Federal Agricultural Mortgage Corp (AGM) 2008 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Federal Agricultural Mortgage Corporation first-quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Henry Edelman. Thank you. You may begin.

Thank you. Good morning and welcome to Farmer Mac's first-quarter 2008 earnings conference call.

Before starting, I would like to comment on forward-looking statements that may be made today. 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 or events could change Farmer Mac's actual results materially from the expectations expressed or implied by the forward-looking statements. Some of these factors and events are identified in our press release issued yesterday and discussed in Farmer Mac's quarterly report on Form 10-Q for the first-quarter 2008 and in Farmer Mac's annual report on Form 10-K for 2007. A Form 8-K containing the press release and the Form 10-Q were filed yesterday afternoon with the SEC. The Form 10-K was filed with the SEC on March 17, 2008.

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 statements to reflect any future events or circumstances except as otherwise mandated by the SEC.

A recording of this call will be available on Farmer Mac's website approximately two hours after the conclusion of the call.

We were extremely pleased with Farmer Mac's strong financial results in first-quarter 2008 with core earnings up 69% compared to first-quarter 2007. Farmer Mac reports financial results on a GAAP basis and also reports core earnings. The Company uses core earnings to measure corporate economic performance and develop financial plans because in management's view core earnings more accurately represent Farmer Mac's economic performance, transaction economics and business trends before the effect of the application of FAS 133 and FAS 159. Investors and securities analysts have previously relied upon similar measures to evaluate Farmer Mac's historical and future performance.

For the second quarter in a row, Farmer Mac has achieved strong core earnings compared to prior year results, notwithstanding the volatility of the capital markets. Core earnings were $10.5 million or $1.06 per diluted share for first-quarter 2008 compared to $10.5 million or $1.00 per diluted share for fourth-quarter 2007 and up from $6.2 million or $0.58 per diluted share for first-quarter 2007. These results were driven by an increase in net interest income attributable to the Corporation's more favorable short-term funding costs relative to the rates on related investments, loans and Farmer Mac guaranteed securities, as well as ongoing fee income from the Corporation's $8.4 billion guaranteed portfolio.

Farmer Mac's disclosure of core earnings, a non-GAAP measure, is not intended to replace GAAP information but rather to supplement it. For the first-quarter 2008, the GAAP net loss available to common stockholders was $8.3 million or $0.84 per diluted share compared to a loss of $9.3 million or $0.90 per diluted share for fourth-quarter 2007 and net income available to common stockholders of $3.9 million or $0.37 per diluted share for first-quarter 2007.

The GAAP losses in the first-quarter 2008 and fourth-quarter 2007 were attributable to mark-to-market reductions in the fair values of financial derivatives associated with a significant decline in interest rates in the latter half of 2007 continuing into 2008. Farmer Mac uses financial derivatives hedge interest rate risk on its assets and liabilities, and the changes in the fair value of those derivatives are recorded in income, while changes in the fair value of the majority of the hedged assets and liabilities are not recorded in income.

Reflecting the effectiveness of Farmer Mac's ongoing credit risk management and the strength of the US agricultural economy, 90-day delinquencies in Farmer Mac's guaranteed portfolio remained at notably low levels as of March 31, 2008 in terms of both dollars and percentages. Those delinquencies totaled $11 million, representing just 0.22% of the portfolio. The date the credit issues that have arisen in the housing and consumer sectors of the economy have not affected the agricultural economy in general or Farmer Mac's guaranteed portfolio in particular.

Farmer Mac's net interest income and guarantee fee income were major drivers of core earnings during the period. While it is not possible to predict how long Farmer Mac's short-term borrowing spreads will continue to be as favorable as they now are relative to yields on our program and nonprogram assets, Farmer Mac's guarantee fee income should continue to grow commensurate with outstanding business volume. Those components of income were independent of Farmer Mac's strong credit performance.

Farmer Mac's net interest yield for first-quarter 2008 was 131 basis points or $17.9 million compared to 73 basis points or $9.1 million for first-quarter 2007. The net interest yield adjusted for the effect of FAS 133 for first-quarter 2008 was 116 basis points or $15.8 million compared to 72 basis points or $8.9 million for first-quarter 2007.

Throughout 2007 and first-quarter 2008, Farmer Mac's long-term interest rate sensitivity remains low, despite the significant change in the yield curve that occurred during that time. Farmer Mac's effective direction gap was plus 8/10 of one month as of March 31, 2008 compared to 7/10 of one month as of March 31, 2007.

