ) | 110 | 69 | |||||||
Total revenues | 44,035 | 44,357 | 42,693 | ||||||||
Credit related expense/(income)(GAAP): | |||||||||||
Provision for/(release of) losses | 166 | (3 | ) | 464 | |||||||
Losses/(gains) on sale of REO | — | 41 | (964 | ) | |||||||
Total credit related expense/(income) | 166 | 38 | (500 | ) | |||||||
Operating expenses (GAAP): | |||||||||||
Compensation and employee benefits | 7,167 | 6,777 | 5,247 | ||||||||
General and administrative | 5,829 | 4,350 | 4,348 | ||||||||
Regulatory fees | 687 | 625 | 625 | ||||||||
Total operating expenses | 13,683 | 11,752 | 10,220 | ||||||||
Net earnings | 30,186 | 32,567 | 32,973 | ||||||||
Income tax expense(5) | 6,431 | 6,891 | 11,796 | ||||||||
Preferred stock dividends (GAAP) | 3,296 | 3,295 | 3,296 | ||||||||
Core earnings | $ | 20,459 | $ | 22,381 | $ | 17,881 | |||||
Core earnings per share: | |||||||||||
Basic | $ | 1.92 | $ | 2.10 | $ | 1.68 | |||||
Diluted | 1.90 | 2.08 | 1.65 |
(1) | Effective in fourth quarter 2017, Farmer Mac revised its methodology for calculating net effective spread, which is a component of core earnings, to also include the net effects of terminations or net settlements on financial derivatives and hedging activities. All prior period information has been recast to reflect the revised methodology. For more information, see "Use of Non-GAAP Measures—Net Effective Spread" above. |
(2) | Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures—Net Effective Spread" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread. |
(3) | Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. |
(4) | Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives and hedging activities, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. |
(5) | Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. |
Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings | |||||||
For the Year Ended | |||||||
December 31, 2018 | December 31, 2017 | ||||||
(in thousands, except per share amounts) | |||||||
Net income attributable to common stockholders | $ | 94,898 | $ | 71,300 | |||
Less reconciling items: | |||||||
Gains on undesignated financial derivatives due to fair value changes | 7,959 | 10,218 | |||||
Gains/(losses) on hedging activities due to fair value changes | 4,449 | (719 | ) | ||||
Unrealized gains/(losses) on trading securities | 81 | (24 | ) | ||||
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | (461 | ) | (1,327 | ) | |||
Net effects of terminations or net settlements on financial derivatives and hedging activities(1) | 1,708 | 2,674 | |||||
Re-measurement of net deferred tax asset due to enactment of new tax legislation | — | (1,365 | ) | ||||
Income tax effect related to reconciling items | (2,885 | ) | (3,788 | ) | |||
Sub-total | 10,851 | 5,669 | |||||
Core earnings | $ | 84,047 | $ | 65,631 | |||
Composition of Core Earnings: | |||||||
Revenues: | |||||||
Net effective spread(2) | $ | 151,195 | $ | 141,303 | |||
Guarantee and commitment fees(3) | 20,733 | 20,350 | |||||
Other(4) | 520 | 935 | |||||
Total revenues | 172,448 | 162,588 | |||||
Credit related expense (GAAP): | |||||||
Provision for losses | 335 | 1,758 | |||||
REO operating expenses | 16 | 23 | |||||
Losses/(gains) on sale of REO | 7 | (1,748 | ) | ||||
Total credit related expense | 358 | 33 | |||||
Operating expenses (GAAP): | |||||||
Compensation and employee benefits | 27,534 | 24,233 | |||||
General and administrative | 19,707 | 15,959 | |||||
Regulatory fees | 2,562 | 2,500 | |||||
Total operating expenses | 49,803 | 42,692 | |||||
Net earnings | 122,287 | 119,863 | |||||
Income tax expense(5) | 25,058 | 41,215 | |||||
