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Farmer Mac Reports Second Quarter 2011 Results

August 9, 2011

WASHINGTON, Aug. 9, 2011 /PRNewswire/ — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today reported second quarter core earnings of $10.0 million ($0.94 per diluted common share), compared to second quarter 2010 core earnings of $5.3 million ($0.50 per diluted common share). The 90 percent increase in second quarter core earnings was due primarily to increased net interest income earned on a higher level of outstanding business volume compared to a year earlier and releases from the allowance for losses, compared to provisions in the prior year. Farmer Mac’s GAAP net income available to common stockholders for second quarter 2011 was $5.2 million ($0.48 per diluted common share), compared to $1.8 million ($0.17 per diluted common share) for second quarter 2010.

Farmer Mac President and Chief Executive Officer Michael Gerber stated, “We are again pleased with the improving strength of Farmer Mac as a result of a solid second quarter. Core earnings again increased and new program business volume was $608.1 million, led by the purchase of a $300.0 million Farmer Mac I AgVantage security. In addition to these financial results, as of the end of second quarter 2011 Farmer Mac’s 90-day delinquencies declined from both the previous quarter and the prior year.”

Business Results

For the quarter ended June 30, 2011, Farmer Mac’s net effective interest spread was $21.0 million (96 basis points), compared to $15.5 million (108 basis points) in second quarter 2010. This increase in dollars was a result of interest earned on new on-balance sheet program assets added during the second half of 2010 and the first half of 2011. The 12 basis point decrease in yield is mainly attributable to the addition of lower yielding assets in Farmer Mac’s liquidity investment portfolio, primarily U.S. Treasuries, which have a negative net yield but offer a source of contingent liquidity.

Farmer Mac’s guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac Guaranteed Securities and long term standby purchase commitments (LTSPCs), were $6.3 million for second quarter 2011, compared to $5.7 million in second quarter 2010.

Consistent with the overall improvement in credit quality reported during the quarter, second quarter 2011 results included a $0.8 million net release from the allowance for losses, compared to provisions of $1.2 million in second quarter 2010.

Program Activity

During second quarter 2011, Farmer Mac added $608.1 million of new program volume from a variety of sources:

  • purchases of $116.9 million of Farmer Mac I loans;
  • purchases of $300.0 million of Farmer Mac I AgVantage securities;
  • the placement of $53.2 million of Farmer Mac I loans under LTSPCs;
  • purchases of $99.3 million of USDA-guaranteed portions of loans;
  • purchases of $35.9 million of rural utilities loans; and
  • the guarantee of $2.8 million of AgVantage securities secured by rural utilities loans.

Farmer Mac’s outstanding program volume was $12.2 billion as of June 30, 2011, unchanged from December 31, 2010. During the first six months of 2011, $1.6 billion of new program volume replaced principal paydowns on outstanding loans, USDA Guaranteed Securities, Farmer Mac Guaranteed Securities, and loans underlying LTSPCs.

Subsequent to quarter-end, Farmer Mac and MetLife agreed to replace a $1.0 billion off-balance sheet AgVantage security issued by MetLife that matured in July 2011 with new AgVantage securities issued by MetLife totaling $1.0 billion with maturity dates ranging from 2014 through 2021. $800.0 million of those AgVantage securities have already been purchased by Farmer Mac, with the remaining $200.0 million scheduled to be purchased by mid-August.

Credit Quality

Historically, from quarter to quarter, Farmer Mac’s 90-day delinquencies have fluctuated, both in dollars and as a percentage of the outstanding portfolio, with higher levels likely at the end of the first and third quarters of each year corresponding to the annual (January 1st) and semi-annual (January 1st and July 1st) payment characteristics of most Farmer Mac I loans. As of June 30, 2011, 90-day delinquencies in the Farmer Mac I program were $54.6 million (1.27 percent), down from $70.2 million (1.63 percent) as of December 31, 2010 and $56.0 million (1.30 percent) as of June 30, 2010. Notably, as of June 30, 2011, there continued to be no 90-day delinquencies in Farmer Mac’s ethanol facility loans, a segment of the Farmer Mac I portfolio that had included heightened levels of delinquencies.

When analyzing delinquencies in its program business, Farmer Mac takes into account more than the Farmer Mac I agricultural loan delinquency percentages provided above. The total program business includes AgVantage securities and rural utilities loans, neither of which have any delinquencies, and USDA-guaranteed portions (Farmer Mac II), which are backed by the full faith and credit of the United States. When these are included in the calculation, the overall level of 90day delinquent loans in Farmer Mac’s programs is 0.45 percent.

