Farmer Mac Reports Third Quarter Results
November 08 2007 - 4:49PM
PR Newswire (US)
Core Earnings Up 18% for the Period WASHINGTON, Nov. 8
/PRNewswire-FirstCall/ -- The Federal Agricultural Mortgage
Corporation (Farmer Mac, NYSE: AGM and AGM.A) reports financial
results on a GAAP basis and also reports core earnings. Farmer Mac
uses core earnings 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 of application of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"). Investors and securities analysts
have previously relied upon similar measures to evaluate Farmer
Mac's historical and future performance. Farmer Mac today reported
a U.S. GAAP net loss to common stockholders for third quarter 2007
of $8.6 million or $0.82 per diluted share, compared to a loss of
$6.3 million or $0.58 per diluted share for third quarter 2006. The
losses in both periods were attributable to market value changes on
financial derivatives used to hedge interest rate risk on Farmer
Mac's assets and liabilities, the market value changes on which are
not recorded in income. Farmer Mac's core earnings for third
quarter 2007 were $7.6 million or $0.71 per diluted share, compared
to $6.5 million or $0.58 per diluted share for third quarter 2006.
This 18 percent increase was driven by an increase in net interest
income attributable to Farmer Mac's significantly improved
short-term funding costs, as compared to the rates on related
investments, as well as ongoing fee income from the Corporation's
guarantee portfolio. Moreover, in contrast to third quarter 2007,
Farmer Mac's core earnings in the same period of 2006 benefited
from significant recoveries from the allowance for losses. During
the quarter, Farmer Mac was able to take advantage of its ready
access to capital markets funding at favorable rates, despite
increased capital markets volatility. Consequently, Farmer Mac's
net interest yield on short-term and floating rate investments was
significantly higher than its net interest yields earned on such
investments in previous quarters. Underscoring the effectiveness of
Farmer Mac's ongoing credit risk management and the strength of the
U.S. agricultural economy, the agricultural mortgage loans
underlying Farmer Mac's guarantee portfolio have been relatively
unaffected by turmoil in the residential mortgage credit markets.
As of September 30, 2007, 90-day delinquencies in Farmer Mac's
guarantee portfolio remained at unusually low levels, in terms of
both dollars and percentages. Those delinquencies totaled $17.0
million, representing 0.35 percent of the portfolio. Farmer Mac
President and Chief Executive Officer Henry D. Edelman stated,
"Focusing on core earnings, in light of the volatility of the
capital markets during the last quarter, we are extremely pleased
with Farmer Mac's strong financial results in third quarter 2007 --
up 18 percent in comparison to the third quarter 2006. Farmer Mac's
net interest income and guarantee fee income were major drivers of
core earnings in third quarter 2007. While it is not possible to
predict how long Farmer Mac's short-term borrowing spreads will
continue to be as favorable as they now are, relative to investment
yields, Farmer Mac's guarantee fee income is expected to continue
to grow as business volume increases. Those components of income
are not expected to be affected adversely by credit performance, as
the agricultural mortgage loans underlying Farmer Mac's guarantee
portfolio continue to perform well." Farmer Mac further reported
that it believes substantial business opportunities could result
from an expansion of its statutory guarantee authorities currently
being considered by Congress. On July 27, 2007 the United States
House of Representatives passed its version of a 2007 Farm Bill
(H.R. 2419) that would expand Farmer Mac's charter to authorize the
Corporation to purchase and guarantee securities backed by rural
utilities (electric and telephone) loans made by cooperative
lenders, particularly the National Rural Utilities Cooperative
Finance Corporation and institutions of the Farm Credit System. On
October 25, 2007, the United States Senate Committee on
Agriculture, Nutrition and Forestry approved its version of the
2007 Farm Bill. The Senate Committee version contained an expansion
of authority for Farmer Mac similar to that in H.R. 2419. The full
Senate began debate on the 2007 Farm Bill on November 5, 2007. At
this time, no assurance can be given that either the Senate
Committee or House legislation will be enacted into law or, if
enacted, that it will result in significant additional business
volume for Farmer Mac. Non-GAAP Performance Measures In addition to
GAAP measures, Farmer Mac presents "core earnings," a non-GAAP
performance measure. Core earnings are net income available to
common stockholders, less the after-tax effects of unrealized gains
and losses on financial derivatives resulting from the application
of SFAS 133. The GAAP measure most comparable to core earnings is
net income available to common stockholders. Unlike core earnings,
however, GAAP net interest income and net income are affected by
unrealized gains or losses in the value of financial derivatives
used to hedge Farmer Mac's interest rate risks, notwithstanding
that those hedges were economically effective. 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. Reconciliation
of GAAP Net Income Available to Common Stockholders to Core
Earnings Three Months Ended September 30, September 30, 2007 2006
(in thousands, except per share amounts) Per Per Diluted Diluted
Share Share GAAP net income available to common stockholders
$(8,570) $(0.82) $(6,258) $(0.58) Less the effects of SFAS 133:
Unrealized gains/(losses) on financial derivatives and trading
assets, net of tax (15,262) (1.44) (11,258) (1.03) Net effects of
settlements on agency forward contracts, net of tax (953) (0.09)
(1,472) (0.13) Core earnings $7,645 $0.71 $6,472 $0.58 Nine Months
Ended September 30, September 30, 2007 2006 (in thousands, except
per share amounts) Per Per Diluted Diluted Share Share GAAP net
income available to common stockholders $13,721 $1.29 $22,211 $1.98
Less the effects of SFAS 133: Unrealized gains/(losses) on
financial derivatives and trading assets, net of tax (5,952) (0.56)
3,315 0.30 Net effects of settlements on agency forward contracts,
net of tax 281 0.03 (75) (0.01) Core earnings $19,392 $1.82 $18,971
$1.69 More complete information on Farmer Mac's performance for the
quarter ended September 30, 2007 is set forth in the Form 10-Q
filed with the SEC today by Farmer Mac. 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)
lender interest in Farmer Mac credit products and the Farmer Mac
secondary market; (2) increases in general and administrative
expenses attributable to growth of the business and regulatory
environment, including the hiring of additional personnel with
expertise in key functional areas; (3) the rate and direction of
development of the secondary market for agricultural mortgage
loans; (4) the general rate of growth in agricultural mortgage
indebtedness; (5) borrower preferences for fixed-rate agricultural
mortgage indebtedness; (6) legislative or regulatory developments
that could affect Farmer Mac; (7) the willingness of investors to
invest in Farmer Mac Guaranteed Securities; and (8) possible
reaction in the financial markets to events involving
government-sponsored enterprises other than Farmer Mac. Other risk
factors are discussed in Farmer Mac's Annual Report on Form 10-K
for the year ended December 31, 2006, as filed with the Securities
and Exchange Commission (SEC) on March 15, 2007 and in Farmer Mac's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2007, as filed with the SEC 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 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 and to
facilitate capital market funding for 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 Annual Report on Form
10-K and Quarterly Report on 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 third quarter 2007 earnings
and the Corporation's Form 10-Q for third quarter 2007 will be
webcast on Farmer Mac's website beginning at 11:00 a.m. eastern
time, Friday, November 9, 2007, and an audio recording of that call
will be available for two weeks on Farmer Mac's website after the
call is concluded. DATASOURCE: Farmer Mac CONTACT: Mary Waters of
Farmer Mac, +1-202-872-7700 Web site: http://www.farmermac.com/
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