Federal Agricultural Mortgage Corp (AGM) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Federal Agricultural Mortgage Corporation first quarter 2006 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 for today's conference, Mr. Henry Edelman, President and Chief Executive Officer of Federal Agricultural Mortgage Corporation. Thank you. Mr. Edelman, you may begin.

Thank you. Good morning, and welcome to Farmer Mac's first quarter 2006 earnings conference call.

Before starting, I'd like to comment on forward-looking statements that may be made today. In addition to historical information, this 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 the first quarter 2006, which was filed yesterday afternoon with the SEC; and in Farmer Mac's annual report on Form 10-K for the year ended December 31st, 2005, which was filed with the SEC on March 16th, 2006. Any forward-looking statements made by Farmer Mac during this call represent management's current expectations. Farmer Mac undertakes no obligations 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 law.

Farmer Mac yesterday reported U.S. GAAP net income for first quarter 2006 of $5 million, or $0.44 per diluted share, compared to $6.5 million, or $0.57 per diluted share for fourth quarter 2005 and $4.9 million, or $0.42 per diluted share, for the first quarter of 2005. Farmer Mac's strategic diversification of its marketing focus begun last summer has continued to produce tangible results. First quarter 2006 new business volume was $648.5 million, following on strong fourth quarter 2005 volume of $330.5 million. In April 2006, business volume continued to improve as Farmer Mac, in a long-term standby purchase commitment transaction, issued its standby commitment on $486.7 million of agricultural mortgage loans on the books of a farm credit system institution. The combined result of first quarter business and the April standby transaction was to raise Farmer Mac's portfolio of loans, guarantees, and standbys to a total in excess of $6 billion, a new record for the corporation and an important measure of Farmer Mac's increased service to agriculture and rural America. The increases in business volume in first quarter 2006 and April 2006 were attributable principal to Farmer -- principally to Farmer Mac's diversification of its marketing focus to include large program transactions that emphasize high asset quality with greater protection against adverse credit performance and commensurately lower compensation for the assumption of credit risks and administrative costs, resulting in marginal returns on equity equal to or better than the current net return on equity. We are focused on the long-term growth of the business and the development of innovative ways to serve the financing needs of rural America, which we believe can offset the continuing challenges posed by a number of market and regulatory factors on Farmer Mac's new business development. The corporation remains confident of its opportunities for increased business volume and income growth.

The portfolio of loans underlying Farmer Mac's guarantees and standbys continues to perform well, with 90-day delinquencies in Farmer Mac's portfolio remaining at low levels in terms of both dollars and percentages. This underscores both the effectiveness of Farmer Mac's ongoing credit risk management and the strength of the U.S. agriculture economy. Accordingly, Farmer Mac determined that the appropriate level of allowance for losses as of March 31st, 2006, was $6.8 million, reflecting the overall credit quality of its portfolio and the recent upward trends in agriculture land values. This resulted in the release of approximately $1.7 million from the allowance for losses in first quarter 2006, which increased earnings per share for the quarter by $0.10. In accordance with FAS 123R, beginning with first quarter 2006, earnings also include the recognition of stock options as compensation expense in the amount of $400,000 or $0.02 per diluted share. The combination of improved business volume and strong loan performance reflected in our first quarter 2006 results demonstrates the direction in which the Board and management of Farmer Mac seek to guide the corporation. Continuation of these results should allow us further to advance our congressional mission for the nation's farmers, ranchers, and rural homeowners while enhancing shareholder value in a responsible and efficient manner.

Let me turn now to non-GAAP performance measures. Farmer Mac reports its financial results in accordance with GAAP. In addition to GAAP measures, Farmer Mac presents core earnings, a non-GAAP performance measure. Core earnings are net income available to common stockholders less the after-tax effect of unrealized gains and losses on financial derivatives resulting from the application of FAS 133. The GAAP measure most comparable to core earnings is net income available to common stockholders. Unlike core earnings, however, the GAAP measure is influenced by unrealized gains or losses in the value of financial derivatives used to hedge interest rate risks in Farmer Mac's mortgage portfolio. Farmer Mac uses core earnings to develop financial plans, to measure corporate economic performance, and to set incentive compensation because, in management's view, core earnings more accurately represent Farmer Mac's economic performance, transaction economics, and business trends. Investors and the investment analyst community have previously relied upon similar measures to evaluate Farmer Mac's historical and future performance. Farmer Mac's disclosure of this non-GAAP measure is not intended to replace GAAP information, but rather to supplement it. Core earnings were $6.2 million or $0.54 per diluted share for first quarter 2006, compared to $7.2 million or $0.63 per diluted share for fourth quarter 2005, and $6.3 million, or $0.53 per diluted share, for first quarter 2005. Next is interest income. Net interest income was $8.9 million for first quarter 2006 compared to $9.4 million for fourth quarter 2005 and 7.8 million for first quarter 2005. The net interest yield was 83 basis points for first quarter 2006, compared to 91 basis points for fourth quarter 2005 and 85 basis points for first quarter 2005.

Turning next to guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac guaranteed securities and standbys. Those were 5.0 million for first quarter 2006, compared to $4.9 million for fourth quarter 2005 and $5 million for first quarter 2005. Farmer Mac's core capital totaled $248.9 million as of March 31st, 2006, which exceeded the statutory minimum capital requirement of $149 million by $99.9 million. Farmer Mac is required to meet the capital standards of a risk-based capital stress test promulgated by FCA, the RBC test, pursuant to a federal statute. As of March 31st, 2006, Farmer Mac's regulatory capital of $255.7 million exceeded the RBC requirement of $30.6 million by approximately $225.1 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.

In the November 17th issue of the Federal Register, FCA published for public comment a proposed rule that would revise certain FCA regulations governing the risk-based capital test applicable to Farmer Mac. The public comment period for that proposed rule has been extended to May 17th, 2006. As part of the formal rule making process, Farmer Mac has provided written comments on the proposed regulation to FCA, and that letter is available on FCA's website at www.fca.gov. During first quarter 2006, Farmer Mac repurchased 38,950 shares of its class C non-voting common stock at an average price of $27.81 per share pursuant to the corporation's previously announced stock repurchase program. These repurchases reduced the corporation's capital by approximately $1.1 million. Next is interest rate risk. Farmer Mac measures its interest rate risk through several tests, including the sensitivity of its market value of equity and net interest income to uniform or parallel yield curve shocks. As of March 31st, 2006, a parallel increase of 100 basis points across the entire U.S. Treasury yield curve would have decreased MVE by 2.8% while a parallel decrease of 100 basis points would have increased MVE by 0.9%. As of March 31st, 2006, a parallel increase of 100 basis points would have increased Farmer Mac's NII, a shorter term measure of interest rate risk, by 3.9%, while a parallel decrease of 100 basis points would have decreased NII by 0.4%. Farmer Mac's duration gap, another measure of interest rate risk, was plus 1.3 months as of March 31st, 2006. More complete information on Farmer Mac's performance for the quarter ended March 31st, 2006, is set forth in the Form 10-Q Farmer Mac filed yesterday with the SEC.

We will now open the call to questions.

(OPERATOR INSTRUCTIONS). Mr. Edelman, there are no questions at this time.

Well, in that case, we want to thank everyone for listening in today, and we appreciate your interest in Farmer Mac and look forward to speaking with you again in a few months. Thank you all. Have a good day.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.