Capital and Liquidity

Farmer Mac is required to hold capital at the higher of the statutory minimum capital requirement and the amount required by the risk-based capital stress test. As of June 30, 2011, Farmer Mac’s core capital of $484.2 million exceeded its statutory minimum capital requirement of $321.9 million by $162.3 million.

On April 27, 2011, FCA published a final rule implementing changes to the method for calculating Farmer Mac’s risk-based capital requirement, which was effective in second quarter 2011. As of June 30, 2011, Farmer Mac’s new risk-based capital stress test generated a risk-based capital requirement of $122.9 million. Farmer Mac’s regulatory capital of $502.7 million exceeded that amount by approximately $379.8 million. Farmer Mac’s risk-based capital stress test in effect prior to second quarter 2011 would have generated a risk-based capital requirement of $32.7 million as of June 30, 2011.

Standard & Poor’s recently downgraded the credit ratings of the United States, related agencies and certain GSEs. The effects of this action could have a material adverse impact on financial markets and economic conditions in the United States. The ultimate effects on global markets and Farmer Mac’s business, financial condition and liquidity are unpredictable and may not be immediately apparent. To date, Farmer Mac’s access to the capital markets has not been negatively affected by the ratings downgrades.

As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 60 days of liquidity. As of June 30, 2011, Farmer Mac had 166 days of liquidity, as calculated in accordance with FCA regulations.

Reconciliation of Core and GAAP Earnings

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 reflects Farmer Mac’s economic performance, transaction economics and business trends. Core earnings differs from GAAP net income by excluding the effects of fair value accounting guidance, which are not expected to have a permanent effect on capital. Core earnings also differs from GAAP net income 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 the Corporation’s core business. 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, 2011              June 30, 2010
                           -------------              -------------
                                        Per                         Per
                                      Diluted                     Diluted
                                      Share                       Share
                                      -----                       -----
                               (in thousands, except per share
                                           amounts)

    GAAP net income
     available to
     common
     stockholders        $5,170         $0.48        $1,824         $0.17
    Less the net of
     tax effects
     of:
      Unrealized
       losses on
       financial
       derivatives       (4,439)        (0.42)       (4,016)        (0.39)
      Unrealized
       gains on
       trading assets     1,280          0.12         3,288          0.31
      Amortization of
       premiums on
       assets
       consolidated
       at fair value     (1,583)     (0.15)    (2,701)     (0.25)
      Recognition of
       deferred gains
       related to
       certain Farmer
       Mac II
        Guaranteed
         Securities and
         USDA
         Guaranteed
         Securities         620       0.06          -          -
      Net effects of
       settlements on
       agency forward
       contracts           (647)        (0.06)          (94)        (0.01)
      Lower of cost
       or fair value
       adjustment on
       loans held for
       sale                (102)     (0.01)        58       0.01
                           ----         -----           ---          ----
        Sub-total        (4,871)        (0.46)       (3,465)        (0.33)
                         ------         -----        ------         -----
    Core earnings       $10,041         $0.94        $5,289         $0.50
                        -------         -----        ------         -----

                                 For the Six Months Ended
                                 ------------------------
                           June 30, 2011             June 30, 2010
                           -------------             -------------
                                        Per                         Per
                                      Diluted                     Diluted
                                      Share                       Share
                                      -----                       -----
                              (in thousands, except per share
                                          amounts)

    GAAP net income
     available to
     common
     stockholders       $23,493         $2.20        $3,591         $0.34
    Less the net of
     tax effects
     of:
      Unrealized
       gains/
       (losses) on
       financial
       derivatives        4,541       0.42     (2,129)     (0.20)
      Unrealized
       gains on
       trading assets     2,132          0.20         5,476          0.52
      Amortization of
       premiums on
       assets
       consolidated
       at fair value     (3,286)     (0.31)    (3,383)     (0.32)
      Recognition of
       deferred gains
       related to
       certain Farmer
       Mac II
        Guaranteed
         Securities and
         USDA
         Guaranteed
         Securities       2,623       0.25          -          -
      Net effects of
       settlements on
       agency forward
       contracts           (993)        (0.09)          112          0.01
      Lower of cost
       or fair value
       adjustment on
       loans held for
       sale                (627)     (0.06)    (1,420)     (0.13)
      Issuance costs
       on the
       retirement of
       preferred
       stock                  -          -     (5,784)     (0.56)
                            ---           ---        ------         -----
        Sub-total         4,390          0.41        (7,128)        (0.68)
                          -----          ----        ------         -----
    Core earnings       $19,103         $1.79       $10,719         $1.02
                        -------         -----       -------         -----

