Federal Agricultural Mortgage Corp. (AGM, Financial) filed Quarterly Report for the period ended 2009-06-30.
The Federal Agricultural Mortgage Corporation `Farmer Mac` is a federally chartered instrumentality of the United States that was created to establish a secondary market for agricultural real estate and rural housing mortgage loans. Federal Agricultural Mortgage Corp. has a market cap of $92.2 million; its shares were traded at around $9.09 with a P/E ratio of 6.7 and P/S ratio of 2.3. The dividend yield of Federal Agricultural Mortgage Corp. stocks is 2.2%. Federal Agricultural Mortgage Corp. had an annual average earning growth of 17.3% over the past 5 years.
During 2009, Farmer Mac has maintained uninterrupted access to the capital markets at favorable rates, though the Corporation s short-term borrowing costs relative to LIBOR moved back toward their historical levels during second quarter 2009. Toward the end of 2008 and into 2009, Farmer Mac reduced the size of its liquidity investment portfolio as it reevaluated its investment policies. The reduced level of investment has put downward pressure on the net interest income earned from that portfolio compared to earlier periods. For second quarter 2009, net interest income including income and expense related to financial derivatives was $10.0 million, compared to $16.3 million for second quarter 2008. For the six months ended June 30, 2009, net interest income including income and expense related to financial derivatives was $22.8 million, compared to $32.2 million for six months ended June 30, 2008.
Farmer Mac s overall non-performing assets remained steady during second quarter 2009 at $97.1 million (2.17 percent) compared to $96.2 million as of March 31, 2009 (2.12 percent). Because four of Farmer Mac s ethanol loans were transferred to real estate owned, the level of 90-day delinquencies dropped from $86.2 million (1.90 percent) as of March 31, 2009 to $42.3 million (0.95 percent) as of June 30, 2009. As of June 30, 2009, Farmer Mac s ethanol exposure, which includes loans, loans subject to LTSPCs and REO, was $279.1 million, with exposure to 29 different plants, and an additional $27.0 million of undisbursed commitments. Other than the undisbursed commitments, Farmer Mac is not seeking to add more ethanol loan exposure to its portfolio. See “—Risk Management—Credit Risk – Loans” for more detail about Farmer Mac s ethanol portfolio.
The total allowance for losses was $9.3 million as of June 30, 2009 compared to $16.4 million as of December 31, 2008. During second quarter 2009, Farmer Mac recorded a release of its allowance for losses of $6.2 million and charge-offs of $5.7 million, both primarily related to ethanol loans, compared to no release or provision for losses and charge-offs net of recoveries of $0.1 million during second quarter 2008. During first quarter 2009, Farmer Mac recorded provisions for losses of $6.1 million and charge-offs net of recoveries of $1.2 million, both primarily related to ethanol loans, compared to no release or provision for losses and charge-offs of $39,000 during first quarter 2008.
Farmer Mac s 2009 results included significant gains on financial derivatives. The second quarter gain on financial derivatives was $21.5 million, compared to a gain of $31.1 million during second quarter 2008. For the six months ended June 30, 2009, the gain on financial derivatives was $23.2 million, compared to a loss of $10.7 million for the six months ended June 30, 2008. Fair value gains on trading assets totaled $35,000 for second quarter 2009, compared to losses of $17.3 million for second quarter 2008. For the six months ended June 30, 2009 the gains on trading assets totaled $31.7 million, compared to losses of $7.2 million for the six months ended June 30, 2008. These changes in fair value for financial derivatives and trading assets have historically contributed significant volatility to Farmer Mac s periodic earnings. While such changes may at times produce significant income, as has been the case in 2009, they may also produce significant losses, as has been the case in previous reporting periods. Future changes in those values cannot be reliably predicted; however, as of June 30, 2009 the cumulative fair value after-tax losses recorded on financial derivatives was $70.1 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 upon maturity.
Farmer Mac s year-to-date 2009 results benefited from two first quarter transactions. The first was the conversion of certain Farmer Mac Guaranteed Securities into loans and the subsequent sale of a pool of loans consisting of a portion of the loans previously underlying those securities and other loans previously classified on the balance sheet as loans. The total principal balance of loans sold was $354.5 million. The sale resulted in a gain of $1.6 million and a recovery of previously charged off losses of $0.8 million. The primary purpose of the sale was to eliminate the need to hold capital in support of the loans under Farmer Mac s statutory minimum capital requirements, thereby reducing Farmer Mac s overall statutory minimum capital requirement by approximately $9.7 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 the securities during first quarter 2009 for $8.6 million resulted in a $3.2 million recovery of previously written off losses. That recovery was recorded as “(Losses)/gains on sale of available-for-sale investment securities” on the condensed consolidated statements of operations.
