WASHINGTON, Nov. 8, 2018 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced its results for the fiscal quarter ended September 30, 2018, which included $15.7 million in net new business volume growth.  Farmer Mac's net income attributable to common stockholders for third quarter 2018 was $26.5 million ($2.46 per diluted common share), compared to $26.3 million ($2.45 per diluted common share) in second quarter 2018 and $18.5 million ($1.71 per diluted common share) in third quarter 2017.  Farmer Mac's third quarter 2018 core earnings, a non-GAAP measure, were $22.4 million ($2.08 per diluted common share), compared to $19.4 million ($1.80 per diluted common share) in second quarter 2018 and $16.8 million ($1.55 per diluted common share) in third quarter 2017.

"Over the last few weeks, I have had the opportunity to meet with the members of the Farmer Mac management team and Board of Directors and I am impressed by the caliber, energy, and commitment of the people that are part of this mission-driven organization," said President and Chief Executive Officer Brad Nordholm.  "As our third quarter 2018 results demonstrate, Farmer Mac is healthy, growing, and positioned to be a central and strategic leader in rural finance.  As I begin my tenure as CEO, I do so with great confidence in our team, our mission, and the credit and asset liability management discipline that is the foundation of our success."

Earnings

Farmer Mac's net income attributable to common stockholders for third quarter 2018 was $26.5 million ($2.46 per diluted common share), compared to $26.3 million ($2.45 per diluted common share) in second quarter 2018 and $18.5 million ($1.71 per diluted common share) in third quarter 2017.

The $0.2 million sequential increase in net income attributable to common stockholders was primarily attributable to: (1) a $0.9 million after-tax increase in net interest income, primarily due to the absence of the $1.6 million after-tax premium amortization that occurred in second quarter 2018 resulting from the prepayment of an interest-only security in Farmer Mac's investment portfolio (the "Interest-Only Amortization"); and (2) a $0.8 million after-tax decrease in operating expenses.  The decrease in operating expenses was primarily due to a $0.3 million after-tax decrease in hiring expenses (including expenses related to the search for Farmer Mac's President and Chief Executive Officer) and a $0.3 million after-tax decrease in servicing advances.  Servicing advances are potentially recoverable expenses paid by Farmer Mac on behalf of borrowers on delinquent loans for items such as legal fees, appraisal fees, insurance, and taxes to protect Farmer Mac's interest in the collateral underlying a mortgage loan.  Also contributing to the sequential increase in net income available to common stockholders was a $0.5 million after-tax decrease in the net provision for the total allowance for losses. The sequential increase was offset in part by: (1) a $1.5 million after-tax decrease in gains in fair value of financial derivatives and hedging activities; and (2) a $0.6 million increase in income tax expense.

The $8.0 million year-over-year increase in net income attributable to common stockholders was driven by: (1) an increase of $4.3 million after tax in net interest income; and (2) a $4.6 million decrease in income tax expense as a result of the lower federal corporate income tax rate in 2018 compared to 2017.  The year-over-year increase was offset in part by a $1.0 million after-tax increase in operating expenses in third quarter 2018, primarily attributable to higher compensation and employee benefits expenses and higher general and administrative ("G&A") expenses.

Farmer Mac's non-GAAP core earnings for third quarter 2018 were $22.4 million ($2.08 per diluted common share), compared to $19.4 million ($1.80 per diluted common share) in second quarter 2018 and $16.8 million ($1.55 per diluted common share) in third quarter 2017.

The $3.0 million sequential increase in core earnings was primarily attributable to: (1) a $2.3 million after-tax increase in net effective spread, resulting from the absence in third quarter 2018 of the $1.6 million after-tax impact of the Interest-Only Amortization that occurred in second quarter 2018; (2) a $0.8 million after-tax decrease in operating expenses, primarily attributable to a decrease in G&A expenses, including hiring expenses and servicing advances, and a decrease in compensation and benefits expenses, which are generally higher during second quarter due to payments of employee incentive compensation; and (3) a $0.4 million after-tax decrease in credit-related expenses due to a $2 thousand after-tax release from the total allowance for losses in third quarter 2018 compared to a provision for the total allowance for losses of $0.5 million after-tax in second quarter 2018. The sequential increase in core earnings was partially offset by a $0.5 million decrease in tax benefits primarily related to share-based compensation recognized from exercises of equity-based awards.