Mr. Gerber concluded, “Our momentum continues. Both first and second quarter results were solid, and with the movement of the $1.0 billion MetLife transaction from off-balance sheet to on-balance sheet subsequent to quarter end, we are well positioned to continue to serve lenders throughout Rural America in the fulfillment of our Congressional mission.” More complete information on Farmer Mac’s performance for the quarter ended June 30, 2011 is set forth in the Quarterly Report on Form 10Q filed 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 and, if available, the reasonableness of 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) the impact of economic conditions and real estate values on agricultural mortgage lending; (7) developments in the financial markets, including possible investor, analyst and rating agency reactions to events involving GSEs, including Farmer Mac, and reactions to Standard & Poor’s recent downgrade of the credit ratings of the United States, certain GSEs, and other federal agencies linked to long-term U.S. debt; and (8) 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, 2010, as filed with the SEC on March 16, 2011 and in Farmer Mac’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, 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 program 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 2011 financial results and the Corporation’s Form 10-Q for second quarter 2011 will be webcast on Farmer Mac’s website beginning at 11:00 a.m. eastern time on Wednesday, August 10, 2011. 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,
                                           2011             2010
                                           ----             ----
                                            (in thousands)
    Assets:
      Cash and cash equivalents        $768,335         $729,920

      Investment securities:
        Available-for-sale, at
         fair value                   2,005,714        1,677,233
        Trading, at fair value         88,151           86,096
                                       ------           ------
          Total investment
           securities               2,093,865        1,763,329
                                    ---------        ---------

      Farmer Mac Guaranteed
       Securities:
        Available-for-sale, at
         fair value                 3,243,965        2,907,264

      USDA Guaranteed
       Securities:
        Available-for-sale, at
         fair value                 1,120,397        1,005,679
        Trading, at fair value        249,074          311,765
                                      -------          -------
          Total USDA Guaranteed
           Securities               1,369,471        1,317,444
                                    ---------        ---------
      Loans:
        Loans held for sale, at
         lower of cost or fair
         value                        447,087        1,212,065
        Loans held for
         investment, at amortized
         cost                       1,168,995           90,674
        Loans held for investment
         in consolidated trusts,
         at amortized cost          1,182,408        1,265,663
        Allowance for loan losses     (11,053)          (9,803)
                                      -------           ------
          Total loans, net of
           allowance                2,787,437        2,558,599
                                    ---------        ---------

      Real estate owned, at
       lower of cost or fair
       value                            4,067            1,992
      Financial derivatives, at
       fair value                      43,976           41,492
      Interest receivable              88,852           90,295
      Guarantee and commitment
       fees receivable                 31,824           34,752
      Deferred tax asset, net           3,591           14,530
      Prepaid expenses and
       other assets                     9,445           20,297
                                        -----           ------
            Total Assets          $10,444,828       $9,479,914
                                  -----------       ----------

    Liabilities and Equity:
    Liabilities:
      Notes payable:
        Due within one year        $5,201,832       $4,509,419
        Due after one year          3,744,877        3,430,656
                                    ---------        ---------
          Total notes payable       8,946,709        7,940,075
      Debt securities of
       consolidated trusts held
       by third parties               755,357          827,411
      Financial derivatives, at
       fair value                     109,151          113,687
      Accrued interest payable         56,152           57,131
      Guarantee and commitment
       obligation                      27,628           30,308
      Accounts payable and
       accrued expenses                21,781           22,113
      Reserve for losses                7,443           10,312
                                        -----           ------
            Total Liabilities       9,924,221        9,001,037
                                    ---------        ---------

    Commitments and
     Contingencies

    Equity:
      Preferred stock:
        Series C, par value
         $1,000 per share,
         100,000 shares
         authorized, 57,578
         shares 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, 8,812,500
         shares outstanding
          as of June 30, 2011 and
           8,752,711 shares
           outstanding as of
           December 31, 2010            8,813            8,753
      Additional paid-in
       capital                        101,097          100,050
      Accumulated other
       comprehensive income            36,436           18,275
      Retained earnings                73,299           50,837
                                       ------           ------
          Total Stockholders'
           Equity                     278,754          237,024
                                      -------          -------
      Non-controlling interest
       - preferred stock              241,853          241,853
                                      -------          -------
          Total Equity                520,607          478,877
                                      -------          -------
            Total Liabilities and
             Equity               $10,444,828       $9,479,914
                                  -----------       ----------


    FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            (unaudited)
            For the Three Months Ended
            --------------------------
                                          June 30,
            June 30, 2011                             2010
            (in thousands, except per share amounts)
    Interest income:
      Investments
       and cash
       equivalents           $7,033         $6,390
      Farmer Mac
       Guaranteed
       Securities
       and USDA
       Guaranteed
       Securities            29,358      18,795
      Loans                  30,461         32,142
      -----
          Total
           interest
           income            66,852         57,327
      Total
       interest
       expense               37,640         35,719
                             ------         ------
          Net interest
           income            29,212         21,608
      (Provision
       for)/release
       of loan
       losses                  (160)         1,870
                               ----          -----
          Net interest
           income after
           (provision
           for)/release
           of loan
           losses            29,052      23,478
          -------------