Net loss attributable to non-controlling interest (GAAP) | — | (165 | ) | ||||
Preferred stock dividends (GAAP) | 13,182 | 13,182 | |||||
Core earnings | $ | 84,047 | $ | 65,631 | |||
Core earnings per share: | |||||||
Basic | $ | 7.89 | $ | 6.20 | |||
Diluted | 7.82 | 6.08 |
(1) | Effective in fourth quarter 2017, Farmer Mac revised its methodology for calculating net effective spread, which is a component of core earnings, to also include the net effects of terminations or net settlements on financial derivatives and hedging activities. All prior period information has been recast to reflect the revised methodology. For more information, see "Use of Non-GAAP Measures—Net Effective Spread" above. |
(2) | Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures—Net Effective Spread" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread. |
(3) | Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities. |
(4) | Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives and hedging activities, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities. |
(5) | Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings. |
Reconciliation of GAAP Basic Earnings Per Share to Core Earnings Basic Earnings Per Share | |||||||||||||||||||
For the Three Months Ended | For the Year Ended | ||||||||||||||||||
December 31, 2018 | September 30, 2018 | December 31, 2017 | December 31, 2018 | December 31, 2017 | |||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||
GAAP - Basic EPS | $ | 1.84 | $ | 2.48 | $ | 1.57 | $ | 8.91 | $ | 6.73 | |||||||||
Less reconciling items: | |||||||||||||||||||
(Losses)/gains on undesignated financial derivatives due to fair value changes | (0.01 | ) | 0.34 | (0.03 | ) | 0.75 | 0.97 | ||||||||||||
(Losses)/gains on hedging activities due to fair value changes | (0.08 | ) | 0.10 | — | 0.41 | (0.07 | ) | ||||||||||||
Unrealized gains on trading securities | 0.01 | — | 0.01 | 0.01 | — | ||||||||||||||
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 0.01 | — | (0.01 | ) | (0.04 | ) | (0.13 | ) | |||||||||||
Net effects of terminations or net settlements on financial derivatives and hedging activities | (0.03 | ) | 0.05 | 0.06 | 0.16 | 0.25 | |||||||||||||
Re-measurement of net deferred tax asset due to enactment of new tax legislation | — | — | (0.13 | ) | — | (0.13 | ) | ||||||||||||
Income tax effect related to reconciling items | 0.02 | (0.11 | ) | (0.01 | ) | (0.27 | ) | (0.36 | ) | ||||||||||
Sub-total | (0.08 | ) | 0.38 | (0.11 | ) | 1.02 | 0.53 | ||||||||||||
Core Earnings - Basic EPS | $ | 1.92 | $ | 2.10 | $ | 1.68 | $ | 7.89 | $ | 6.20 | |||||||||
Shares used in per share calculation (GAAP and Core Earnings) | 10,669 | 10,668 | 10,618 | 10,654 | 10,594 |
Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings Per Share | |||||||||||||||||||
For the Three Months Ended | For the Year Ended | ||||||||||||||||||
December 31, 2018 | September 30, 2018 | December 31, 2017 | December 31, 2018 | December 31, 2017 | |||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||
GAAP - Diluted EPS | $ | 1.82 | $ | 2.46 | $ | 1.55 | $ | 8.83 | $ | 6.60 | |||||||||
Less reconciling items: | |||||||||||||||||||
(Losses)/gains on undesignated financial derivatives due to fair value changes | (0.01 | ) | 0.33 | (0.03 | ) | 0.74 | 0.94 | ||||||||||||
(Losses)/gains on hedging activities due to fair value changes | (0.08 | ) | 0.10 | 0.01 | 0.41 | (0.07 | ) | ||||||||||||
Unrealized gains on trading securities | 0.01 | — | 0.01 | 0.01 | — | ||||||||||||||
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 0.01 | — | (0.01 | ) | (0.04 | ) | (0.12 | ) | |||||||||||
