Farmer Mac Reports 2015 Results and Announces Dividend Increase

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 Highlights 

Farmer Mac added $3.2 billion of new business volume during 2015.  Specifically, Farmer Mac:

• purchased $748.4 million of newly originated Farm & Ranch loans;
• purchased $743.2 million of AgVantage securities;
• added $522.3 million of Rural Utilities loans under LTSPCs;
• added $427.8 million of Farm & Ranch loans under LTSPCs;
• purchased $363.6 million of USDA Securities;
• added a $300.0 million revolving floating rate AgVantage facility;
• purchased $108.3 million of Rural Utilities loans; and
• purchased $13.3 million of Farmer Mac Guaranteed USDA Securities.

During fourth quarter 2015, Farmer Mac added $564.1 million of new business volume, with Farm & Ranch loan purchases and Farm & Ranch loans under LTSPCs driving the volume growth.  Specifically, Farmer Mac:

• purchased $245.3 million of newly originated Farm & Ranch loans;
• added $185.9 million of Farm & Ranch loans under LTSPCs;
• purchased $72.4 million of USDA Securities;
• purchased $46.1 million of Rural Utilities loans; and
• purchased $14.4 million of AgVantage securities.

After $1.9 billion of maturities and principal paydowns on existing business during 2015, which included $715.8 million in scheduled maturities of AgVantage securities, Farmer Mac's outstanding business volume increased by $1.3 billion from December 31, 2014 to $15.9 billion as of December 31, 2015.  The increase in Farmer Mac's outstanding business volume was driven by the addition of $522.3 million of Rural Utilities loans under LTSPCs, as well as broad-based portfolio growth across most of Farmer Mac's other products, including AgVantage securities, Farm & Ranch loans, and USDA Securities.  The large LTSPC transaction completed in 2015 was the first time Farmer Mac has provided LTSPCs under its Rural Utilities line of business.  Of the new business volume in AgVantage securities for 2015, a $300.0 million revolving floating rate AgVantage facility with the National Rural Utilities Cooperative Finance Corporation ("CFC") was added as an off-balance sheet commitment because CFC had not drawn on the facility as of December 31, 2015.  If CFC draws on this facility, the amounts drawn will be presented as on-balance sheet AgVantage securities, and Farmer Mac will earn interest income on the drawn balance.

Net Effective Spread

Farmer Mac's net effective spread was $119.4 million (87 basis points) for 2015, compared to $113.7 million (91 basis points) for 2014.   The contraction in net effective spread in percentage terms in 2015 compared to 2014 was primarily attributable to the loss of $6.5 million in preferred dividend income (5 basis points) from the fourth quarter 2014 redemption of the high-yielding preferred stock previously held in Farmer Mac's investment portfolio and a higher average balance in low-yielding cash and cash equivalents intended to increase Farmer Mac's liquidity position, partially offset by a shift towards products earning higher spreads.  The year-over-year increase in dollars was primarily attributable to growth in outstanding business volume.

Net effective spread was $29.9 million (85 basis points) in fourth quarter 2015, compared to $30.4 million (88 basis points) in third quarter 2015, and $28.4 million (91 basis points) in fourth quarter 2014. The decrease in net effective spread in fourth quarter 2015 compared to third quarter 2015 was primarily attributable to a decline in cash interest received on non-accrual Farm & Ranch loans. The decrease in net effective spread in percentage terms in fourth quarter 2015 compared to fourth quarter 2014 was primarily attributable to a higher average balance in Farmer Mac's low-yielding cash and cash equivalents intended to increase Farmer Mac's liquidity position.  The increase in dollar terms in fourth quarter 2015 compared to fourth quarter 2014 was primarily attributable to growth in outstanding business volume.

Credit Quality

Credit quality remains favorable across Farmer Mac's four lines of business.  In the Farm & Ranch portfolio, 90-day delinquencies were $32.1 million (0.56 percent of the Farm & Ranch portfolio) as of December 31, 2015, compared to $36.7 million (0.67 percent) as of September 30, 2015, and $18.9 million (0.35 percent) as of December 31, 2014.  The increase in the 90-day delinquencies in 2015 compared to 2014 was related to the delinquency of two Agricultural Storage and Processing loans that financed one canola facility.  Although these two loans were outstanding and delinquent as of December 31, 2015, Farmer Mac collected funds in the amount of $9.8 million to pay them off in January 2016.  Farmer Mac charged off the $3.7 million specific allowance related to these two loans in fourth quarter 2015.  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 a rise in delinquencies related to these factors.  Farmer Mac's average 90-day delinquency rate for the Farm & Ranch line of business over the last fifteen years is approximately one percent.

For Farmer Mac's other lines of business, there are currently no delinquent AgVantage securities or Rural Utilities loans held or underlying LTSPCs, and USDA Securities are backed by the full faith and credit of the United States.  As a result, across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.20 percent of total business volume as of December 31, 2015, compared to 0.23 percent as of September 30, 2015, and 0.13 percent as of December 31, 2014.

The western part of the United States, and in particular California, continues to experience drought conditions, with the water level in many California reservoirs at or near historically low levels.  The persistence of extreme drought conditions in the western states could have an adverse effect on Farmer Mac's delinquency rates or loss experience in the future; however, Farmer Mac has not observed any material effect on its portfolio from the drought through 2015.  Farmer Mac continues to remain informed about the drought and its effects on the agricultural industries located in the western states and on Farmer Mac's Farm & Ranch portfolio through regular discussions with its loan servicers that service loans in drought-stricken areas, as well as customers and other lenders in the industry.

