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Farmer Mac Reports Second Quarter 2010 Results

August 9, 2010

WASHINGTON, Aug. 9 /PRNewswire-FirstCall/ — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM; AGM.A) today reported second quarter core earnings of $5.3 million ($0.50 per diluted common share) and GAAP net income available to common stockholders for the period of $1.8 million ($0.17 per diluted common share). Second quarter 2009 core earnings were $4.7 million ($0.46 per diluted common share) and GAAP net income available to common stockholders was $25.4 million ($2.49 per diluted common share). Second quarter 2009 GAAP results benefited from a $20.3 million after tax increase in the value of financial derivatives. Farmer Mac excludes such fair value fluctuations from its core earnings.

Farmer Mac President and Chief Executive Officer Michael Gerber stated, “With the capital raise behind us and core earnings growing again, Farmer Mac is fully focused on growing our $10.8 billion portfolio of outstanding loans, guarantees and commitments and continuing to serve rural America. Our purchases of individual loans under both the Farmer Mac I and Farmer Mac II programs are at a record pace. Through the end of this year’s second quarter, new business volume was sufficient to offset the repayment of loans in our portfolio. In addition, we see continued interest in our products targeted at loan portfolios, as evidenced by a new $250 million transaction completed in July, after the end of the second quarter. With lenders in both the agricultural and rural utilities sectors looking for sources of capital and liquidity and to reduce their credit risk exposures, Farmer Mac represents an important potential solution for those challenges and a means to meet the borrowing needs of lenders’ rural customers.”

For the quarter ended June 30, 2010, Farmer Mac realized an effective net interest spread of 108 basis points, compared to 82 basis points for the quarter ended June 30, 2009. This increased spread combined with growth in our core business produced $15.5 million of net interest spread in second quarter 2010, compared to $9.9 million in second quarter 2009.

Farmer Mac’s 90-day delinquencies were $56.0 million (1.30 percent of the portfolio) as of June 30, 2010, down from $70.4 million (1.64 percent) as of March 31, 2010, but up from $42.3 million (0.95 percent) as of June 30, 2009. The decrease in delinquencies when compared to March 31, 2010 is primarily due to the annual (January 1st) and semi-annual (January 1st and July 1st) payment characteristics of most Farmer Mac I loans. For much of 2009, the 90-day delinquencies were concentrated in the ethanol industry and this concentration has been significantly reduced. Ethanol loans comprised $10.9 million of the $56.0 million of 90-day delinquencies as of June 30, 2010, compared to $18.8 million of $42.3 million as of June 30, 2009. Certain sectors of agriculture continue to show stress — most notably dairy. Given current conditions, Farmer Mac anticipates many sectors will continue to experience challenges during the second half of 2010, with delinquencies, losses and charge-offs likely to remain higher than the historical average, but within the Corporation’s historical experience. As of June 30, 2010, there were no delinquencies in Farmer Mac’s portfolio of rural utilities loans.

“We continue to move forward with building a strong Farmer Mac,” continued Mr. Gerber. “Earnings are improving even with the additions to the reserve, growth is beginning to occur and the portfolio remains stable in spite of stress in sectors such as dairy. With a solid balance sheet and a strong focus on growth in our mission volume we are encouraged with the second quarter results.”

Farmer Mac uses core earnings, a non-GAAP financial measure, to measure corporate economic performance and develop financial plans because, in management’s view, core earnings more accurately represent Farmer Mac’s economic performance, transaction economics and business trends before the effects on earnings of temporary changes in the recorded fair values of assets and liabilities and other one-time items. Core earnings differs from GAAP net income primarily by excluding unrealized gains or losses on financial derivatives and trading assets, lower of cost or fair value adjustments on loans held for sale and, for first half of 2010, other items related to the retirement of preferred stock and the amortization of premiums on assets consolidated at fair value. Farmer Mac’s disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.

A reconciliation of Farmer Mac’s 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
                                              For the Three Months Ended
                                              --------------------------
                                                   June 30, 2010
                                                   -------------
                                                              Per
                                                           Diluted
                                                            Share
                                                            -----
                                               (in thousands, except per share
                                                      amounts)

    GAAP net income available to common
     stockholders                              $1,824         $0.17
    Less the net of tax effects of:
      Unrealized (losses)/gains on financial
       derivatives                            (4,016)         (0.38)
      Unrealized gains on trading assets        3,288          0.31
      Amortization of premiums on assets
       consolidated at fair value             (2,701)         (0.25)
      Issuance costs on the retirement of
       preferred stock                              -             -
      Net effects of settlements on agency
       forward contracts                          (94)        (0.01)
      Lower of cost or fair value adjustment
       on loans held for sale                      58             -
                                                  ---           ---
    Core earnings                              $5,289         $0.50
                                               ------         -----