    Non-interest
     (loss)/income:
      Guarantee and
       commitment
       fees                   6,320          5,710
      Losses on
       financial
       derivatives          (17,806)       (15,840)
      Gains on
       trading
       assets                 1,968          5,058
      Gains on sale
       of
       available-
       for-sale
       investment
       securities                38           -
      Gains on sale
       of real
       estate owned             627              -
      Lower of cost
       or fair
       value
       adjustment
       on loans
       held for
       sale                    (156)         90
      Other income            1,124            211
                              -----            ---
          Non-interest
           (loss)/income     (7,885)        (4,771)
          --------------

    Non-interest expense:
      Compensation
       and employee
       benefits               4,666          3,907
      General and
       administrative         2,656          2,051
      Regulatory
       fees                     573            562
      Real estate
       owned
       operating
       costs, net               231            298
      (Release
       of)/provision
       for losses              (935)         3,043
      Other expense               -              -
                                ---            ---
          Non-interest
           expense            7,191          9,861
          ------------
          Income before
           income taxes      13,976          8,846
    Income tax
     expense                  2,539            756
                              -----            ---
          Net income         11,437          8,090

    Less: Net income
     attributable to non-
     controlling interest -
      preferred
       stock
       dividends             (5,547)        (5,546)
                             ------         ------
          Net income
           attributable
           to Farmer
           Mac                5,890          2,544
    Preferred
     stock
     dividends                 (720)          (720)
    Loss on
     retirement
     of preferred
     stock                        -              -
                                ---            ---
          Net income
           available to
           common
           stockholders      $5,170         $1,824
          -------------

    Earnings per common
     share and dividends:
          Basic
           earnings per
           common share       $0.50          $0.18
          Diluted
           earnings per
           common share       $0.48          $0.17
          Common stock
           dividends
           per common
           share              $0.05          $0.05


            For the Six Months Ended
            ------------------------
                                          June 30,
            June 30, 2011                             2010
            (in thousands, except per share amounts)
    Interest income:
      Investments
       and cash
       equivalents          $14,220        $12,873
      Farmer Mac
       Guaranteed
       Securities
       and USDA
       Guaranteed
       Securities            57,133      39,626
      Loans                  59,571         65,560
      -----
          Total
           interest
           income           130,924        118,059
      Total
       interest
       expense               74,693         72,834
                             ------         ------
          Net interest
           income            56,231         45,225
      (Provision
       for)/release
       of loan
       losses                (1,441)          (980)
                             ------           ----
          Net interest
           income after
           (provision
           for)/release
           of loan
           losses            54,790      44,245
          -------------

    Non-interest
     (loss)/income:
      Guarantee and
       commitment
       fees                  12,707         11,629
      Losses on
       financial
       derivatives          (13,801)       (21,644)
      Gains on
       trading
       assets                 3,279          8,425
      Gains on sale
       of
       available-
       for-sale
       investment
       securities               195         240
      Gains on sale
       of real
       estate owned             724              -
      Lower of cost
       or fair
       value
       adjustment
       on loans
       held for
       sale                    (964)     (2,184)
      Other income            5,022          1,040
                              -----          -----
          Non-interest
           (loss)/income      7,162         (2,494)
          --------------

    Non-interest expense:
      Compensation
       and employee
       benefits               9,163          7,418
      General and
       administrative         4,912          4,554
      Regulatory
       fees                   1,164          1,125
      Real estate
       owned
       operating
       costs, net               599            308
      (Release
       of)/provision
       for losses            (2,869)         1,575
      Other expense             900              -
                                ---            ---
          Non-interest
           expense           13,869         14,980
          ------------
          Income before
           income taxes      48,083         26,771
    Income tax
     expense                 12,056          5,092
                             ------          -----
          Net income         36,027         21,679

    Less: Net income
     attributable to non-
     controlling interest -
      preferred
       stock
       dividends            (11,094)        (9,614)
                            -------         ------
          Net income
           attributable
           to Farmer
           Mac               24,933         12,065
    Preferred
     stock
     dividends               (1,440)        (2,690)
    Loss on
     retirement
     of preferred
     stock                        -         (5,784)
                                ---         ------
          Net income
           available to
           common
           stockholders     $23,493         $3,591
          -------------

    Earnings per common
     share and dividends:
          Basic
           earnings per
           common share       $2.28          $0.35
          Diluted
           earnings per
           common share       $2.20          $0.34
          Common stock
           dividends
           per common
           share              $0.10          $0.10

SOURCE Farmer Mac


Source: newswire



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