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Federal Agricultural Mortgage Corp. Reports Operating Results (10-Q)

November 09, 2010 | About:
10qk

10qk

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Federal Agricultural Mortgage Corp. (AGM) filed Quarterly Report for the period ended 2010-09-30.

Federal Agricultural Mortgage Corp. has a market cap of $134.6 million; its shares were traded at around $13.1 with a P/E ratio of 7.1 and P/S ratio of 0.5. The dividend yield of Federal Agricultural Mortgage Corp. stocks is 1.5%.

Highlight of Business Operations:

With the new capital raised in early 2010, Farmer Mac is well-positioned to continue to fulfill its congressional mission to provide capital and liquidity to rural America. During third quarter 2010, Farmer Mac s new business volume totaled $1.1 billion, bringing the year-to-date total to $1.7 billion and the total outstanding to $11.5 billion.

GAAP net income available to common stockholders for third quarter 2010 was $6.0 million, while core earnings were $7.9 million. Third quarter 2010 results benefited from the increased new business volume and an increased effective net interest spread of $16.2 million (104 basis points), compared to $11.9 million (93 basis points) in third quarter 2009. As of September 30, 2010, Farmer Mac s excess core capital above its statutory minimum capital requirement was $183.2 million.

Farmer Mac s net income available to common stockholders for third quarter 2010 was $6.0 million or $0.56 per diluted common share, compared to net income of $17.9 million or $1.74 per diluted common share for third quarter 2009. For the nine months ended September 30, 2010, Farmer Mac s net income available to common stockholders was $9.6 million or $0.91 per diluted common share, compared to $76.8 million or $7.54 per diluted common share for the nine months ended September 30, 2009.

Farmer Mac s core earnings for third quarter 2010 was $7.9 million or $0.74 per diluted common share, compared to $1.3 million or $0.12 per diluted common share for third quarter 2009. For the nine months ended September 30, 2010, Farmer Mac s core earnings was $18.6 million or $1.76 per diluted common share, compared to $10.8 million or $1.06 million per diluted common share for the nine months ended September 30, 2009. A reconciliation of Farmer Mac s GAAP net income available to common stockholders to core earnings is presented in the following table, and those reconciling items are described in more detail below the table.

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 third quarter 2010 unrealized gains on financial derivatives were $3.2 million, compared to $1.3 million during third quarter 2009. For the nine months ended September 30, 2010, the unrealized losses on financial derivatives were $35,000, compared to unrealized gains of $47.4 million for the nine months ended September 30, 2009. Fair value losses on trading assets totaled $1.7 million for third quarter 2010, compared to gains of $25.0 million for third quarter 2009. For the nine months ended September 30, 2010, the gains on trading assets totaled $6.7 million, compared to gains of $56.7 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 nine 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 September 30, 2010, the cumulative fair value of after-tax losses recorded on financial derivatives was $60.0 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.

Net Interest Income. Net interest income for the three and nine months ended September 30, 2010 was $25.0 million and $70.3 million, respectively, compared to $19.8 million and $63.1 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 nine months ended September 30, 2010, these reclassifications resulted in an increase in net interest income of $1.0 million and $3.7 million, respectively and a decrease in the net interest yield of 13 basis points and 17 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 nine months ended September 30, 2010 and 2009, the net interest yield was 133 basis points and 169 basis points, respectively. Excluding the impacts of the guarantee fee reclassifications, the net interest yield was 150 basis points for the nine months ended September 30, 2010, compared to 169 basis points for the nine months ended September 30, 2009.

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