Federal Agricultural Mortgage Corp (AGM) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Federal Agricultural Mortgage Corporation first-quarter 2005 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Henry Edelman, President and Chief Executive Officer of Federal Agricultural Mortgage Corporation. Thank you, Mr. Edelman. You may begin.

Thank you. Good morning. Welcome to Farmer Mac's first-quarter 2005 earnings release conference call. Before we begin I would just like to make a few remarks about forward-looking statements. In addition to historical information, this conference call may include forward-looking statements that reflect management's current expectations for Farmer Mac's future financial results, business prospects, and business development. Management's expectations for the Corporation's future necessarily involve a number of assumptions and estimates and the evaluation of risks and uncertainties.

Various factors could cause Farmer Mac's actual results or events to differ materially from the expectations as expressed or implied by the forward-looking statements. Some of these factors are identified in our press release issued yesterday, which was filed on Form 8-K this morning with the SEC, and are discussed in Farmer Mac's annual report on Form 10-K for the year ended December 31, 2004, which was filed with the SEC on March 16.

Any forward-looking statements made by it Farmer Mac during this call represent management's current expectations. Farmer Mac undertakes no obligation to release publicly the results of revisions to any such forward-looking statements to reflect any future events or circumstances except as otherwise mandated by the SEC.

Let me turn to the release. Today Farmer Mac is reporting U.S. GAAP net income for first-quarter 2005 of $4.9 million or $0.42 per diluted share, compared to $9.8 million or $0.82 per diluted share for fourth-quarter 2004, and $7.8 million or $0.64 per diluted share for first-quarter 2004.

Core earnings were $6.3 million or $0.53 per diluted share for first-quarter 2005, compared to $9.9 million or $0.82 per diluted share for fourth-quarter 2004, and $5.9 million or $0.48 per diluted share for first-quarter 2004.

Fourth-quarter 2004 results included the release of approximately $5.3 million from the allowance for losses, which increased both GAAP net income and core earnings by $0.28 per diluted share in that quarter. Farmer Mac reports its core earnings, a non-GAAP measure, in addition to GAAP earnings. Farmer Mac uses the core earnings measure to present net income available to common stockholders, less the after-tax effect of unrealized gains and losses on financial derivatives resulting from the application of the derivative accounting standards.

Reflecting the effectiveness of Farmer Mac's ongoing credit risk management and the strength of the U.S. agricultural economy, the portfolio of loans underlying Farmer Mac's guarantees and standbys continues to perform well. We're pleased that as of March 31, 2005, 90-day delinquencies in Farmer Mac's portfolio remained at low levels in terms of both dollars and percentage. Those delinquencies, which were $45.8 million, represented 1.04% of the portfolio, compared to $57.4 million and 1.17% as of March 31, 2004, and $76.2 million and 1.58% as of March 31, 2003. Similarly, real estate owned was reduced to $4.1 million as of March 31, 2005, from $12.3 million as of March 31, 2004.

Accordingly, Farmer Mac determined that the appropriate level of allowance for losses as of March 31, 2005, was 16.3 million. This determination reflects Farmer Mac's continuing evaluation of the overall credit quality of its portfolio, the strong U.S. agricultural economy, the recent upward trends in agricultural land values, and the reduction in Farmer Mac's outstanding guarantees and commitments. This resulted in the release of approximately $700,000 from the allowance for losses in first-quarter 2005.

As of March 31, 2005, the allowance for losses of $16.3 million was 37 basis points relative to the outstanding March 1 -- pardon me, Farmer Mac I portfolio, compared to $17.1 million and 37 basis points as of December 31, 2004, and $22.2 million and 45 basis points as of March 31, 2004.

For first-quarter 2005, new business volume was $95.5 million. As in recent quarters, Farmer Mac's new business was slowed by the continuation of previously mentioned factors including the liquidity of agricultural borrowers, the available capital and liquidity of agricultural lenders, and regulatory conditions. Looking forward Farmer Mac's Board and management are focused on the long-term growth of the business and the development of innovative ways to serve the financing needs of rural America and remain confident of opportunities for growth and increased business volume.