Net effects of terminations or net settlements on financial derivatives and hedging activities | (0.03 | ) | 0.05 | 0.06 | 0.16 | 0.25 | |||||||||||||
Re-measurement of net deferred tax asset due to enactment of new tax legislation | — | — | (0.13 | ) | — | (0.13 | ) | ||||||||||||
Income tax effect related to reconciling items | 0.02 | (0.10 | ) | (0.01 | ) | (0.27 | ) | (0.35 | ) | ||||||||||
Sub-total | (0.08 | ) | 0.38 | (0.10 | ) | 1.01 | 0.52 | ||||||||||||
Core Earnings - Diluted EPS | $ | 1.90 | $ | 2.08 | $ | 1.65 | $ | 7.82 | $ | 6.08 | |||||||||
Shares used in per share calculation (GAAP and Core Earnings) | 10,745 | 10,744 | 10,815 | 10,746 | 10,803 |
Reconciliation of GAAP Net Interest Income/Yield to Net Effective Spread | ||||||||||||||||||||||||||||||||||
For the Three Months Ended | For the Year Ended | |||||||||||||||||||||||||||||||||
December 31, 2018 | September 30, 2018 | December 31, 2017 | December 31, 2018 | December 31, 2017 | ||||||||||||||||||||||||||||||
Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | |||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||
Net interest income/yield | $ | 42,216 | 0.93 | % | $ | 45,058 | 0.99 | % | $ | 41,283 | 0.94 | % | $ | 174,436 | 0.96 | % | $ | 157,647 | 0.94 | % | ||||||||||||||
Net effects of consolidated trusts | (1,804 | ) | 0.04 | % | (1,681 | ) | 0.05 | % | (1,673 | ) | 0.04 | % | (6,757 | ) | 0.04 | % | (6,236 | ) | 0.04 | % | ||||||||||||||
Expense related to undesignated financial derivatives | (2,161 | ) | (0.06 | )% | (3,223 | ) | (0.08 | )% | (1,943 | ) | (0.05 | )% | (11,685 | ) | (0.07 | )% | (10,261 | ) | (0.07 | )% | ||||||||||||||
Amortization of premiums/discounts on assets consolidated at fair value | (138 | ) | — | % | 49 | — | % | (28 | ) | — | % | 417 | 0.01 | % | 1,191 | 0.01 | % | |||||||||||||||||
Amortization of losses due to terminations or net settlements on financial derivatives and hedging activities | (69 | ) | — | % | (75 | ) | — | % | (172 | ) | — | % | (275 | ) | — | % | (1,038 | ) | (0.01 | )% | ||||||||||||||
Fair value changes on fair value hedge relationships | 811 | 0.02 | % | (1,051 | ) | (0.03 | )% | — | — | % | (4,941 | ) | (0.03 | )% | — | — | % | |||||||||||||||||
Net effective spread | $ | 38,855 | 0.93 | % | $ | 39,077 | 0.93 | % | $ | 37,467 | 0.93 | % | $ | 151,195 | 0.91 | % | $ | 141,303 | 0.91 | % |
Core Earnings by Business Segment | |||||||||||||||||||||||||||
For the Three Months Ended December 31, 2018 | |||||||||||||||||||||||||||
Farm & Ranch | USDA Guarantees | Rural Utilities | Institutional Credit | Corporate | Reconciling Adjustments | Consolidated Net Income | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Net interest income | $ | 15,696 | $ | 5,108 | $ | 3,574 | $ | 15,084 | $ | 2,754 | $ | — | $ | 42,216 | |||||||||||||
Less: reconciling adjustments(1)(2)(3) | (2,408 | ) | (478 | ) | (741 | ) | 667 | (401 | ) | 3,361 | — | ||||||||||||||||
Net effective spread | 13,288 | 4,630 | 2,833 | 15,751 | 2,353 | 3,361 | — | ||||||||||||||||||||
Guarantee and commitment fees(2) | 4,621 | 227 | 372 | 89 | (1,803 | ) | 3,506 | ||||||||||||||||||||
Other income/(expense)(3) | 179 | 2 | 8 | — | (319 | ) | (2,694 | ) | (2,824 | ) | |||||||||||||||||
Non-interest income/(loss) | 4,800 | 229 | 380 | 89 | (319 | ) | (4,497 | ) | 682 | ||||||||||||||||||
Provision for loan losses | (146 | ) | — | — | — | — | — | (146 | ) | ||||||||||||||||||
Release of reserve for losses | (20 | ) | — | — | — | — | — | (20 | ) | ||||||||||||||||||
Other non-interest expense | (5,096 | ) | (1,516 | ) | (918 | ) | (2,291 | ) | (3,862 | ) | — | (13,683 | ) | ||||||||||||||