                                              For the Three Months Ended
                                              --------------------------
                                                   June 30, 2009
                                                   -------------
                                                              Per
                                                           Diluted
                                                            Share
                                                            -----
                                               (in thousands, except per share
                                                 amounts)

    GAAP net income available to common
     stockholders                             $25,385         $2.49
    Less the net of tax effects of:
      Unrealized (losses)/gains on financial
       derivatives                             20,281          1.99
      Unrealized gains on trading assets           23             -
      Amortization of premiums on assets
       consolidated at fair value                   -             -
      Issuance costs on the retirement of
       preferred stock                              -             -
      Net effects of settlements on agency
       forward contracts                          367          0.04
      Lower of cost or fair value adjustment
       on loans held for sale                       -             -
                                                  ---           ---
    Core earnings                              $4,714         $0.46
                                               ------         -----


                                           For the Six Months Ended
                                           ------------------------
                                                June 30, 2010
                                                -------------
                                                           Per
                                                        Diluted
                                                         Share
                                                         -----
                                            (in thousands, except per share
                                                   amounts)

    GAAP net income available to common
     stockholders                           $3,591         $0.34
    Less the net of tax effects of:
      Unrealized (losses)/gains on
       financial derivatives               (2,129)         (0.20)
      Unrealized gains on trading assets     5,476          0.52
      Amortization of premiums on assets
       consolidated at fair value          (3,383)         (0.32)
      Issuance costs on the retirement of
       preferred stock                     (5,784)         (0.56)
      Net effects of settlements on agency
       forward contracts                       112          0.01
      Lower of cost or fair value
       adjustment on loans held for sale   (1,420)         (0.13)
                                            ------         -----
    Core earnings                          $10,719         $1.02
                                           -------         -----


                                           For the Six Months Ended
                                           ------------------------
                                                June 30, 2009
                                                -------------
                                                           Per
                                                        Diluted
                                                         Share
                                                         -----
                                            (in thousands, except per share
                                              amounts)

    GAAP net income available to common
     stockholders                          $58,903         $5.80
    Less the net of tax effects of:
      Unrealized (losses)/gains on
       financial derivatives                30,009          2.95
      Unrealized gains on trading assets    20,580          2.03
      Amortization of premiums on assets
       consolidated at fair value                -             -
      Issuance costs on the retirement of
       preferred stock                           -             -
      Net effects of settlements on agency
       forward contracts                   (1,193)         (0.12)
      Lower of cost or fair value
       adjustment on loans held for sale         -             -
                                               ---           ---
    Core earnings                           $9,507         $0.94
                                            ------         -----

More complete information on Farmer Mac’s performance for the quarter ended June 30, 2010 is set forth in the Form 10-Q filed by Farmer Mac earlier today with the Securities and Exchange Commission (SEC).

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 or events could cause Farmer Mac’s actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including uncertainties regarding: (1) the availability to Farmer Mac and Farmer Mac II LLC of debt financing on reasonable rates and terms; (2) legislative or regulatory developments that could affect Farmer Mac; (3) fluctuations in the fair value of assets held by Farmer Mac and Farmer Mac II LLC; (4) the rate and direction of development of the secondary market for agricultural mortgage and rural utilities loans, including lender interest in Farmer Mac credit products and the Farmer Mac secondary market; (5) the general rate of growth in agricultural mortgage and rural utilities indebtedness; (6) borrower preferences for fixed rate agricultural mortgage indebtedness; (7) the impact of economic conditions and real estate values on agricultural mortgage lending; (8) the willingness of investors to invest in Farmer Mac Guaranteed Securities; (9) developments in the financial markets, including possible investor, analyst and rating agency reactions to events involving GSEs, including Farmer Mac; and (10) the future level of interest rates, commodity prices, and export demand for U.S. agricultural products. Other risk factors are discussed in Farmer Mac’s Annual Report on Form 10K for the year ended December 31, 2009, as filed with the SEC on March 16, 2010 and in Farmer Mac’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, as filed with the SEC earlier today. 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.

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, rural utilities loans, and 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 Annual Report on Form 10-K and Quarterly Report on Form 10-Q referenced above) is available on Farmer Mac’s website at www.farmermac.com. Farmer Mac II LLC is a Delaware limited liability company, in which Farmer Mac owns all of the common equity, that operates the Farmer Mac II business of purchasing and holding USDA-guaranteed loans. Additional information about Farmer Mac II LLC is available on its website at www.farmermac2.com.

The conference call to discuss Farmer Mac’s second quarter 2010 financial results and the Corporation’s Form 10-Q for second quarter 2010 will be webcast on Farmer Mac’s website beginning at 11:00 a.m. eastern time on Tuesday, August 10, 2010. An audio recording of that call will be available on Farmer Mac’s website for two weeks after the call is concluded.

          FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (unaudited)
                                                      December
                                                                June 30, 31,
                                          2010             2009
                                          ----             ----
                                          (in thousands)
    Assets:
      Cash and cash
       equivalents                    $325,333         $654,794
      Investment
       securities:
        Available-for-sale,
         at fair value             1,175,376        1,041,923
        Trading, at fair
         value                        81,956           89,972
                                      ------           ------
          Total investment
           securities              1,257,332        1,131,895
                                   ---------        ---------
      Farmer Mac Guaranteed
       Securities:
        Available-for-sale,
         at fair value             1,718,140        2,524,867
        Trading, at fair
         value                             -          874,129
                                         ---          -------
          Total Farmer Mac
           Guaranteed
           Securities              1,718,140        3,398,996
                                   ---------        ---------
      USDA Guaranteed
       Securities:
        Available-for-sale,
         at fair value               880,424                -
        Trading, at fair
         value                       386,496                -
                                     -------              ---
          Total USDA Guaranteed
           Securities              1,266,920                -
                                   ---------              ---
      Loans:
        Loans held for sale,
         at lower of cost or
         fair value                  908,778          666,534
        Loans held for
         investment, at
         amortized cost               96,057           93,478
        Loans held for
         investment in
         consolidated trusts,
         at amortized cost         1,332,624                -
        Allowance for loan
         losses                       (9,495)          (6,292)
                                      ------           ------
          Total loans, net of
           allowance               2,327,964          753,720
                                   ---------          -------
      Real estate owned, at
       lower of cost or
       fair value                      4,023              739
      Financial
       derivatives, at fair
       value                          37,121           15,040
      Interest receivable             72,616           67,178
      Guarantee and
       commitment fees
       receivable                     36,579           55,016
      Deferred tax asset,
       net                            10,405           24,146
      Prepaid expenses and
       other assets                   43,057           37,289
                                      ------           ------
            Total Assets          $7,099,490       $6,138,813
                                  ----------       ----------

    Liabilities,
     Mezzanine Equity and
     Equity:
    Liabilities:
      Notes payable:
        Due within one year       $3,226,745       $3,662,898
        Due after one year         2,269,421        1,908,713
                                   ---------        ---------
          Total notes payable      5,496,166        5,571,611
      Debt securities of
       consolidated trusts
       held by third
       parties                       882,629                -
      Financial
       derivatives, at fair
       value                         132,675          107,367
      Accrued interest
       payable                        52,913           39,562
      Guarantee and
       commitment
       obligation                     32,762           48,526
      Accounts payable and
       accrued expenses               19,397           23,445
      Reserve for losses               9,470            7,895
                                       -----            -----
            Total Liabilities      6,626,012        5,798,406
                                   ---------        ---------

    Commitments and
     Contingencies

    Mezzanine Equity:
      Series B redeemable
       preferred stock, par
       value $1,000 per
       share, 150,000
       shares authorized,
       issued and
       outstanding as of
       December 31, 2009
       (redemption value
       $150,000,000)                       -       144,216
    Stockholders' Equity:
      Preferred stock:
        Series C, par value
         $1,000 per share,
         100,000 shares
         authorized, 57,578
         issued and
         outstanding                  57,578        57,578
      Common stock:
        Class A Voting, $1
         par value, no
         maximum
         authorization,
         1,030,780 shares
         outstanding                   1,031         1,031
        Class B Voting, $1
         par value, no
         maximum
         authorization,
         500,301 shares
         outstanding                     500           500
        Class C Non-Voting,
         $1 par value, no
         maximum
         authorization,
         8,745,269 shares
         outstanding as of
         June 30, 2010 and
         8,610,918 shares
         outstanding as of
         December 31, 2009             8,745         8,611
      Additional paid-in
       capital                        98,925           97,090
      Accumulated other
       comprehensive income           31,469            3,254
      Retained earnings               33,377           28,127
                                      ------           ------
          Total Stockholders'
           Equity                    231,625          196,191
                                     -------          -------
      Non-controlling
       interest -
       preferred stock               241,853                -
                                     -------              ---
          Total Equity               473,478          196,191
                                     -------          -------
            Total Liabilities,
             Mezzanine Equity and
             Equity               $7,099,490       $6,138,813
                                  ----------       ----------

     FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            (unaudited)
                                      For the Three Months
                                             Ended
                                      --------------------
                                   June 30,       June 30,
                                     2010           2009
                                  ---------      ---------
                                  (in thousands, except per share amounts)
    Interest income:
      Investments and cash
       equivalents                   $6,390         $7,049
      Farmer Mac and USDA
       Guaranteed Securities         18,795         25,805
      Loans                          32,142          8,896
                                     ------          -----
          Total interest income      57,327         41,750
      Total interest expense         35,719         21,849
                                     ------         ------
          Net interest income        21,608         19,901
      Recoveries/(provision)
       for loan losses                1,870          5,693
                                      -----          -----
          Net interest income
           after recoveries/
           (provision) for loan
           losses                    23,478         25,594
                                     ------         ------