Net interest income was $7.8 million for first-quarter 2005, compared to $8 million for fourth-quarter 2004, and $9.5 million for first-quarter 2004. The net interest yield was 85 basis points for first-quarter 2005, compared to 88 basis points for fourth-quarter 2004, and 93 basis points for first-quarter 2004.

Guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac guaranteed securities and standbys, were $5 million for first-quarter 2005, compared to $5.2 million for both fourth and first-quarter 2004.

Compensation and employee benefits for first-quarter 2005, fourth-quarter 2004, and first-quarter 2004 were $1.8 million, respectively. General and administrative expenses for first-quarter 2005 were $2 million, compared to $2.9 million for fourth-quarter 2004, and $2.1 million for first-quarter 2004. The decrease from fourth-quarter 2004 to first-quarter 2005 was largely attributable to professional fees incurred in the earlier quarter in connection with compliance with the Sarbanes-Oxley Act of 2002 and FCA requirements.

Regulatory fees for first-quarter 2005 were $600,000, compared to $600,000 for fourth-quarter 2004, $400,000 for first-quarter 2004. FCA has advised the Corporation that its fees for the federal fiscal year ending December 30, 2005, are estimated to be $2.3 million. FCA's regulatory fees charged to Farmer Mac for the federal fiscal year ended September 30, 2004, were $2 million, compared to 1.8 million for 2003.

Farmer Mac's core capital totaled $235.6 million as of March 31, 2005, compared to $237.7 million as of March 31, 2004, and $223.7 million as of March 31, 2004. Farmer Mac's core capital as of March 31, 2005, exceeded the statutory minimum capital requirement of $127.9 million by $107.7 million. Farmer Mac is required to meet the capital standards of a risk-based capital test promulgated by FCA, the so-called RBC test, pursuant to federal statute.

As of March 31, 2005, the RBC test generated an estimated risk-based capital requirement of $58.9 million, compared with the risk-based capital requirement of $37.1 million as of December 31, 2004, and $42.1 million as of March 31, 2004. The increase in this requirement is predominantly associated with the increase in interest rates that occurred during first-quarter 2005.

Farmer Mac's regulatory capital of $251.9 million as of March 31, 2005, exceeded the RBC requirement by approximately $193 million. Farmer Mac is required to hold capital at the higher of the statutory minimum capital requirement or the amount required by the RBC test.

During first-quarter 2005, Farmer Mac repurchased 291,454 shares of its Class C nonvoting common stock at an average price of $20.35 per share, pursuant to the Corporation's previously announced stock repurchase program. These repurchases reduced the Corporation's capital by approximately $5.9 million. During fourth-quarter 2004, Farmer Mac repurchased 228,207 shares of its Class C nonvoting common stock at an average price of $21.10 per share, reducing the Corporation's capital by $4.8 million.

From quarter to quarter, Farmer Mac anticipates that 90-day delinquencies and nonperforming assets will fluctuate both in dollars and as a percent of the outstanding portfolio, with higher levels likely at the end of the first and third quarters of each year, corresponding to the semiannual January 1 and July 1 payment characteristics of many Farmer Mac (indiscernible) mortgage loans.

As of March 31, 2005, Farmer Mac's 90-day delinquencies totaled $45.8 million, representing 1.04% of the principal balance of all loans held and loans underlying post 1996 act (ph) Farmer Mac I guaranteed securities and standbys, compared to $57.4 million, 1.17% as of March 31, 2004. The 90-day delinquencies are loans 90 days or more past due, in foreclosure, restructured after delinquency, or in bankruptcy, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.

