Farmer Mac's chief executive said purchases of loans through the Farmer Mac I and Farmer Mac II programs are at a record pace, as lenders in the agricultural and rural utilities sectors are looking for sources of capital and liquidity.
Net income for the second quarter is nearly $2 million, down from $25 million for the same period in 2009, but that 2009 number, the company said, was inflated by a $20 million increase in the value of financial derivatives. For the most recent period, Farmer Mac took a $4 million loss in this category. Another $3 million loss was recorded on the amortization of premiums on assets consolidated at fair value.
"Core" earnings for this year's second quarter are $5.3 million, up slightly from $4.7 million for last year's second quarter. Core earnings do not include fluctuations in the fair value of investments.
The GSE's effective net interest spread was 108 basis points, up from 82 bps one year ago. The increased spread, combined with growth in its core business, produced $15.5 million of net interest spread in the most recent period, up from $9.9 million one year prior.
Farmer Mac's 90-day delinquencies at the end of the second quarter were $56 million, down from $70 million at the end of the first quarter, but up from $42 million as of June 30, 2009. The fall-off in delinquencies between the first and second quarters, the company explained, is because of the annual and semi-annual payment characteristics of most Farmer Mac I loans.
Ethanol-related loans are making up a smaller percentage of delinquencies, just $11 million (approximately 20%) of the total as of June 30, 2010, compared with $19 million (or nearly half of all 90-day lates) one year prior.
However, the company warned that many agricultural sectors will continue to experience challenges in the second half of this year, so delinquencies, losses and charge-offs are likely to remain higher than Farmer Mac's historical average, but within its historical experience.
Farmer Mac president and CEO Michael Gerber said new business volume outpaced the repayment of loans in the company's portfolio. Furthermore, "we see continued interest in our products targeted at loan portfolios, as evidenced by a new $250 million transaction completed in July."