Lines of Business

Farmer Mac's operations consist of four lines of business – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit.  Net effective spread by business segment for fourth quarter 2015 was $9.4 million (172 basis points) for Farm & Ranch, $4.5 million (96 basis points) for USDA Guarantees, $2.8 million (114 basis points) for Rural Utilities, and $10.9 million (80 basis points) for Institutional Credit.

Liquidity and Capital

Farmer Mac's core capital totaled $564.5 million as of December 31, 2015, exceeding the statutory minimum capital requirement by $102.4 million, or 22 percent, compared to $766.3 million as of December 31, 2014, which was $345.0 million, or 82 percent, above the statutory minimum capital requirement.  The decrease in core capital primarily resulted from the redemption of $250.0 million of Farmer Mac II LLC Preferred Stock on March 30, 2015.  Farmer Mac issued an aggregate of $150.0 million of non-cumulative preferred stock during the first half of 2014 and used the proceeds of these preferred stock offerings and cash on hand to cause Farmer Mac II LLC to redeem all of the outstanding shares of Farmer Mac II LLC Preferred Stock.  The preferred stock issued in 2014 qualifies as Tier 1 capital for Farmer Mac whereas the Farmer Mac II LLC Preferred Stock that was redeemed did not qualify as Tier 1 capital.

As of December 31, 2015, Farmer Mac's total stockholders' equity was $553.5 million, compared to $545.8 million as of December 31, 2014.  The increase in total stockholders' equity was primarily attributable to an increase in retained earnings, offset in part by a decrease in accumulated other comprehensive income due to decreases in fair value of available-for-sale securities. The decrease in the fair value of available-for-sale securities was driven primarily by higher market interest rates and wider credit spreads on certain investment securities as of December 31, 2015 compared to December 31, 2014.

On September 8, 2015, Farmer Mac's board of directors approved a share repurchase program, which authorized Farmer Mac to repurchase up to $25 million of its outstanding Class C non-voting common stock through September 2017.  As of December 31, 2015, Farmer Mac had repurchased approximately 362,000 shares at a cost of approximately $10.5 million.

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 90 days of liquidity.  In accordance with the methodology prescribed by those regulations, Farmer Mac maintained an average of 171 days of liquidity during 2015 and had 166 days of liquidity as of December 31, 2015.

Dividends

On March 2, 2016, Farmer Mac's board of directors declared a quarterly dividend of $0.26 per share for each of Farmer Mac's three classes of common stock – Class A voting common stock (NYSE: AGM.A), Class B voting common stock (not listed on any exchange), and Class C non-voting common stock (NYSE: AGM).  This quarterly dividend will be payable on March 31, 2016 to holders of record of common stock as of March 21, 2016.  This represents the fifth consecutive year that Farmer Mac has increased its dividend from the prior year.  Farmer Mac seeks to provide a competitive return on its common stockholders' investment through the payment of cash dividends while retaining sufficient capital to support future growth in its business and to meet regulatory requirements and metrics established by Farmer Mac's board of directors.

Farmer Mac's board of directors also declared a dividend on each of Farmer Mac's three classes of preferred stock.  The quarterly dividend of $0.3672 per share of 5.875% Non-Cumulative Preferred Stock, Series A (NYSE: AGM.PR.A), $0.4297 per share of 6.875% Non-Cumulative Preferred Stock, Series B (NYSE: AGM.PR.B), and $0.375 per share of 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (NYSE: AGM.PR.C), is for the period from but not including January 17, 2016 to and including April 17, 2016.  The preferred stock dividends will be payable on April 17, 2016 to holders of record as of April 4, 2016.

Non-GAAP Earnings Measure

Farmer Mac uses core earnings to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends.  Core earnings principally differs from net income attributable to common stockholders by excluding the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is generally expected.  Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business.

This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies.  Farmer Mac's disclosure of this non-GAAP measure is intended to be supplemental in nature, and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

A reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings is presented in the following table along with a breakdown of the composition of core earnings:

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings
				For the Three Months Ended
				December 31, 2015				September 30, 2015				December 31, 2014
				(in thousands, except per share amounts)
Net income attributable to common stockholders				$	15,032			$	8,359			$	5,647
Less the after-tax effects of:
	Unrealized gains/(losses) on financial derivatives and hedging activities				1,784				(4,489)				(3,717)
	Unrealized gains/(losses) on trading assets(1)				452				(5)				679
	Amortization of premiums/discounts and deferred gains on assets consolidated at fair value				(171)				(76)				(811)
	Net effects of settlements on agency forward contracts				(106)				(253)				30
		Sub-total			1,959				(4,823)				(3,879)
Core earnings				$	13,073			$	13,182			$	9,526
Composition of Core Earnings:
Revenues:
	Net effective spread(2)			$	29,949			$	30,387			$	28,442
	Guarantee and commitment fees(3)				4,730				4,328				4,097
	Other(4)				(284)				(93)				(1,285)
		Total revenues			34,395				34,622				31,254
Credit related (income)/expense (GAAP):
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