The $5.6 million year-over-year increase in core earnings was primarily attributable to: (1) a $2.4 million after-tax increase in net effective spread; and (2) a $4.2 million decrease in income tax expense attributable to the lower federal corporate income tax rate.  The year-over-year increase in core earnings was offset in part by the $1.0 million after-tax increase in operating expenses described above.  This increase in operating expenses was primarily attributable to: (1) continued technology and business infrastructure investments; (2) an increase in headcount; and (3) new leases for office space entered into during late 2017.

See "Use of Non-GAAP Measures" below for more information about core earnings, core earnings per share, and net effective spread and for reconciliations of the comparable GAAP measures to these non-GAAP measures.

Business Volume Highlights 

During third quarter 2018, Farmer Mac added $1.5 billion of gross new business volume, compared to $0.9 billion in third quarter 2017.  Specifically, Farmer Mac:

• purchased $786.0 million of AgVantage securities;
• renewed a $300.0 million revolving floating rate AgVantage facility;
• purchased $192.6 million of newly originated Farm & Ranch loans;
• purchased $90.0 million of USDA Securities;
• added $64.1 million of Farm & Ranch loans under LTSPCs; and
• issued $26.3 million of Farmer Mac Guaranteed USDA Securities.

After $1.4 billion of maturities and principal paydowns on existing business during third quarter 2018, Farmer Mac's outstanding business volume increased by $15.7 million from June 30, 2018 to $19.5 billion as of September 30, 2018.  This increase was driven by net growth of $53.1 million in the USDA Guarantees line of business, $47.3 million in net new Institutional Credit business from financial fund counterparties, and net growth of $41.7 million in Farm & Ranch loan purchases.  Farmer Mac refinanced all of its AgVantage securities maturing during third quarter 2018, which included an early refinance of a $50.0 million AgVantage security that matured in third quarter 2018 but which was refinanced in second quarter 2018.

Although Farmer Mac experienced net growth in some of its lines of business during third quarter 2018, several factors combined to reduce overall net growth.  Specifically, within the Institutional Credit line of business, three factors contributed to reducing overall net growth: (1) an early refinance of a $50.0 million AgVantage security in second quarter 2018 that matured in third quarter 2018; (2) the quarterly amortization of $14.0 million on another AgVantage security; and (3) a $9.8 million prepayment on a Farm Equity AgVantage security.  The Farm Equity AgVantage security prepaid upon the sale of the underlying asset, as the counterparty's limited life fund that held the asset is nearing its maturity date and selling assets to return capital to its investors.  Another factor reducing overall net growth this quarter was a $37.4 million net decrease in Farmer Mac's Rural Utilities line of business due to loan repayments.  The last factor that contributed to reducing overall net growth was a $15.0 million net decrease in Farm & Ranch LTSPCs, as repayments exceeded new business volume.

Within the Institutional Credit line of business, while outstanding business volume experienced a net decrease of $26.6 million in third quarter 2018 as compared to second quarter 2018 primarily due to the aforementioned early refinance of the $50.0 million AgVantage security, Farmer Mac was able to successfully refinance all of its third quarter 2018 scheduled maturities.  Specifically, Farmer Mac refinanced $650.0 million of maturing on-balance sheet AgVantage securities and a $300.0 million off-balance sheet AgVantage facility. The purchases in Farmer Mac's Institutional Credit line of business during third quarter 2018 included refinancing purchases of AgVantage securities in the amounts of $275.0 million from MetLife, $250.0 million from National Rural Utilities Cooperative Finance Corporation ("CFC"), and $125.0 million from Rabo Agrifinance, Inc. ("Rabo").  The counterparties in these transactions used the funds to repay AgVantage securities that matured in third quarter 2018. Farmer Mac also purchased a new AgVantage security in the amount of $25.0 million from Rabo. Farmer Mac committed to the new $300.0 million revolving floating rate AgVantage facility with CFC to replace a similar facility that expired during third quarter 2018. Farmer Mac receives a fixed fee based on the full dollar amount of this facility. If CFC draws on this facility, the amounts drawn will be in the form of on-balance sheet AgVantage securities, and Farmer Mac will earn interest income on those securities.

