Fair Value Volatility Aides Farmer Mac 2Q Profit Growth

In the first quarter, Farmer Mac’s results on a year-over-year basis were hurt by fair value changes. For the most recent quarter, it benefited from them.

Farmer Mac reported GAAP net income of $27.7 million for 2Q13, reversing a loss of $4.3 million for the same period in 2012. The government-sponsored enterprise said the reason for the 2Q13 profits and 2Q12 losses was the effects of fair value changes on derivatives and hedged assets. Net income for 1Q13 was $16.2 million.

For the quarter Farmer Mac had unrealized fair value gains on derivatives and hedged assets of $17 million pretax, versus losses of $22.6 million pretax in 2Q12.

In its press release, the company said there should be reduced volatility going forward, as the hedge relationships “remain highly effective through maturity,” and as comparisons on future periods will no longer be made with periods prior to the adoption of hedge accounting (which started in 3Q12).

New business volume in 2Q13 was $647 million, including purchases of $200 million in AgVantage securities and $226 million in newly originated Farm & Ranch loans.

In addition, Farmer Mac added almost $100 million of Farm & Ranch loans under long-term standby purchase commitments. It purchased $111 million of U.S. Department of Agriculture-guaranteed securities and $10 million of rural utilities loans.

Farmer Mac has outstanding volume of $13.6 billion, up from $13 billion at the start of the year and $12.7 billion on June 30, 2012.

It believes that the trend towards longer-term financing (which is behind the growth in farm and ranch production) by farmland owners will continue, driven by predictions of rising interest rates. Growth in Farmer Mac’s secondary market products will also continue as rural lenders make more loans and adapt to the changing regulatory environment requiring them to have more capital.

As for credit quality there was a slight increase from the start of the year in 90-day delinquencies in the farm and ranch portfolio to $33.9 million from $33.3 million on Dec. 31, 2012. There are no delinquencies in the AgVantage portfolio.