    Non-interest
     (expense)/income:
      Guarantee and
       commitment fees                5,710          7,908
      (Losses)/gains on
       financial derivatives        (15,840)        21,528
      Gains on trading assets         5,058             35
      Other-than-temporary
       impairment losses                  -         (2,292)
      (Losses)/gains on sale
       of available-for-
       sale investment
       securities                         -           (300)
      Gains on sale of loans
       and Farmer Mac
       Guaranteed Securities              -              -
      Lower of cost or fair
       value adjustment on
       loans held for sale               90              -
      Other income                      211            101
                                        ---            ---
          Non-interest
           (expense)/income          (4,771)        26,980
                                     ------         ------

    Non-interest expense:
      Compensation and
       employee benefits              3,907          3,572
      General and
       administrative                 2,051          2,986
      Regulatory fees                   562            512
      Real estate owned
       operating costs/
       (income), net                    298            (16)
      Provision/(recoveries)
       for losses                     3,043           (529)
                                      -----           ----
          Non-interest expense        9,861          6,525
                                      -----          -----
          Income before income
           taxes                      8,846         46,049
    Income tax expense                  756         16,534
                                        ---         ------
          Net income                  8,090         29,515

    Less: Net income
     attributable to non-
     controlling interest -
      preferred stock
       dividends                     (5,546)             -
                                     ------            ---
          Net income attributable
           to Farmer Mac              2,544         29,515
    Preferred stock
     dividends                         (720)        (4,130)
    Loss on retirement of
     preferred stock                      -              -
                                        ---            ---
          Net income available to
           common stockholders       $1,824        $25,385
                                     ------        -------

    Earnings per common
     share and dividends:
          Basic earnings per
           common share               $0.18          $2.50
          Diluted earnings per
           common share               $0.17          $2.49
          Common stock dividends
           per common share           $0.05          $0.05


                                       For the Six Months
                                             Ended
                                       ------------------
                                   June 30,       June 30,
                                     2010           2009
                                  ---------      ---------
                                  (in thousands, except per share amounts)
    Interest income:
      Investments and cash
       equivalents                  $12,873        $15,958
      Farmer Mac and USDA
       Guaranteed Securities         39,626         53,564
      Loans                          65,560         19,381
                                     ------         ------
          Total interest income     118,059         88,903
      Total interest expense         72,834         45,562
                                     ------         ------
          Net interest income        45,225         43,341
      Recoveries/(provision)
       for loan losses                 (980)         2,159
                                       ----          -----
          Net interest income
           after recoveries/
           (provision) for loan
           losses                    44,245         45,500
                                     ------         ------

    Non-interest
     (expense)/income:
      Guarantee and
       commitment fees               11,629         15,318
      (Losses)/gains on
       financial derivatives        (21,644)        23,239
      Gains on trading assets         8,425         31,660
      Other-than-temporary
       impairment losses                  -         (2,373)
      (Losses)/gains on sale
       of available-for-
       sale investment
       securities                       240          2,850
      Gains on sale of loans
       and Farmer Mac
       Guaranteed Securities              -          1,581
      Lower of cost or fair
       value adjustment on
       loans held for sale           (2,184)             -
      Other income                    1,040            335
                                      -----            ---
          Non-interest
           (expense)/income          (2,494)        72,610
                                     ------         ------

    Non-interest expense:
      Compensation and
       employee benefits              7,418          7,597
      General and
       administrative                 4,554          5,900
      Regulatory fees                 1,125          1,025
      Real estate owned
       operating costs/
       (income), net                    308              5
      Provision/(recoveries)
       for losses                     1,575          1,990
                                      -----          -----
          Non-interest expense       14,980         16,517
                                     ------         ------
          Income before income
           taxes                     26,771        101,593
    Income tax expense                5,092         34,624
                                      -----         ------
          Net income                 21,679         66,969

    Less: Net income
     attributable to non-
     controlling interest -
      preferred stock
       dividends                     (9,614)             -
                                     ------            ---
          Net income attributable
           to Farmer Mac             12,065         66,969
    Preferred stock
     dividends                       (2,690)        (8,066)
    Loss on retirement of
     preferred stock                 (5,784)             -
                                     ------            ---
          Net income available to
           common stockholders       $3,591        $58,903
                                     ------        -------

    Earnings per common
     share and dividends:
          Basic earnings per
           common share               $0.35          $5.81
          Diluted earnings per
           common share               $0.34          $5.80
          Common stock dividends
           per common share           $0.10          $0.10

SOURCE Farmer Mac


Source: newswire



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