Non-interest expense(4) | (5,116 | ) | (1,516 | ) | (918 | ) | (2,291 | ) | (3,862 | ) | — | (13,703 | ) | ||||||||||||||
Core earnings before income taxes | 12,826 | 3,343 | 2,295 | 13,549 | (1,828 | ) | (1,136 | ) | (5) | 29,049 | |||||||||||||||||
Income tax (expense)/benefit | (2,693 | ) | (702 | ) | (482 | ) | (2,845 | ) | 292 | 237 | (6,193 | ) | |||||||||||||||
Core earnings before preferred stock dividends and attribution of income to non-controlling interest | 10,133 | 2,641 | 1,813 | 10,704 | (1,536 | ) | (899 | ) | (5) | 22,856 | |||||||||||||||||
Preferred stock dividends | — | — | — | — | (3,296 | ) | — | (3,296 | ) | ||||||||||||||||||
Segment core earnings/(losses) | $ | 10,133 | $ | 2,641 | $ | 1,813 | $ | 10,704 | $ | (4,832 | ) | $ | (899 | ) | (5) | $ | 19,560 | ||||||||||
Total assets at carrying value | $ | 4,701,736 | $ | 2,240,906 | $ | 945,282 | $ | 8,089,410 | $ | 2,716,994 | $ | — | $ | 18,694,328 | |||||||||||||
Total on- and off-balance sheet program assets at principal balance | $ | 7,233,972 | $ | 2,515,620 | $ | 1,592,115 | $ | 8,382,817 | $ | — | $ | — | $ | 19,724,524 |
(1) | Excludes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts. |
(2) | Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee. |
(3) | Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives and hedging activities" on the consolidated financial statements, to determine the effective funding cost for each operating segment. |
(4) | Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount. |
(5) | Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends and attribution of income to non-controlling interest reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders. |
Lines of Business - Outstanding Business Volume | |||||||
As of December 31, 2018 | As of December 31, 2017 | ||||||
(in thousands) | |||||||
On-balance sheet: | |||||||
Farm & Ranch: | |||||||
Loans | $ | 3,071,222 | $ | 2,798,906 | |||
Loans held in trusts: | |||||||
Beneficial interests owned by third party investors | 1,517,101 | 1,399,827 | |||||
USDA Guarantees: | |||||||
USDA Securities | 2,120,553 | 2,068,017 | |||||
Farmer Mac Guaranteed USDA Securities | 27,383 | 29,980 | |||||
Rural Utilities: | |||||||
Loans | 938,843 | 1,076,291 | |||||
Institutional Credit: | |||||||
AgVantage securities | 8,072,919 | 7,593,322 | |||||
Total on-balance sheet | $ | 15,748,021 | $ | 14,966,343 | |||
Off-balance sheet: | |||||||
Farm & Ranch: | |||||||
LTSPCs(1) | $ | 2,509,787 | $ | 2,335,342 | |||
Guaranteed Securities(1) | 135,862 | 333,511 | |||||
USDA Guarantees: | |||||||
Farmer Mac Guaranteed USDA Securities | 367,684 | 254,217 | |||||
Rural Utilities: | |||||||
LTSPCs(2) | 653,272 | 806,342 | |||||
Institutional Credit: | |||||||
AgVantage securities | 9,898 | 11,556 | |||||
Revolving floating rate AgVantage facility(3) | 300,000 | 300,000 | |||||
Total off-balance sheet | $ | 3,976,503 | $ | 4,040,968 | |||
Total | $ | 19,724,524 | $ | 19,007,311 |
(1) | During fourth quarter 2018, Farmer Mac repurchased the 100% participation interests in loans underlying a pool of $134.1 million in Farm & Ranch Guaranteed Securities at par, thereby redeeming the corresponding Farm & Ranch Guaranteed Securities from their sole security holder. These participation interests were repurchased by Farmer Mac at the request of the sole security holder in exchange for the termination of the participation interests and the reconveyance of all beneficial interest in the loans to the sole security holder that owned the loans in which the participation interests had been issued. The resulting pool of Farm & Ranch loans was concurrently added under LTSPCs. The commitment fee Farmer Mac receives on these loans added under LTSPCs is the same as the guarantee fee Farmer Mac had been earning on the Farm & Ranch Guaranteed Securities. |
