Farmer Mac Earnings Increase, Net Income Up

April 21, 2000

The Federal Agricultural Mortgage Corporation (Farmer Mac) says diluted earnings per share were a record $0.21 for the first quarter 2000, a 50% increase over first quarter 1999 diluted earnings of $0.14 per share and a 24% increase over fourth quarter 1999 diluted earnings of $0.17 per share. Net income for first quarter 2000 was $2.4 million compared to $1.6 million for the same quarter in the prior year and $1.9 million for fourth quarter 1999.

President and CEO Henry D. Edelman said the revenue growth in the first quarter helped the agency maintain a positive financial performance trend from 1999. Net income and total revenue for the quarter reached record levels due to a 29% increase in net interest income, primarily from agricultural mortgage-backed securities (AMBS) retained in portfolio as well as a 76% increase in guarantee fees over the same period in 1999, with a corresponding increase in operating expenses of only 26%.

"Although Farmer Mac's earnings remained solid," Edelman said, "cash window loan purchases and guarantee volume for the quarter were down compared to prior quarters, resulting in very little growth in the outstanding balance of loans held or guaranteed."

That was due largely to unusual economic conditions in the agricultural sector, he added. During the past fall and winter, the combination of continuing low agricultural commodity prices and substantial government cash payments to farmers slowed demand for agricultural mortgages. In addition, higher interest rates increased farmer demand for variable rate mortgages while many agricultural lenders were inclined to hold mortgages of that type in portfolio, further reducing the supply of mortgages for sale.

Edelman continued, "We have frequently expressed the expectation that Farmer Mac's business growth would vary significantly from quarter to quarter until the corporation becomes more established as a major player in the agricultural credit sector. Our first quarter experience was consistent with those expectations.

"Nevertheless, we note that total loans held or guaranteed were up 28% over the balance at the end of the first quarter of 1999 and that the quality of the mortgages supporting Farmer Mac's guarantees remained good, with the delinquency rate at the end of the quarter down from the same time one year ago."

Current market conditions are expected to constrain cash window purchase volume over the next several quarters, but Farmer Mac continues to develop competitive new loan products and intensify marketing efforts to increase its market share of new originations, Edelman said. "We are also currently pursuing significant opportunities for Farmer Mac business volume to grow during 2000 through the addition of swap and long-term standby purchase commitment transactions."

Net interest income was $4.6 million for first quarter 2000, compared to $3.6 million for first quarter 1999 and fourth quarter 1999. The increase in net interest income compared to fourth quarter 1999 was driven by a 13 basis point increase in net interest yield, from 0.54% to 0.67%, as a result of several factors, including higher spreads on short-term and variable-rate investments, collection of prepayment fees during the quarter and reduced amortization expense due to slower than anticipated run-off of program assets. The increase compared to first quarter 1999 was due to a 42% increase in the average balance of interest-earning assets driven by Farmer Mac's retention of AMBS.

Other income, which includes guarantee fee income and miscellaneous income, totaled $2.8 million for first quarter 2000, compared to $1.5 million for first quarter 1999 and $2.5 million for fourth quarter 1999.

Guarantee fee income, the largest component of other income, was $2.6 million for first quarter 2000, $1.5 million for first quarter 1999 and $2.4 million for fourth quarter 1999. The increase in guarantee fees reflects an increase in the average balance of outstanding guarantees.

During the first quarter 2000, operating expenses totaled $2.4 million compared to $1.9 million for first quarter 1999 and fourth quarter 1999. Operating expenses as a percentage of total revenues for the same quarters were 33%, 38% and 31% respectively. First quarter 2000 operating expenses included expenses related to foreclosed properties held by Farmer Mac, including anticipated losses on the sale of the properties based on sales contracts entered into during the quarter.