During third quarter 2018 and throughout this year, Farmer Mac's gross purchases of Farm & Ranch loans and USDA Securities have decreased compared to the prior year, which Farmer Mac believes is due to several factors.  In the Farm & Ranch line of business, Farmer Mac has seen far fewer opportunities in 2018 to purchase large loans that are over $15.0 million compared to 2017.  Farmer Mac believes that this could be due to a fewer number of eligible borrowers that are able to secure financing of that size, as well as potentially increased pricing competition for the highest credit quality borrowers of these larger loans.  The decrease in purchases in the USDA Guarantees line of business reflects increased competition, fewer refinances due to higher interest rates, and potentially lower loan volume being processed through USDA.  However, Farmer Mac does not believe that this indicates a decrease in borrower demand for USDA agricultural loans.  While gross loan purchase volumes are down in both the Farm & Ranch and USDA Guarantees lines of business, year-over-year net outstanding business volume growth has remained in the high single-digit to double-digit range throughout 2018.  Contributing to these net growth rates is the significant slowdown during 2018 of prepayments on loans in these lines of business, as a higher interest rate and lower farm income environment appears to have reduced borrowers' incentive to prepay.  Farmer Mac's net agricultural mortgage loan growth rate compares favorably to the year-over-year growth rate of the total agricultural mortgage loan market of approximately 5.1 percent through June 2018, based upon a review of bank and Farm Credit System call report data.

Spreads

Net interest income was $45.1 million for third quarter 2018, compared to $43.9 million for second quarter 2018 and $39.6 million for third quarter 2017. The overall net interest yield was 0.99 percent for third quarter 2018, compared to 0.96 percent for second quarter 2018 and 0.92 percent for third quarter 2017.

The $1.2 million sequential increase in net interest income was primarily attributable to: (1) the absence in third quarter 2018 of the Interest-Only Amortization that occurred in second quarter 2018; and (2) the effect of an increase in short-term interest rates on assets and liabilities indexed to LIBOR due to the Federal Reserve's decisions since December 2017 to raise the target range for the federal funds rate.  This effect on net interest income occurred because interest expense used to calculate net interest income does not include all the funding expenses related to these assets, specifically the expense on financial derivatives not designated in hedge relationships.  Another factor contributing to the sequential increase in net interest income was an increase in the amount of cash basis interest income recognized on non-accrual Farm & Ranch loans. The increase in net interest income was offset in part by an increase in net yield adjustments related to amortizations of premiums and discounts on assets consolidated at fair value.  The 3 basis point sequential increase in net interest yield was primarily attributable to the absence of the Interest-Only Amortization in third quarter 2018, which had a 4 basis point negative impact in second quarter 2018.

The $5.5 million year-over-year increase in net interest income was primarily attributable to net growth in on-balance sheet AgVantage securities, Farm & Ranch loans, and USDA Securities.  Also contributing to the increase was the effect of an increase in short-term interest rates on assets and liabilities indexed to LIBOR.  As noted above, the effect on net interest income occurred because interest expense does not include the expense on financial derivatives not designated in hedge relationships.  Also contributing to the year-over-year increase in net interest income were the fair value changes on financial derivatives and corresponding financial assets and liabilities in fair value hedge relationships.  Effective first quarter 2018, Farmer Mac adopted Accounting Standard Update ("ASU") 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The new accounting guidance requires the changes in the fair value of both the financial derivative designated in a fair value hedge relationship and the corresponding hedged item to be recorded in the same line item in Farmer Mac's consolidated statements of operations. Thus, Farmer Mac recognizes changes in fair value of both the financial derivatives and corresponding hedged items within net interest income in its consolidated statements of operations. Prior to first quarter 2018, changes in the fair value of financial derivatives designated in a fair value hedge relationship were recognized in "Gains/(losses) on financial derivatives and hedging activities" in Farmer Mac's consolidated statements of operations.  Another factor contributing to the year-over-year increase in net interest income was an increase in the amount of cash basis interest income recognized on non-accrual Farm & Ranch loans.  The 7 basis point year-over-year increase in net interest yield was primarily attributable to an increase in the fair value changes on financial derivatives and corresponding financial assets and liabilities in fair value hedge relationships included in net interest income in third quarter 2018 and an increase in the amount of cash basis interest income recognized on nonaccrual Farm & Ranch loans.

