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Farmer Mac Reports Third Quarter 2010 Results

November 9, 2010

WASHINGTON, Nov. 9, 2010 /PRNewswire-FirstCall/ — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today reported third quarter core earnings of $7.9 million ($0.74 per diluted common share), compared to third quarter 2009 core earnings of $1.3 million ($0.12 per diluted common share). The increase in third quarter core earnings was due in part to significant growth in assets during the quarter as Farmer Mac purchased or guaranteed $1.1 billion of new loans and securities. Third quarter 2010 GAAP net income available to common stockholders for the period was $6.0 million ($0.56 per diluted common share), compared to $17.9 million ($1.74 per diluted common share) for third quarter 2009. Third quarter 2010 GAAP results included a loss of $1.1 million from an after tax decrease in the value of trading assets, compared to an after tax gain of $16.3 million in third quarter 2009. Farmer Mac excludes such fair value fluctuations from its core earnings.

Farmer Mac President and Chief Executive Officer Michael Gerber stated, “I am pleased to report our third quarter results which show growth both in our core earnings and, more significantly, in our outstanding portfolio of loans, guarantees, and commitments. In the third quarter we did $1.1 billion of new business bringing the total outstanding portfolio to $11.5 billion, an increase of nearly 7 percent for the quarter. That new business included three large AgVantage® transactions in addition to the ongoing purchases of individual loans under the Farmer Mac I and Farmer Mac II programs, both of which continue to grow. With lenders in both the agricultural and rural utilities sectors looking for sources of capital and liquidity and to reduce their credit risk exposures, we are pleased that Farmer Mac is becoming an increasingly important solution for those challenges and a means to meet the borrowing needs of lenders’ rural customers.”

For the quarter ended September 30, 2010, Farmer Mac realized an effective net interest spread of 104 basis points, compared to 93 basis points for the quarter ended September 30, 2009. This increased spread combined with growth in Farmer Mac’s core business produced $16.2 million of net interest spread in third quarter 2010, compared to $11.9 million in third quarter 2009.

Farmer Mac’s 90-day delinquencies were $64.8 million (1.53 percent of the portfolio) as of September 30, 2010, compared to $59.4 million (1.36 percent) as of September 30, 2009. 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 $64.8 million of 90 day delinquencies as of September 30, 2010, compared to $18.5 million of $59.4 million as of September 30, 2009. The increase in delinquencies reflects the fact that certain segments of agriculture continue to be adversely affected by weaknesses in the national economy in general, as well as volatile commodity price cycles. Given current conditions, Farmer Mac anticipates continued stress in its portfolio with delinquencies, losses and charge-offs likely to remain higher than the historical average, but within the Corporation’s historical experience for the remainder of 2010 and the first half of 2011. As of September 30, 2010, there were no delinquencies in Farmer Mac’s portfolio of rural utilities loans.

“During 2009 and early 2010 we worked on strengthening our balance sheet and reducing risk in our operations. Our success in the third quarter further reflects our efforts to work with customers to support lending in rural America,” continued Mr. Gerber. “Those efforts resulted in strong growth during the quarter and solid momentum for growth into the future. This growth is essential for the continued strengthening of Farmer Mac as it translates into stronger earnings at Farmer Mac and more liquidity and capital for rural America. Our focus remains on growing our portfolio of high quality loans, guarantees and commitments as we work to fulfill our Congressional mission, meet the needs of our customers and grow this business.”

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 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
                                  --------------------------
                              September 30,           September 30,
                                    2010                      2009
                               --------------            --------------
                                          Per                       Per
                                        Diluted                   Diluted
                                        Share                     Share
                                        -----                     -----
                                (in thousands, except per share
                                           amounts)
    GAAP net income
     available
      to common
       stockholders         $5,997        $0.56      $17,900        $1.74
    Less the net of tax
     effects of:
      Unrealized gains on
       financial
       derivatives           2,106         0.20          830         0.08
      Unrealized
       (losses)/gains on
       trading assets       (1,119)       (0.10)      16,279         1.59
      Amortization of
       premiums on assets
       consolidated at
       fair value           (1,863)       (0.17)           -            -
      Net effects of
       settlements on
       agency forward
       contracts              (441)       (0.05)        (479)       (0.05)
      Lower of cost or
       fair value
       adjustment on loans
       held for sale          (589)       (0.06)           -            -
                              ----        -----          ---          ---
    Core earnings           $7,903        $0.74       $1,270        $0.12
                            ------        -----       ------        -----