(2) | Includes $17.0 million and $20.0 million related to one-year loan purchase commitments on which Farmer Mac receives a nominal unused commitment fee as of December 31, 2018 and December 31, 2017, respectively. |
(3) | During both 2018 and 2017, $100.0 million of this facility was drawn and subsequently repaid. Farmer Mac receives a fixed fee based on the full dollar amount of the facility. If the counterparty draws on the facility, the amounts drawn will be in the form of AgVantage securities, and Farmer Mac will earn interest income on those securities. |
Net Effective Spread by Line of Business | |||||||||||||||||||||||||||||||||||||||||
Farm & Ranch | USDA Guarantees | Rural Utilities | Institutional Credit | Corporate | Net Effective Spread(1) | ||||||||||||||||||||||||||||||||||||
Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | ||||||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
For the quarter ended: | |||||||||||||||||||||||||||||||||||||||||
December 31, 2018(2) | $ | 13,288 | 1.79 | % | $ | 4,630 | 0.85 | % | $ | 2,833 | 1.19 | % | $ | 15,751 | 0.80 | % | $ | 2,353 | 0.36 | % | $ | 38,855 | 0.93 | % | |||||||||||||||||
September 30, 2018 | $ | 13,887 | 1.91 | % | $ | 4,627 | 0.86 | % | $ | 2,877 | 1.18 | % | $ | 15,642 | 0.78 | % | $ | 2,044 | 0.30 | % | $ | 39,077 | 0.93 | % | |||||||||||||||||
June 30, 2018 | 13,347 | 1.86 | % | 4,398 | 0.83 | % | 2,923 | 1.15 | % | 15,220 | 0.76 | % | 274 | 0.04 | % | 36,162 | 0.86 | % | |||||||||||||||||||||||
March 31, 2018 | 12,540 | 1.80 | % | 4,400 | 0.82 | % | 2,950 | 1.12 | % | 14,824 | 0.78 | % | 2,387 | 0.36 | % | 37,101 | 0.91 | % | |||||||||||||||||||||||
December 31, 2017 | 12,396 | 1.80 | % | 4,979 | 0.93 | % | 3,057 | 1.14 | % | 14,800 | 0.78 | % | 2,235 | 0.35 | % | 37,467 | 0.93 | % | |||||||||||||||||||||||
September 30, 2017 | 11,303 | 1.73 | % | 4,728 | 0.90 | % | 2,765 | 1.07 | % | 14,455 | 0.78 | % | 2,725 | 0.41 | % | 35,976 | 0.91 | % | |||||||||||||||||||||||
June 30, 2017 | 11,158 | 1.77 | % | 4,551 | 0.87 | % | 2,669 | 1.06 | % | 14,467 | 0.81 | % | 2,489 | 0.36 | % | 35,334 | 0.91 | % | |||||||||||||||||||||||
March 31, 2017 | 10,511 | 1.77 | % | 4,561 | 0.89 | % | 2,568 | 1.04 | % | 12,615 | 0.82 | % | 2,271 | 0.32 | % | 32,526 | 0.90 | % | |||||||||||||||||||||||
December 31, 2016 | 10,131 | 1.75 | % | 5,152 | 1.04 | % | 2,530 | 1.02 | % | 11,636 | 0.78 | % | 1,999 | 0.26 | % | 31,448 | 0.88 | % |
(1) | Net effective spread is a non-GAAP measure. Effective in fourth quarter 2017, Farmer Mac revised its methodology for calculating net effective spread to also include the net effects of terminations or net settlements on financial derivatives and hedging activities. All prior period information has been recast to reflect the revised net effective spread methodology. See "Use of Non-GAAP Measures—Net Effective Spread" above for more information about net effective spread. |
(2) | See above for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for three months ended December 31, 2018. |
Core Earnings by Quarter Ended | |||||||||||||||||||||||||||||||||||
December 208 | September 2018 | June 2018 | March 2018 | December 2017 | September 2017 | June 2017 | March 2017 | December 2016 | |||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||
Net effective spread | $ | 38,855 | $ | 39,077 | $ | 36,162 | $ | 37,101 | $ | 37,467 | $ | 35,976 | $ | 35,334 | $ | 32,526 | $ | 31,448 | |||||||||||||||||