Net effective spread, a non-GAAP measure, was $39.1 million for third quarter 2018, compared to $36.2 million in second quarter 2018 and $36.0 million in third quarter 2017.  In percentage terms, net effective spread was 0.93 percent for third quarter 2018, compared to 0.86 percent in second quarter 2018 and 0.91 percent in third quarter 2017. Farmer Mac uses net effective spread as an alternative measure to net interest income because management believes it is a useful metric that reflects the economics of the net spread between all the assets owned by Farmer Mac and all related funding, including any associated derivatives, some of which may not be included in net interest income.

The $2.9 million and 7 basis point sequential increase in net effective spread in dollars and percentage terms was primarily attributable to: (1) the absence of the Interest-Only Amortization in third quarter 2018 that occurred in second quarter 2018, which reduced net effective spread by $2.0 million and had a 5 basis point negative impact in second quarter; (2) an increase in the amount of cash basis interest income received from non-accrual Farm & Ranch loans, which increased net effective spread by $0.4 million and 1 basis point; and (3) a decrease in net yield adjustments on asset-backed securities in Farmer Mac's investment portfolio resulting from lower prepayments in third quarter 2018, which increased net effective spread by $0.3 million and 1 basis point.

The $3.1 million year-over-year increase in net effective spread in dollars was primarily attributable to: (1) growth in outstanding business volume, which increased net effective spread by approximately $2.3 million; and (2) a $0.8 million increase in the amount of cash basis interest income received from non-accrual Farm & Ranch loans. The 2 basis point year-over-year increase in net effective spread in percentage terms was primarily attributable to the increase in the amount of cash basis interest income received from non-accrual Farm & Ranch loans.

Credit

In the Farm & Ranch portfolio, 90-day delinquencies were $37.5 million (0.53 percent of the Farm & Ranch portfolio) as of September 30, 2018, compared to $43.1 million (0.61 percent of the Farm & Ranch portfolio) as of June 30, 2018 and $66.4 million (1.01 percent of the Farm & Ranch portfolio) as of September 30, 2017.  Those 90-day delinquencies were comprised of 64 delinquent loans as of September 30, 2018, compared with 54 delinquent loans as of June 30, 2018 and 68 delinquent loans as of September 30, 2017. The sequential decrease in 90-day delinquencies is primarily attributable to: (1) lower than expected seasonal delinquencies associated with loans that have annual (January 1st) and semi-annual (January 1st and July 1st) payment terms, which account for most of the loans in the Farm & Ranch portfolio; and (2) $9.8 million in two crop loans to a single borrower that became current during third quarter 2018.  Farmer Mac believes that it remains adequately collateralized on its delinquent loans.  Farmer Mac expects that over time its 90-day delinquency rate will eventually revert closer to, and possibly exceed, Farmer Mac's historical average due to macroeconomic factors and the cyclical nature of the agricultural economy. Farmer Mac's average 90-day delinquency rate as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 1 percent. The highest 90-day delinquency rate observed during that period occurred in 2009 at approximately 2 percent, which coincided with increased delinquencies in loans within Farmer Mac's then-held ethanol loan portfolio that Farmer Mac no longer holds.

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 0.19 percent of total business volume as of September 30, 2018, compared to 0.25 percent as of December 31, 2017 and 0.36 percent as of September 30, 2017.

