Federal Agricultural Mortgage Corp (AGM) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Federal Agricultural Mortgage Corp. second quarter 2005 earnings conference call. At this time all participants are in a listen only mode. A 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 Corp. Thank you. Mr. Edelman, you may begin.

Thank you. Good morning and welcome to Farmer Mac's second quarter 2005 earnings conference call. Before starting, I will give you a brief customary forward-looking statement advisory.

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 and discussed in Farmer Mac's quarterly report on Form 10-Q for second quarter 2005 which was filed yesterday with the SEC and 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, 2005.

Any forward-looking statements made by 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 statement to reflect any future events or circumstances except as otherwise mandated by the SEC.

Farmer Mac yesterday reported U.S. GAAP net income for second quarter 2005 of $8.2 million or $0.72 per diluted share compared to $4.9 million or $0.42 per diluted share for first quarter 2005; and $2 million or $0.16 per diluted share for second quarter 2004.

For the 6 months ended June 30, 2005, net income was $13.1 million or $1.13 per diluted share compared to $9.8 million or $0.80 per diluted share for the 6 months ended June 30, 2004.

Core earnings were $6 million or $0.52 per diluted share for second quarter 2005, compared to $6.3 million or $0.53 per diluted share for first quarter 2005 and $6.2 million or $0.51 per diluted share for second quarter 2004.

For the 6 months ended June 30, 2005, core earnings of $12.2 million or $1.05 per diluted share compared to $12.1 million or $0.99 per diluted share for the corresponding period in the prior year.

Farmer Mac reports its core earnings and 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 effects of unrealized gains and losses on financial derivatives, resulting from the application of the derivative of accounting standards.

While complete information on Farmer Mac's performance for the quarter ended June 30, 2005, as set forth in the Form 10-Q, Farmer Mac filed yesterday with the SEC.

New business volume for second quarter 2005 was $161.9 million up from $95.5 million in first quarter 2005, but down from 189.3 million in second quarter 2004.

Farmer Mac's new business with agricultural mortgage lenders has been slowed by reduced growth rates in the agricultural mortgage market, due largely to the strong liquidity of many farmers and ranchers. High levels of available cash flow liquidity of agricultural lenders, alternative sources of funding for agricultural lenders, increased competition in the secondary market for agricultural mortgage loans, and adverse publicity about an increased regulatory pressure on T&D.

Looking ahead, Farmer Mac is developing innovative ways to serve the financing needs of rural America and remains confident that the opportunities for growth and increased business bottoms has a result of the Corporation's product development and customer service efforts. For example, in second quarter 2005, Farmer Mac repurchased or issued standbys for loan secured bi-agricultural storage and processing facilities aggregating approximately $105.4 million primarily for ethanol processing facilities.

As of June 30, 2005, approximately 79.1 million of those loans were not yet closed or dispersed by the lender though those events are expected to occur during third or fourth quarter, 2005.

In second quarter 2005 Farmer Mac opened its satellite credit underwriting office in Ames, Iowa to increase the east of access to Farmer Mac from Midwestern agricultural lenders and Farmer Mac's responsiveness to them.

On July 29, 2005, Farmer Mac had a national rural utilities co-op Finance Corp. PSA. Jointly announced the sale by CFC (ph) and purchased by Farmer Mac of $500 million of three-year CFC secured notes.

The transaction provided CFC with a new source of liquidity for its rural utility cooperative members that serve rural communities and support agriculture in 47 states and advances Farmer Mac's financial role in a commitment to rural America.

Farmer Mac has diversified its marketing focus to include large maturization (ph) transactions that emphasize net return on equity excepting lower compensation for the assumption of credit risk when justified by higher asset quality and lower administrative costs.

Net interest income was $8.1 million for second quarter 2005 compared to $7.8 million for first quarter 2005 and $7.8 million for second quarter 2004. The net interest yield for the 6 months ended June 30, 2005, was 87 basis points unchanged from the 6 months ended June 30, 2004.

Farmer Mac classifies the net interest income and expense we realized on financial derivatives that aren't in fair value or cash flow hedge relationships and gave them losses on financial derivatives. For the 6 months ended June 30, 2005 and 2004, this classification resulted in reductions of the net interest yield of 3 basis points and 5 basis points, respectively.

Net interest yield for the 6 months ended June 30, 2005 and 2004 included the benefit of yield maintenance payments of 17 basis points and 12 basis points, respectively. Yield maintenance payments represent the present value of expected future interest income screens and accelerate the recognition of interest income from the related loan. Because the timing and size of those payments vary greatly, variations should not be considered indicative of positive or negative trends to gauge future financial results.

For the 6 months ended June 30, 2005 and 2004, the effects of yield maintenance payments on net income and diluted earnings per share were $2 million or $0.17 per diluted share, and $1.6 million or $0.13 per diluted share, respectively. Guarantee in commitment fees which compensate Farmer Mac for assuming the credit risks on loans underlying Farmer Mac guaranteed securities and standbys.