As of March 31, 2005, nonperforming assets totaled $70.3 million, representing 1.59% of the principal balance of all loans held and loans underlying post 1996 act Farmer Mac I guaranteed securities and standbys, compared to $91.3 million, 1.86%, as of March 31, 2004. Nonperforming assets are loans 90 days or more past due, in foreclosure, restructured after delinquency, in bankruptcy, which includes loans performing under either their original loan terms or a court-approved bankruptcy plan, or real estate owned. As of March 31, 2005, Farmer Mac had $4.1 million of REO, compared to $3.8 million as of December 31, 2004, and $12.3 million as of March 31, 2004.

As part of Farmer Mac's continuing evaluation of the overall credit quality of its portfolio, the strong U.S. agricultural economy, the recent upward trends in agricultural land values, and the reduction in Farmer Mac's outstanding guarantees and commitments, Farmer Mac determined that the appropriate level of allowance for losses as of March 31, 2005, was $16.3 million. This resulted in the release of approximately $700,000 from the allowance for losses in the first-quarter 2005.

As of March 31, 2005, the allowance for losses was $16.3 million and 37 basis points relative to the outstanding Farmer Mac I portfolio, compared to $17.1 million and 37 basis points as of December 31, 2004, and $22.4 million, which was 45 basis points, as of March 31, 2004.

During first-quarter 2005, Farmer Mac charged off $100,000 of losses against the allowance for losses, compared to charge-offs of $100,000 in fourth-quarter 2004, and $1.5 million from first-quarter 2004. In certain collateral liquidation scenarios, Farmer Mac may recover amounts previously charged off or incur additional losses (inaudible) liquidation proceeds vary from previous estimates.

Based on Farmer Mac's analysis of its entire portfolio, individual loan-by-loan analysis, and loan collection experience, Farmer Mac believes that specific and inherent probable losses are covered adequately by its allowance for losses. Farmer Mac measured interest rate risk with several tests, including the sensitivity of its market value of equity and net interest income to uniform or parallel yield-curve (inaudible).

As of March 31, 2005, a parallel increase of 100 basis points across the entire U.S. Treasury yield curve would have decreased MVE by 3.1%, while a parallel decrease of 100 basis points would have increased MVE by 1.6%. As of March 31, 2005, a parallel increase of 100 basis points would have increased Farmer Mac's NII, a shorter-term measure of interest rate risk, by 2.4%; while a parallel decrease of 100 basis points would have decreased NII by 0.5%. Farmer Mac's duration gap, another measure of interest rate risk, was plus 1.8 months as of March 31, 2005.

The economic effects of all financial derivatives are included in the MVE, NII, and duration gap analyses. Farmer Mac uses financial derivatives for hedging purposes, not for specialist (ph) purposes. All of Farmer Mac's financial derivative transactions are conducted through standard collateralized agreements that limit Farmer Mac's potential credit exposure to any part counterparty (ph). As of March 31, 2005, Farmer Mac has no uncollateralized debt exposure to any counterparty.

Farmer Mac accounts for its financial derivatives under FAS 133. During first-quarter 2005 the decrease in net after-tax income resulting from FAS 133 was $1.4 million; and the net after-tax increase in accumulated other comprehensive income was $12.2 million. During fourth-quarter 2004, the decrease in net after-tax income resulting from FAS 133 was $100,000; and the net after-tax increase in accumulated other comprehensive income was $7.1 million. For first-quarter 2004 the increase in net after-tax income resulting from FAS 133 was $1.9 million; and the net after-tax decrease in accumulated other comprehensive income was $12.4 million. Accumulated other comprehensive income is not a component of Farmer Mac's regulatory core capital.

That concludes my formal remarks this morning. I appreciate your participation on the call. We would like to open it up for questions at this time. Thank you.

(OPERATOR INSTRUCTIONS) Mr. Edelman, I am not receiving any questions at this time.

All right, then we will conclude the call. I thank everyone for listening, in and we look forward to speaking with you in the next quarter. Thank you very much.

Thank you. This concludes today's conference. Thank you all for your participation. All parties may disconnect now.