Another indicator that Farmer Mac considers in analyzing the credit quality of its Farm & Ranch portfolio is the level of internally-rated "substandard" assets, both in dollars and as a percentage of the outstanding Farm & Ranch portfolio. Assets categorized as "substandard" have a well-defined weakness or weaknesses, and there is a distinct possibility that some loss will be sustained if deficiencies are not corrected. As of September 30, 2018, Farmer Mac's substandard assets were $216.0 million (3.1 percent of the Farm & Ranch portfolio), compared to $221.3 million (3.2 percent of the Farm & Ranch portfolio) as of December 31, 2017. Those substandard assets were comprised of 336 loans as of September 30, 2018 and 307 loans as of December 31, 2017.  As of September 30, 2018, substandard asset volume includes several large exposures and represents a relatively diverse set of commodities.  Farmer Mac's substandard asset volume decreased modestly from year-end 2017 in dollars as assets newly classified as substandard were slightly less than assets that were paid off, paid down, or upgraded in risk rating.  As of September 30, 2018, the commodity composition of substandard assets was similar to past quarters.  The improvement in substandard assets as compared to December 31, 2017 was primarily due to paydowns of loans and fewer loans migrating into the substandard asset category.  Farmer Mac expects that over time its substandard asset rate will eventually revert closer to, and possibly exceed, Farmer Mac's historical average due to macroeconomic factors and the cyclical nature of the agricultural economy. Farmer Mac's average substandard assets as a percentage of its Farm & Ranch portfolio over the last 15 years is approximately 4 percent. The highest substandard asset rate observed during that period occurred in 2010 at approximately 8 percent, which coincided with an increase in substandard loans within Farmer Mac's then-held ethanol portfolio that Farmer Mac no longer holds. If Farmer Mac's substandard asset rate continues to increase from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses will also increase.

Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that any losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of its portfolio, which Farmer Mac believes is adequately collateralized.

Liquidity and Capital

Farmer Mac's core capital totaled $713.6 million as of September 30, 2018, exceeding the statutory minimum capital requirement by $173.8 million, or 32 percent, compared to $657.1 million as of December 31, 2017, which was $136.8 million, or 26 percent, above the statutory minimum capital requirement.  The increase in capital in excess of the minimum capital level was due primarily to an increase in retained earnings.

As of September 30, 2018, Farmer Mac had total equity of $777.6 million, compared to $708.1 million as of December 31, 2017.  The increase in total equity was a result of an increase in retained earnings and accumulated other comprehensive income. The increase in accumulated other comprehensive income was due to increases in fair value on certain floating-rate AgVantage securities.

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 215 days of liquidity during third quarter 2018 and had 212 days of liquidity as of September 30, 2018.

Use of Non-GAAP Measures

In the accompanying analysis of its financial information, Farmer Mac sometimes uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with generally accepted accounting principles in the United States (GAAP).  Specifically, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread."  Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends.  The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies.  Farmer Mac's disclosure of these non-GAAP measures 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.

Core Earnings and Core Earnings per Share

Core earnings and core earnings per share principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected. Among other items, these fair value fluctuations have included unrealized gains or losses on financial derivatives and hedging activities. Since the beginning of first quarter 2017, Farmer Mac has excluded the effects of realized gains or losses resulting from the exchange of variation margin on its cleared derivatives portfolio in its calculations of core earnings and core earnings per share to present them on a consistent basis with quarters prior to 2017.  More information about the effects of realized gains or losses resulting from the exchange of variation margin on cleared derivatives is available in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Use of Non-GAAP Measures" in Farmer Mac's Quarterly Report on Form 10-Q for the period ended September 30, 2018 filed today with the U.S. Securities and Exchange Commission ("SEC").

Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, 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.  Accordingly, the one-time, non-cash charge to income tax expense due to the re-measurement of the net deferred tax asset was excluded from core earnings and core earnings per share. Farmer Mac re-measured its net deferred tax asset at a lower U.S. corporate tax rate due to the enactment of new tax legislation on December 22, 2017. This charge is excluded from core earnings and core earnings per share because it is not a frequently occurring transaction, is a non-cash charge, and is not indicative of future operating results. For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, see the "Reconciliations" section below.