                                  For the Nine Months Ended
                                  -------------------------
                              September 30,           September 30,
                                    2010                      2009
                               --------------            --------------
                                          Per                       Per
                                        Diluted                   Diluted
                                        Share                     Share
                                        -----                     -----
                                (in thousands, except per share
                                           amounts)
    GAAP net income
     available
      to common
       stockholders         $9,588        $0.91      $76,803        $7.54
    Less the net of tax
     effects of:
      Unrealized
       (losses)/gains on
       financial
       derivatives             (23)           -       30,839         3.03
      Unrealized gains on
       trading assets        4,357         0.41       36,859         3.61
      Amortization of
       premiums on assets
       consolidated at
       fair value           (5,246)       (0.50)           -            -
      Issuance costs on
       the retirement of
       preferred stock      (5,784)       (0.55)           -            -
      Net effects of
       settlements on
       agency forward
       contracts              (329)       (0.02)      (1,672)       (0.16)
      Lower of cost or
       fair value
       adjustment on loans
       held for sale        (2,009)       (0.19)           -            -
                            ------        -----          ---          ---
    Core earnings          $18,622        $1.76      $10,777        $1.06
                           -------        -----      -------        -----

More complete information on Farmer Mac’s performance for the quarter ended September 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 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 10 K 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 September 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 third quarter 2010 financial results and the Corporation’s Form 10-Q for third quarter 2010 will be webcast on Farmer Mac’s website beginning at 11:00 a.m. eastern time on Wednesday, November 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)
                                                 September         December
                                                     30,              31,
                                                       2010             2009
                                                       ----             ----
                                                      (in thousands)
    Assets:
      Cash and cash equivalents                    $453,273         $654,794
      Investment securities:
        Available-for-sale, at fair
         value                                    1,375,518        1,041,923
        Trading, at fair value                       81,913           89,972
                                                     ------           ------
          Total investment securities             1,457,431        1,131,895
                                                  ---------        ---------
      Farmer Mac Guaranteed Securities:
        Available-for-sale, at fair
         value                                    2,434,467        2,524,867
        Trading, at fair value                            -          874,129
                                                        ---          -------
          Total Farmer Mac Guaranteed
           Securities                             2,434,467        3,398,996
                                                  ---------        ---------
      USDA Guaranteed Securities:
        Available-for-sale, at fair
         value                                      970,901                -
        Trading, at fair value                      354,539                -
                                                    -------              ---
          Total USDA Guaranteed Securities        1,325,440                -
                                                  ---------              ---
      Loans:
        Loans held for sale, at lower of
         cost or fair value                         981,985          666,534
        Loans held for investment, at
         amortized cost                              88,498           93,478
        Loans held for investment in
         consolidated trusts, at
         amortized cost                           1,292,716                -
        Allowance for loan losses                    (9,442)          (6,292)
                                                     ------           ------
          Total loans, net of allowance           2,353,757          753,720
                                                  ---------          -------
      Real estate owned, at lower of
       cost or fair value                             3,434              739
      Financial derivatives, at fair
       value                                         52,471           15,040
      Interest receivable                            67,424           67,178
      Guarantee and commitment fees
       receivable                                    34,058           55,016
      Deferred tax asset, net                             -           24,146
      Prepaid expenses and other assets              40,987           37,289
                                                     ------           ------
            Total Assets                         $8,222,742       $6,138,813
                                                 ----------       ----------

    Liabilities, Mezzanine Equity and
     Equity:
    Liabilities:
      Notes payable:
        Due within one year                      $3,645,811       $3,662,898
        Due after one year                        2,979,147        1,908,713
                                                  ---------        ---------
          Total notes payable                     6,624,958        5,571,611
      Debt securities of consolidated
       trusts held by third parties                 849,430                -
      Financial derivatives, at fair
       value                                        144,715          107,367
      Accrued interest payable                       45,094           39,562
      Guarantee and commitment
       obligation                                    30,922           48,526
      Accounts payable and accrued
       expenses                                      20,239           23,445
      Deferred tax liability, net                     2,441                -
      Reserve for losses                              9,575            7,895
                                                      -----            -----
            Total Liabilities                     7,727,374        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           57,578
    57,578 share issued and
     outstanding
      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,      8,746            8,611
    8,746,123 shares outstanding as
     of September 30, 2010 and
    8,610,918 shares outstanding as
     of December 31, 2009
      Additional paid-in capital                     99,468           97,090
      Accumulated other comprehensive
       income                                        47,332            3,254
      Retained earnings                              38,860           28,127
                                                     ------           ------
              Total Stockholders' Equity            253,515          196,191
                                                    -------          -------
      Non-controlling interest -
       preferred stock                              241,853                -
                                                    -------              ---
              Total Equity                          495,368          196,191
                                                    -------          -------
            Total Liabilities, Mezzanine
             Equity and Equity                   $8,222,742       $6,138,813
                                                 ----------       ----------


