The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) reported continued momentum in its financial performance.
During second quarter 2012, Farmer Mac achieved record core earnings and growth in program assets while maintaining strong credit quality. Farmer Mac's core earnings, a non-GAAP measure, for second quarter 2012 reached $12.9 million ($1.17 per diluted common share), up from $10.0 million ($0.94 per diluted common share) in second quarter 2011.
Core earnings for the quarter benefited from higher net effective spread of $27.2 million, compared to $21.0 million in second quarter 2011. This higher net effective spread was partially offset by net provisions to the allowance for losses of $0.2 million, compared to net releases of $0.8 million for the prior year quarter.
Primarily due to the effects of fair value changes on financial derivatives, Farmer Mac had a GAAP net loss attributable to common stockholders for second quarter 2012 of $4.3 million, compared to net income of $5.2 million for the same period in 2011.
Farmer Mac uses financial derivatives, primarily interest rate swaps, to mitigate its exposure to interest rate risk and achieve an overall lower effective cost of borrowing. Because Farmer Mac's financial derivatives were not designated in hedge relationships for accounting purposes through second quarter 2012, changes in the fair values of these instruments were recorded in earnings, with no offsetting fair value adjustments on the corresponding hedged items.
Farmer Mac excludes these fair value fluctuations from its core earnings. Due to the significant decrease in long-term interest rates during second quarter 2012 (for example, the 10-year Treasury rate decreased 57 basis points from March 31 to June 30), Farmer Mac recorded unrealized fair value losses of $21.6 million on its financial derivatives for the quarter.
Farmer Mac President and Chief Executive Officer Michael Gerber stated, "We are pleased to have achieved all-time highs in core earnings and outstanding program volume. New business from all of our product lines raised the aggregate outstanding program volume to $12.3 billion as of quarter end.
"Portfolio credit quality improved and remains high, as 90-day delinquencies were down in both dollar and percentage terms compared to first quarter 2012 and second quarter 2011. These statistics do not yet reflect the impact of the weather conditions currently affecting much of the country.
"While it is too early to assess the impacts on our agricultural portfolio, we continue to closely monitor the situation. We believe that Farmer Mac remains well-positioned to handle the stress in the agricultural economy that is likely to result from the drought and to continue to help meet the credit needs of Rural America and build value for shareholders."
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