Farmer Mac Reports Second Quarter Results Credit Quality Continues
to Improve WASHINGTON, July 29 /PRNewswire-FirstCall/ -- The
Federal Agricultural Mortgage Corporation (Farmer Mac)(NYSE: AGM;
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 June 30, June 30,
2004 2003 (in thousands, except per share amounts) Per Per Diluted
Diluted Share Share GAAP net income available to common
stockholders $1,960 $0.16 $8,366 $0.70 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 Benefit from
non-amortization of premium payments on financial derivatives, net
of tax 76 0.01 81 0.01 Core earnings $6,220 $0.51 $5,764 $0.48 Six
Months Ended June 30, June 30, 2004 2003 (in thousands, except per
share amounts) Per Per Diluted Diluted Share Share GAAP net income
available to common stockholders $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 (2,511) (0.20) 4,963
0.41 Benefit from non-amortization of premium payments on financial
derivatives, net of tax 152 0.01 162 0.02 Core earnings $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
Obligation Allowance REO for for Loan Valuation Reserve 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
http://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,
December 31, June 30, 2004 2003 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 Farmer Securities LTSPCs 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 Farmer Securities LTSPCs Act 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
5-to-10- (10-yr. Wtd. Year ARMs 1-Month-to- Avg. Term) and Resets
3-Year 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 Loans, Less: Guarantees Non- REO and 90-Day and
performing Per- Performing Delinquen- Per- LTSPCs Assets(3) centage
Bankruptcies cies(4) centage (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 Assets Percentage
Delinquencies Percentage Original LTV Ratio 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 Non- Origination Guarantees 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% (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. DATASOURCE:
Federal Agricultural Mortgage Corporation CONTACT: Jerome Oslick of
Federal Agricultural Mortgage Corporation, +1-202-872-7700 Web
site: http://www.farmermac.com/
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