                                     For the Three Months
                                            Ended
                                     --------------------
                                  September       September
                                      30,             30,
                                       2010            2009
                                       ----            ----
                                 (in thousands, except per share amounts)
    Interest income:
      Investments and cash
       equivalents                   $6,430          $6,345
      Farmer Mac and USDA
       Guaranteed Securities         22,971          27,668
      Loans                          29,174           8,815
                                     ------           -----
          Total interest income      58,575          42,828
      Total interest expense         33,526          23,031
                                     ------          ------
          Net interest income        25,049          19,797
      Provision for loan
       losses                          (412)         (3,098)
                                       ----          ------
          Net interest income
           after provision for
           loan losses               24,637          16,699
                                     ------          ------

    Non-interest
     (loss)/income:
      Guarantee and
       commitment fees                5,977           8,168
      (Losses)/gains on
       financial derivatives         (6,864)         (7,733)
      (Losses)/gains on
       trading assets                (1,722)         25,047
      Other-than-temporary
       impairment losses                  -          (1,621)
      Gains on sale of
       available-for-sale
       investment securities             24              63
      Gains on sale of loans
       and Farmer Mac
       Guaranteed Securities              -               -
      Lower of cost or fair
       value adjustment on
       loans held for sale             (906)              -
      Other income                      140             874
                                        ---             ---
          Non-interest
           (loss)/income             (3,351)         24,798
                                     ------          ------

    Non-interest expense:
      Compensation and
       employee benefits              4,501           2,896
      General and
       administrative                 1,775           2,432
      Regulatory fees                   568             512
      Real estate owned
       operating costs, net           1,189             203
      Provision for losses              105              89
                                        ---             ---
          Non-interest expense        8,138           6,132
                                      -----           -----
          Income before income
           taxes                     13,148          35,365
    Income tax expense                  885          13,097
                                        ---          ------
          Net income                 12,263          22,268
    Less: Net income
     attributable to non-
     controlling                     (5,546)              -
      interest -preferred
       stock dividends
        Net income
         attributable to
         Farmer Mac                   6,717          22,268
    Preferred stock
     dividends                         (720)         (4,368)
    Loss on retirement of
     preferred stock                      -               -
                                        ---             ---
          Net income available
           to common
           stockholders              $5,997         $17,900
                                     ------         -------

    Earnings per common
     share and dividends:
          Basic earnings per
           common share               $0.58           $1.77
          Diluted earnings per
           common share               $0.56           $1.74
          Common stock dividends
           per common share           $0.05           $0.05


                                     For the Nine Months
                                            Ended
                                      -------------------
                                  September       September
                                      30,             30,
                                       2010            2009
                                       ----            ----
                                 (in thousands, except per share amounts)
    Interest income:
      Investments and cash
       equivalents                  $19,303         $22,303
      Farmer Mac and USDA
       Guaranteed Securities         62,597          81,232
      Loans                          94,734          28,196
                                     ------          ------
          Total interest income     176,634         131,731
      Total interest expense        106,360          68,593
                                    -------          ------
          Net interest income        70,274          63,138
      Provision for loan
       losses                        (1,392)           (939)
                                     ------            ----
          Net interest income
           after provision for
           loan losses               68,882          62,199
                                     ------          ------

    Non-interest
     (loss)/income:
      Guarantee and
       commitment fees               17,606          23,486
      (Losses)/gains on
       financial derivatives        (28,508)         15,506
      (Losses)/gains on
       trading assets                 6,703          56,707
      Other-than-temporary
       impairment losses                  -          (3,994)
      Gains on sale of
       available-for-sale
       investment securities            264           2,913
      Gains on sale of loans
       and Farmer Mac
       Guaranteed Securities              -           1,581
      Lower of cost or fair
       value adjustment on
       loans held for sale           (3,090)              -
      Other income                    1,180           1,209
                                      -----           -----
          Non-interest
           (loss)/income             (5,845)         97,408
                                     ------          ------

    Non-interest expense:
      Compensation and
       employee benefits             11,919          10,493
      General and
       administrative                 6,329           8,332
      Regulatory fees                 1,693           1,537
      Real estate owned
       operating costs, net           1,497             208
      Provision for losses            1,680           2,079
                                      -----           -----
          Non-interest expense       23,118          22,649
                                     ------          ------
          Income before income
           taxes                     39,919         136,958
    Income tax expense                5,977          47,721
                                      -----          ------
          Net income                 33,942          89,237
    Less: Net income
     attributable to non-
     controlling                    (15,160)              -
      interest -preferred
       stock dividends
        Net income
         attributable to
         Farmer Mac                  18,782          89,237
    Preferred stock
     dividends                       (3,410)        (12,434)
    Loss on retirement of
     preferred stock                 (5,784)              -
                                     ------             ---
          Net income available
           to common
           stockholders              $9,588         $76,803
                                     ------         -------

    Earnings per common
     share and dividends:
          Basic earnings per
           common share               $0.94           $7.58
          Diluted earnings per
           common share               $0.91           $7.54
          Common stock dividends
           per common share           $0.15           $0.15

SOURCE Farmer Mac


Source: newswire



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