Federal Agricultural Mortgage Corp. has a market cap of $164.7 million; its shares were traded at around $16.24 with a P/E ratio of 9 and P/S ratio of 0.6. The dividend yield of Federal Agricultural Mortgage Corp. stocks is 1.2%.
Highlight of Business Operations:Farmer Mac s net income available to common stockholders for second quarter 2010 was $1.8 million or $0.17 per diluted common share, compared to net income of $25.4 million or $2.49 per diluted common share for second quarter 2009. For the six months ended June 30, 2010, Farmer Mac s net income available to common stockholders was $3.6 million, compared to $58.9 million for the six months ended June 30, 2009.
Changes in the fair values of financial derivatives and trading assets have historically contributed significant volatility to Farmer Mac s periodic earnings. Consistent with that trend, Farmer Mac s second quarter 2010 loss on financial derivatives was $15.8 million, compared to a gain of $21.5 million during second quarter 2009. For the six months ended June 30, 2010, the loss on financial derivatives was $21.6 million, compared to a gain of $23.2 million for the six months ended June 30, 2009. Fair value gains on trading assets totaled $5.1 million for second quarter 2010, compared to gains of $35,000 for second quarter 2009. For the six months ended June 30, 2010 the gains on trading assets totaled $8.4 million, compared to $31.7 million for the same period in 2009. While these volatile changes in fair values of derivatives and trading assets may at times produce significant income, as was the case in 2009, they may also produce significant losses, as was the case in the first six months of 2010 and as has been the case in previous reporting periods. Future changes in those values cannot be reliably predicted; however, as of June 30, 2010, the cumulative fair value of after-tax losses recorded on financial derivatives was $62.1 million. Over time, Farmer Mac will realize in earnings the net effect of the cash settlements on its interest rate swap contracts, which may on its own produce either income or expense, but is expected to generate positive effective net spread when combined with the interest earned and paid on the assets and liabilities Farmer Mac holds on its balance sheet. This positive effective net spread will continue to build retained earnings and capital over time. Although the unrealized fair value fluctuations experienced throughout the term of the financial derivatives will temporarily impact earnings and capital, those fluctuations will have no permanent effect if the financial derivatives are held to maturity, as is generally expected.
In January 2010, Farmer Mac contributed substantially all of the assets, in excess of $1.1 billion, comprising the Farmer Mac II program to a subsidiary, Farmer Mac II LLC. Farmer Mac transferred these assets at their fair value, which resulted in an unamortized premium of $39.1 million being recorded by Farmer Mac II LLC. This premium is being amortized over the estimated remaining lives of the underlying USDA-guaranteed portions and is not included in Farmer Mac s core earnings.
In addition to those adjustments to reconcile Farmer Mac s GAAP net income available to common stockholders to core earnings, Farmer Mac s year-to-date 2009 results benefited from two transactions that were not replicated in the year-to-date 2010 results. The first was the sale of a pool of loans with a total principal balance of $354.5 million that resulted in a gain of $1.6 million. The second transaction was the sale of Lehman Brothers Holdings Inc. senior debt securities that had been written down to $5.4 million as of December 31, 2008. The sale of those securities during first quarter 2009 for $8.6 million resulted in a $3.2 million recovery of previously written off losses.
Net Interest Income. Net interest income for the three and six months ended June 30, 2010 was $21.6 million and $45.2 million, respectively, compared to $19.9 million and $43.3 million for the same periods during 2009. Beginning in first quarter 2010, net interest income includes the reclassification of guarantee fees related to certain Farmer Mac Guaranteed Securities previously reported as off-balance sheet as a result of the adoption of the new consolidation guidance. For the three and six months ended June 30, 2010, these reclassifications resulted in an increase in net interest income of $1.3 million and $2.7 million, respectively and a decrease in the net interest yield of 18 basis points and 19 basis points, respectively. The decrease in the net interest yield is the result of the average rate earned on guarantee fees being lower than the net interest spread earned on assets Farmer Mac purchases and holds on-balance sheet. For the six months ended June 30, 2010 and 2009, the net interest yield was 129 basis and 176 basis points, respectively. Excluding the impacts of the guarantee fee reclassifications, the net interest yield was 148 basis points for the six months ended June 30, 2010, compared to 176 basis points for the six months ended June 30, 2009.
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