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The Federal Agricultural Mortgage Corporation `Farmer Mac` is a federally chartered instrumentality of the United States that was created to establish a secondary market for agricultural real estate and rural housing mortgage loans. Federal Agricultural Mortgage Corp. has a market cap of $92.2 million; its shares were traded at around $9.09 with a P/E ratio of 6.7 and P/S ratio of 2.3. The dividend yield of Federal Agricultural Mortgage Corp. stocks is 2.2%. Federal Agricultural Mortgage Corp. had an annual average earning growth of 17.3% over the past 5 years.
Highlight of Business Operations:
Overview. Farmer Mac s net income available to common stockholders for second quarter 2009 was $25.4 million or $2.49 per diluted common share, compared to $21.4 million or $2.13 per diluted common share for second quarter 2008. Net income available to common stockholders for the six months ended June 30, 2009 was $58.9 million or $5.80 per diluted common share, compared to $13.2 million or $1.31 per diluted common share for the six months ended June 30, 2008.During 2009, Farmer Mac has maintained uninterrupted access to the capital markets at favorable rates, though the Corporation s short-term borrowing costs relative to LIBOR moved back toward their historical levels during second quarter 2009. Toward the end of 2008 and into 2009, Farmer Mac reduced the size of its liquidity investment portfolio as it reevaluated its investment policies. The reduced level of investment has put downward pressure on the net interest income earned from that portfolio compared to earlier periods. For second quarter 2009, net interest income including income and expense related to financial derivatives was $10.0 million, compared to $16.3 million for second quarter 2008. For the six months ended June 30, 2009, net interest income including income and expense related to financial derivatives was $22.8 million, compared to $32.2 million for six months ended June 30, 2008.
Farmer Mac s overall non-performing assets remained steady during second quarter 2009 at $97.1 million (2.17 percent) compared to $96.2 million as of March 31, 2009 (2.12 percent). Because four of Farmer Mac s ethanol loans were transferred to real estate owned, the level of 90-day delinquencies dropped from $86.2 million (1.90 percent) as of March 31, 2009 to $42.3 million (0.95 percent) as of June 30, 2009. As of June 30, 2009, Farmer Mac s ethanol exposure, which includes loans, loans subject to LTSPCs and REO, was $279.1 million, with exposure to 29 different plants, and an additional $27.0 million of undisbursed commitments. Other than the undisbursed commitments, Farmer Mac is not seeking to add more ethanol loan exposure to its portfolio. See “—Risk Management—Credit Risk – Loans” for more detail about Farmer Mac s ethanol portfolio.
The total allowance for losses was $9.3 million as of June 30, 2009 compared to $16.4 million as of December 31, 2008. During second quarter 2009, Farmer Mac recorded a release of its allowance for losses of $6.2 million and charge-offs of $5.7 million, both primarily related to ethanol loans, compared to no release or provision for losses and charge-offs net of recoveries of $0.1 million during second quarter 2008. During first quarter 2009, Farmer Mac recorded provisions for losses of $6.1 million and charge-offs net of recoveries of $1.2 million, both primarily related to ethanol loans, compared to no release or provision for losses and charge-offs of $39,000 during first quarter 2008.
Farmer Mac s 2009 results included significant gains on financial derivatives. The second quarter gain on financial derivatives was $21.5 million, compared to a gain of $31.1 million during second quarter 2008. For the six months ended June 30, 2009, the gain on financial derivatives was $23.2 million, compared to a loss of $10.7 million for the six months ended June 30, 2008. Fair value gains on trading assets totaled $35,000 for second quarter 2009, compared to losses of $17.3 million for second quarter 2008. For the six months ended June 30, 2009 the gains on trading assets totaled $31.7 million, compared to losses of $7.2 million for the six months ended June 30, 2008. These changes in fair value for financial derivatives and trading assets have historically contributed significant volatility to Farmer Mac s periodic earnings. While such changes may at times produce significant income, as has been the case in 2009, they may also produce significant losses, as has been the case in previous reporting periods. Future changes in those values cannot be reliably predicted; however, as of June 30, 2009 the cumulative fair value after-tax losses recorded on financial derivatives was $70.1 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 upon maturity.
Farmer Mac s year-to-date 2009 results benefited from two first quarter transactions. The first was the conversion of certain Farmer Mac Guaranteed Securities into loans and the subsequent sale of a pool of loans consisting of a portion of the loans previously underlying those securities and other loans previously classified on the balance sheet as loans. The total principal balance of loans sold was $354.5 million. The sale resulted in a gain of $1.6 million and a recovery of previously charged off losses of $0.8 million. The primary purpose of the sale was to eliminate the need to hold capital in support of the loans under Farmer Mac s statutory minimum capital requirements, thereby reducing Farmer Mac s overall statutory minimum capital requirement by approximately $9.7 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 the securities during first quarter 2009 for $8.6 million resulted in a $3.2 million recovery of previously written off losses. That recovery was recorded as “(Losses)/gains on sale of available-for-sale investment securities” on the condensed consolidated statements of operations.
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