Farmer Mac Reports Second Quarter Results
The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today reported second quarter net income of $25.4 million, or $2.49 per diluted common share, for the three months ended June 30, 2009. Second quarter 2009 results compare to second quarter 2008 net income of $21.4 million, or $2.13 per diluted common share, and $33.5 million, or $3.31 per diluted common share, for first quarter 2009. Second quarter 2009 results were driven by gains in the values of financial derivatives and recoveries of previously-recorded losses related to loans for ethanol plants.
Farmer Mac’s core earnings were $4.7 million for second quarter 2009, compared to $4.8 million for first quarter 2009 and $7.1 million for second quarter 2008. Farmer Mac’s core and GAAP earnings included releases of its allowance for losses of $6.2 million in second quarter 2009 and provisions for loan losses of $6.1 million in first quarter 2009. There were no such releases or provisions in second quarter 2008.
Farmer Mac President and Chief Executive Officer Michael Gerber stated, “Farmer Mac continues to improve its financial condition, reduce risk and strengthen its position in the marketplace. These changes have positioned Farmer Mac to take advantage of business opportunities and, in turn, to begin to regenerate shareholder value for the long term. Our capital surplus currently stands at $100 million, compared to $67 million at March 31, 2009 and $13 million at December 31, 2008. During second quarter 2009, Farmer Mac improved its capital position through the retention of earnings and by adding $20.0 million of capital raised in conjunction with new business. With lenders in both the agricultural and rural utilities sectors continuing to face capital markets and economic challenges, Farmer Mac represents an important source of liquidity and risk and capital management to help lenders meet the increasing borrowing needs of their customers.”
The Corporation’s outstanding portfolio of loans, guarantees and commitments grew to $10.4 billion during the quarter and, with the exception of ethanol loans, continues to perform well. Delinquencies on non-ethanol loans decreased slightly from the first quarter and remain below Farmer Mac’s long-term average. This is in part a result of the cumulative strong performance of the U.S. agricultural economy over the past several years. Excluding the ethanol loans, 90-day delinquencies were $23.5 million (0.53 percent of the portfolio) as of June 30, 2009, compared to $27.7 million (0.61 percent of the portfolio) as of March 31, 2009. Farmer Mac’s 90day delinquencies, including ethanol loans, were $42.3 million (0.95 percent of the portfolio) as of June 30, 2009, compared to $86.2 million (1.90 percent of the portfolio) as of March 31, 2009. The large decrease from first quarter was because four of Farmer Mac’s ethanol loans were transferred to real estate owned during second quarter. Farmer Mac acquired interests in those plants as a result of the bankruptcy of the borrowers. Three of those plants became subject to sale agreements during third quarter 2009, and the lending groups that Farmer Mac participates in have agreed to provide a significant portion of the financing to the purchasers. The ethanol industry has suffered due to the volatility of commodity prices, but pressure on the industry has moderated somewhat in recent months, with the cost of corn (the primary input) having decreased and the price of ethanol having risen. Both input costs and ethanol prices remain volatile and the industry still faces challenges for the foreseeable future.
Farmer Mac’s effective net interest spread was 82 basis points ($9.9 million) for second quarter 2009, compared to 101 basis points ($12.6 million) for first quarter 2009 and 101 basis points ($14.8 million) for second quarter 2008. Farmer Mac’s short-term borrowing costs relative to LIBOR, which had been at unusually low levels for several quarters, began to move back toward historical levels during second quarter 2009. As of June 30, 2009, Farmer Mac’s effective duration gap was plus 1.3 months, compared with minus 2.4 months as of December 31, 2008.
Farmer Mac uses core earnings, a non-GAAP disclosure, 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 changes in the fair values of financial derivatives and trading assets. Those changes reflect the application of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133″) and Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 (“SFAS 159″). Farmer Mac’s disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.
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