Guarantee and commitment fees | 5,309 | 5,170 | 5,171 | 5,083 | 5,157 | 4,935 | 4,942 | 5,316 | 5,158 | ||||||||||||||||||||||||||
Other | (129 | ) | 110 | 111 | 428 | 69 | 274 | 107 | 485 | 545 | |||||||||||||||||||||||||
Total revenues | 44,035 | 44,357 | 41,444 | 42,612 | 42,693 | 41,185 | 40,383 | 38,327 | 37,151 | ||||||||||||||||||||||||||
Credit related expense/(income): | |||||||||||||||||||||||||||||||||||
Provision for/(release of) losses | 166 | (3 | ) | 582 | (410 | ) | 464 | 384 | 466 | 444 | 512 | ||||||||||||||||||||||||
REO operating expenses | — | — | — | 16 | — | — | 23 | — | — | ||||||||||||||||||||||||||
Losses/(gains) on sale of REO | — | 41 | (34 | ) | — | (964 | ) | (32 | ) | (757 | ) | 5 | — | ||||||||||||||||||||||
Total credit related expense/(income) | 166 | 38 | 548 | (394 | ) | (500 | ) | 352 | (268 | ) | 449 | 512 | |||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||||||
Compensation and employee benefits | 7,167 | 6,777 | 6,936 | 6,654 | 5,247 | 5,987 | 6,682 | 6,317 | 5,949 | ||||||||||||||||||||||||||
General and administrative | 5,829 | 4,350 | 5,202 | 4,326 | 4,348 | 3,890 | 3,921 | 3,800 | 4,352 | ||||||||||||||||||||||||||
Regulatory fees | 687 | 625 | 625 | 625 | 625 | 625 | 625 | 625 | 625 | ||||||||||||||||||||||||||
Total operating expenses | 13,683 | 11,752 | 12,763 | 11,605 | 10,220 | 10,502 | 11,228 | 10,742 | 10,926 | ||||||||||||||||||||||||||
Net earnings | 30,186 | 32,567 | 28,133 | 31,401 | 32,973 | 30,331 | 29,423 | 27,136 | 25,713 | ||||||||||||||||||||||||||
Income tax expense | 6,431 | 6,891 | 5,477 | 6,259 | 11,796 | 10,268 | 10,307 | 8,844 | 9,189 | ||||||||||||||||||||||||||
Net (loss)/income attributable to non-controlling interest(1) | — | — | — | — | — | — | (150 | ) | (15 | ) | 28 | ||||||||||||||||||||||||
Preferred stock dividends | 3,296 | 3,295 | 3,296 | 3,295 | 3,296 | 3,295 | 3,296 | 3,295 | 3,296 | ||||||||||||||||||||||||||
Core earnings | $ | 20,459 | $ | 22,381 | $ | 19,360 | $ | 21,847 | $ | 17,881 | $ | 16,768 | $ | 15,970 | $ | 15,012 | $ | 13,200 | |||||||||||||||||
Reconciling items: | |||||||||||||||||||||||||||||||||||
(Losses)/gains on undesignated financial derivatives due to fair value changes | (96 | ) | 3,625 | 6,709 | (2,279 | ) | (261 | ) | 995 | 801 | 8,683 | 17,906 | |||||||||||||||||||||||
(Losses)/gains on hedging activities due to fair value changes | (853 | ) | 1,051 | 1,687 | 2,564 | (3 | ) | 1,742 | 1,420 | (3,878 | ) | (673 | ) | ||||||||||||||||||||||
Unrealized gains/(losses) on trading assets | 57 | (3 | ) | 11 | 16 | 60 | — | (2 | ) | (82 | ) | (474 | ) | ||||||||||||||||||||||
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 67 | (38 | ) | 196 | (686 | ) | (129 | ) | (954 | ) | (117 | ) | (127 | ) | (40 | ) | |||||||||||||||||||
Net effects of terminations or net settlements on financial derivatives | (312 | ) | 546 | 232 | 1,242 | 632 | 862 | 232 | 948 | 2,150 | |||||||||||||||||||||||||
Re-measurement of net deferred tax asset due to enactment of new tax legislation | — | — | — | — | (1,365 | ) | — | — | — | — | |||||||||||||||||||||||||
Income tax effect related to reconciling items | 238 | (1,088 | ) | (1,855 | ) | (180 | ) | (105 | ) | (926 | ) | (816 | ) | (1,941 | ) | (6,604 | ) | ||||||||||||||||||
Net income attributable to common stockholders | $ | 19,560 | $ | 26,474 | $ | 26,340 | $ | 22,524 | $ | 16,710 | $ | 18,487 | $ | 17,488 | $ | 18,615 | $ | 25,465 |
(1) | As of May 1, 2017, Farmer Mac transferred its entire 65% ownership interest in Contour Valuation Services, LLC (also known as AgVisory) back to the limited liability company. |
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