Farmer Mac Reports Second Quarter Results
11 August 2009 - 9:34AM
PR Newswire (US)
GAAP Earnings of $25 Million Grow Capital Surplus to $100 Million
Core Earnings Remain Steady at $4.7 Million WASHINGTON, Aug. 10
/PRNewswire-FirstCall/ -- 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. A reconciliation of Farmer Mac's GAAP net
income available to common stockholders to core earnings is
presented in the following table; that reconciliation is
supplemented by a further adjustment related to the impairment
losses on investments to assist in the comparison of results to
prior periods. Reconciliation of GAAP Net Income Available to
Common Stockholders to Core Earnings
----------------------------------------------------- Three Months
Ended June 30, 2009 June 30, 2008 (in thousands, except per share
amounts) Per Per Diluted Diluted Share Share GAAP net income
available to common stockholders $25,385 $2.49 $21,431 $2.13 Less
the effects of SFAS 133 and SFAS 159: Unrealized gains/(losses) on
financial derivatives, net of tax 20,281 1.99 25,102 2.49
Unrealized gains/(losses) on trading assets, net of tax 23 0.00
(11,224)(1.11) Net effects of settlements on agency Forward
contracts, net of tax 367 0.04 461 0.05 Core Earnings $4,714 $0.46
$7,092 $0.70 Impairment losses on investments (2,292)(0.23)
(5,344)(0.53) Total $7,006 $0.69 $12,436 $1.23 Six Months Ended
June 30, 2009 June 30, 2008 (in thousands, except per share
amounts) Per Per Diluted Diluted Share Share GAAP net income
available to common stockholders $58,903 $5.80 $13,174 $1.31 Less
the effects of SFAS 133 and SFAS 159: Unrealized gains/(losses) on
financial derivatives, net of tax 30,009 2.95 (311)(0.03)
Unrealized gains/(losses) on trading assets, net of tax 20,580 2.03
(4,652)(0.47) Net effects of settlements on agency forward
contracts, net of tax (1,193)(0.12) 507 0.05 Core Earnings $9,507
$0.94 $17,630 $1.76 Impairment losses on investments (2,373)(0.23)
(5,344)(0.53) Total $11,880 $1.17 $22,974 $2.29 During second
quarter 2009, Farmer Mac recorded in earnings other-than-temporary
impairment losses of $2.3 million. These charges related to
investments in CIT Group Inc. corporate debt securities and The
Reserve Primary Fund. In July 2009, Farmer Mac sold its $35 million
CIT investment at a price of 94.55% of par, resulting in a realized
loss of $1.9 million. Farmer Mac recognized $1.0 million of this
loss in the second quarter 2009 earnings as an other-than-temporary
impairment charge. The remaining $0.9 million will be recognized in
third quarter 2009 financial results. Farmer Mac also recorded an
impairment loss of $1.3 million related to its investment in The
Reserve Primary Fund, which represents 1.6% of the initial
investment of $81.7 million. More complete information on Farmer
Mac's performance for the quarter ended June 30, 2009 is set forth
in the Form 10-Q filed by Farmer Mac with the Securities and
Exchange Commission (SEC) earlier today. 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 ability of Farmer Mac to increase its capital in an amount and
at a cost sufficient to enable it to continue to operate profitably
and provide a secondary market for agricultural mortgage and rural
utilities loans; (2) the availability of reasonable rates and terms
of debt financing to Farmer Mac; (3) fluctuations in the fair value
of assets held by Farmer Mac, particularly in volatile markets; (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) legislative or
regulatory developments that could affect Farmer Mac; (8) increases
in general and administrative expenses attributable to changes in
the business and regulatory environment, including the hiring of
additional personnel with expertise in key functional areas; (9)
the willingness of investors to invest in Farmer Mac Guaranteed
Securities; (10) the severity and duration of current economic and
financial conditions generally and within the agricultural and
rural utilities sectors in particular; and (11) developments in the
financial markets, including possible investor, analyst and rating
agency reactions to events involving GSEs, including Farmer Mac.
Other risk factors are discussed in Farmer Mac's Annual Report on
Form 10K for the year ended December 31, 2008, as filed with the
SEC on March 16, 2009, and in Farmer Mac's Quarterly Report on Form
10-Q for the quarter ended June 30, 2009, 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 Form 10-K and Form
10-Q referenced above) is available on Farmer Mac's website at
http://www.farmermac.com/. The conference call to discuss Farmer
Mac's second quarter 2009 financial results and the Corporation's
Form 10-Q for second quarter 2009 will be webcast on Farmer Mac's
website beginning at 11:00 a.m. eastern time on Tuesday, August 11,
2009. An audio recording of that call will be available on Farmer
Mac's website for two weeks after the call is concluded.
DATASOURCE: Farmer Mac CONTACT: Mary Waters, +1-202-872-7700 Web
Site: http://www.farmermac.com/
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