Net Effective Spread

Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets.  Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost"; and (3) beginning January 1, 2018, the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge relationship.  Farmer Mac excludes from net effective spread premiums and discounts on assets consolidated at fair value because they either do not reflect actual cash premiums paid for the assets at acquisition or are not expected to have an economic effect on Farmer Mac's financial performance if the assets are held to maturity, as is expected. Farmer Mac also excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee.  Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees for purposes of determining Farmer Mac's core earnings.

Effective in first quarter 2018, Farmer Mac adopted ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities."  Prior to first quarter 2018, gains and losses on financial derivatives were included in "(Losses)/gains due to fair value changes" whether or not they were designated in hedge relationships.  Beginning in first quarter 2018, gains and losses on financial derivatives in hedge relationships are included in either interest income or interest expense depending on the corresponding hedged financial asset or liability, respectively.  Farmer Mac excludes from net effective spread those fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge relationships because they are not expected to have an economic effect on Farmer Mac's financial performance if the financial derivatives and corresponding hedged items are held to maturity, as is expected. Net effective spread also principally differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge relationships ("undesignated financial derivatives").  Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities.  The accrual of the contractual amounts due on interest rate swaps designated in hedge relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income.  For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "Gains/(losses) on financial derivatives and hedging activities" on the consolidated statements of operations.  However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread.

Net effective spread also includes the net effects of terminations or net settlements on financial derivatives and hedging activities. The inclusion of these items in net effective spread, along with the accrual of contractual amounts due for undesignated financial derivatives described above, is intended to reflect management's view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are in a hedge relationship.  More information about the specific components that relate to the net effects of terminations or net settlements on financial derivatives and hedging activities is available in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in Farmer Mac's Quarterly Report on Form 10‑Q for the period ended September 30, 2018 filed today with the SEC.

For a reconciliation of net interest income and net interest yield to net effective spread, see the "Reconciliations" section below.

Forward-Looking Statements

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 or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements in this release, including uncertainties regarding:

• 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 such as LIBOR; and
• volatility in commodity prices relative to costs of production, changes in U.S. trade policies, and/or fluctuations in export demand for U.S. agricultural products.

Other risk factors are discussed in "Risk Factors" in Part I, Item 1A in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 8, 2018.  In light of these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this release.  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 new information or any future events or circumstances, except as otherwise mandated by the SEC.  The information contained in this release is not necessarily indicative of future results.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's third quarter 2018 financial results will be held beginning at 11:00 a.m. eastern time on Thursday, November 8, 2018 and can be accessed by telephone or live webcast as follows:

Telephone (Domestic): (888) 346-2616

Telephone (International): (412) 902-4254

Webcast: https://www.farmermac.com/investors/events-presentations/

Presentation materials to be referenced during the call will be posted on the webpage that can be accessed by clicking on the link noted above.  When dialing in to the call, please ask for the "Farmer Mac Earnings Conference Call."  The call can be heard live and will also be available for replay on Farmer Mac's website for two weeks following the conclusion of the call.

More complete information about Farmer Mac's performance for third quarter 2018 is set forth in Farmer Mac's Quarterly Report on Form 10-Q for the period ended September 30, 2018 filed today with the SEC.

About Farmer Mac

Farmer Mac is a vital part of the agricultural credit markets and works to increase access to and reduce the cost of capital for the benefit of American agricultural and rural communities. As the nation's largest secondary market for agricultural credit, we provide financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses, and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac's customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. In fact, we are often able to provide the lowest cost of borrowing to agricultural and rural borrowers. For more than thirty years, Farmer Mac has been delivering the capital and commitment rural America deserves.  Additional information about Farmer Mac (including the Quarterly Report on Form 10-Q and the Annual Report on Form 10-K referenced above) is available on Farmer Mac's website at www.farmermac.com.

 

 

Reconciliations

Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings for the periods indicated: 

 

 

The following table presents a reconciliation of net interest income and net yield to net effective spread for the periods indicated:

The following table presents core earnings for Farmer Mac's reportable operating segments and a reconciliation to consolidated net income for the three months ended September 30, 2018:

Supplemental Information

The following table sets forth information regarding outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated:

The following table presents the quarterly net effective spread by segment:

The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:

 

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SOURCE Farmer Mac