We're $4.9 million for second quarter 2005 compared to $5 million for first quarter 2005 and 5.3 million for second quarter 2004.

Compensation and employee benefits for second quarter 2005 were $1.9 million compared to 1.8 million for first quarter 2005 and 1.7 million for second quarter 2004. General and administrative expenses for second quarter 2005 were $2.3 million compared to 2 million for first quarter 2005 and 1.8 million for second quarter 2004.

Farmer Mac's core capital totaled $238.2 million as of June 30, 2005 compared to $235.6 million as of March 31st, 2005, and $226.3 million as of June 30, 2004.

Farmer Mac's core capital as of June 30, 2005 exceeded the statutory minimum capital requirement of 127.2 million by $111 million. Pursuant to federal statute Farmer Mac has acquired to meet the need the capital standards of the risk based capital tests propagated by FCA called the RBC test.

As of June 30th, 2005, the RBC test generated and estimated risk-based capital requirement of $49.6 million compared to the risk-based capital requirement of $59.3 million as of July -- as of March 31, 2005 and $50.4 million as of June 30, 2004.

Farmer Mac's regulatory capital of $254.3 million as of June 30, 2005, exceeded the RBC requirement by approximately $204.7 million. Farmer Mac is required to hold capital at the higher of statutory minimum capital requirements or the amount required by the RBC test.

During second quarter 2005, Farmer Mac repurchased 272,988 shares of its Class C nonvoting common stock at an average price of $18.36 per share pursuant to the Corporation's previously announced stock repurchase program. These repurchases reduce the Corporation's capital by approximately $5 million. During first quarter 2005 Farmer Mac repurchase 291,454 shares of its Class C nonvoting common stock at an average price of $20.35 per share, reducing the Corporation's capital by $5.9 million.

As of June 30, 2005, Farmer Mac's 90 day delinquencies totaled $36.8 million representing .85% of the principal balance of all loans held and loans underlying post 1996 act (indiscernible) Farmer Mac one guaranteed securities and standby commitment. Compared to $30.8 million which was .68% as of June 30, 2004.

As of June 30, 2005, nonperforming assets totaled $60.7 million representing 1.39% of the principal balance of all loans held and loans underlying post 1996 Farmer Mac one guaranteed securities in standby commitments, compared to $69.8 million which was 1.43% as of June 30, 2004. As of June 30th, 2005 Farmer Mac has $3.6 million of real estate-owned REO compared to $4.1 million as of March 30, 2005, and $9.2 million as of June 30, 2004.

As part of Farmer Mac's continuing evaluation of the overall credit quality in its portfolio, strong U.S. agricultural economy, the recent upward trends in agricultural land values and reduction in Farmer Mac's outstanding guarantee and commitments, Farmer Mac determined that the appropriate level of allowance for losses as of June 30, 2005, was $16.1 million. This resulted in the release of approximately $300,000 from the allowance for losses in second quarter 2005.

As of June 30, 2005, the allowance for losses was $16.1 million and 37 basis points, relative to the outstanding Farmer Mac one portfolio. Compared to $16.3 million and 37 basis points as of March 31, 2005 and $21.8 million and 45 basis points as of June 30, 2004.

During second quarter 2005 Farmer Mac charged off $15,000 of losses against the allowance for losses compared to charge off of $110,000 in the first quarter 2005 and $2 million in second quarter 2004.

Farmer Mac measured its interest rate risks through several tests, including the sensitivity of its market value of equity and deed (ph) and net interest income -- NII -- to uniform parallel of yield curve shock.

As of June 30, 2005, a parallel increase of 100 basis points across the entire U.S. Treasury yield curve would have decreased MVE (ph) by 2.1% while a parallel decrease of 100 basis points would have increased MVE by 1%. As of June 30, 2005, parallel increase of 100 basis points would have increased Farmer Mac's NII a short-term measure of interest rate risk by 3.3% while a parallel decrease of 100 basis points would have decreased NII by 3.3%. Farmer Mac's duration GAAP -- another measure of interest rate risk -- was positive with one month as of June 30, 2005.

Farmer Mac uses financial derivatives for hedging purposes, not for speculative 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 counterparty. As of June 30, 2005 Farmer Mac had no uncollateralized debt exposure to any counterparts.

During second quarter 2005, Farmer Mac's regulated the FCA approved a final regulation relating to Farmer Mac's investments and liquidity. FCA included several of these revisions with the proposed regulations suggested by Farmer Mac and comments to the proposal; and Farmer Mac expects to be able to comply with the regulation when it becomes effective. FCA has not announced the effective date of the regulation but it is expected to become effective during the last week of September 2005.

Farmer Mac is required to comply with the liquidity provisions of the regulation within 24 months of the effective date.

That concludes my formal remarks and we will now open the call for questions.

+++ q-and-a.

(OPERATOR INSTRUCTIONS)

There being no questions, I appreciate your listening in the call today and look forward to speaking with you again in 3 months. We appreciate your continuing interest in Farmer Mac. Thank you very much and good morning.

This concludes today's conference.