Net interest income was $17.9 million for first-quarter 2008 compared to 16. (inaudible) for fourth-quarter 2007 and $9.1 million for first-quarter 2007. Guarantee and commitment fees, which compensate Farmer Mac pursuing the credit risks on loans underlying Farmer Mac guaranteed securities and standby commitments, were $6.6 million for first quarter 2008 compared to $6.6 million for fourth-quarter 2007 and $5.9 million for first-quarter 2007.

Farmer Mac's core capital totaled $229.4 million as of March 31, 2008 compared to $226.4 million as of December 31, 2007 and $237.9 million as of March 31, 2007. Farmer Mac's core capital as of March 31, 2008 exceeded the statutory minimum capital requirement of $200.3 million by $29.1 million. Farmer Mac was in compliance with its risk-based capital standards as of March 31, 2008. The risk-based capital stress tests generated a regulatory capital requirement of $30.4 million as of March 31, 2008 compared to the risk-based capital requirement of $42.8 million as of December 31, 2007 and $80.8 million as of March 31, 2007.

As of March 31, 2008, Farmer Mac's regulatory capital of $233.2 million exceeded the risk-based capital requirement by approximately $202.8 million.

During first-quarter 2008 and 2007, Farmer Mac repurchased 31,691 shares and 360,482 shares respectively of its Class C nonvoting common stock at an average price of $26.13 and $26.24 per share respectively pursuant to the Corporation's previously announced stock repurchase program. These repurchases reduced stockholders equity by approximately $800,000 and $9.5 million respectively.

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 31, 2008, 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 3/10 of 1%.

As of March 31, 2008, a parallel increase of 100 basis points would have decreased Farmer Mac's NII, a shorter term measure of interest rate risk by 3%, while a parallel decrease of 100 basis points would have decreased NII by 8/10 of 1%.

Turning now to legislative developments, Farmer Mac believed important new business opportunities would result from expansion of a statutory guarantee authority now under consideration. In that regard, during 2007 the United States House of Representatives and the United States Senate each passed its own version of a Farm Bill that would expand Farmer Mac's charter to authorize the Corporation to purchase and guarantee securities backed by rural utilities loans made by cooperative lenders, particularly the National Rural Utilities Cooperative Finance Corporation and institutions of the Farm Credit System.

Last month the Farm Bill Conference Committee met and retained language expanding Farmer Mac's charter to add rural utility loans. At this time no assurance can be given that the bill will be enacted into law, or if enacted that it will result in significant additional business volume for Farmer Mac. More complete information on Farmer Mac's performance for the quarter ended March 31, 2008 is set forth in the Form 10-Q Farmer Mac filed yesterday with the SEC.

That concludes my formal remarks, and we will now open the call to questions. Thank you.

(OPERATOR INSTRUCTIONS). Gerry Heffernan, Lord Abbett & Co.

Thank you for some very nice results here. This question perhaps is a little off-track, but there has been a lot of discussion lately regarding the valuation of agricultural land to agricultural real estate, which is an interesting topic since most all topic on owned real estate right now is about the values going down, the commentary of the valuation going up. This being the case, there may be an increased velocity in the turnover of agricultural property and assets. Would this increase of velocity benefit you or be a negative to you in the way your business runs?

Well, because we are always out there aggressively marketing Farmer Mac's products and services, an increase in velocity would probably be favorable to us. It would give us new marketing and transactional opportunities, yes.

Okay. Have you, indeed, been seeing this? Do you follow the relative values of ag land?

We do.

And what do you see?

Well, we have been seeing increases in the value of agricultural land. However, we have also seen increases in the amount of investments made by purchasers with consequent increases in borrower equity in the process.

Okay. So since borrowers equity is increasing, that is limiting the ability for you to participate in the deals that is a ceiling, if you would, into the growth of your business?

I think what it does is it makes the potential and actual increase non-linear.

Okay. Anything else going on in regards to that topic that is of particular note? You mentioned an increase of equity by the buyer. Anything else developing as far as perhaps whether it is corporate buying or if it is more individual buying, or is something more in the rurals or the -- I will let you go from there.

I'm going to ask our Executive Vice President for Agricultural Finance, Tom Stenson, to comment on that.

If I may, I will roll back to the prior question and say we have seen, and our sellers of loans report to us more cash buyers, more cash purchases. And interestingly, the same feedback from the market is that there are fewer corporate buyers who are non-farm corporate buyers recently in the last several months as that had been the case within the past couple of years.

(OPERATOR INSTRUCTIONS). It appears there are no further questions. Do you have any closing comments?

Well, we appreciate everyone's interest in Farmer Mac, and we look forward to our next call with you and appreciate your participation this morning. Thank you very much.

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