Federal Agricultural Mortgage Corp (AGM) 2008 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Federal Agricultural Mortgage Corporation second quarter 2008 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's my pleasure to introduce your host, Henry Edelman, President and CEO for Federal Agricultural Mortgage Corporation. Thank you, Mr. Edelman. You may begin.

Thank you. Good morning, and welcome to Farmer Mac's second 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 expectation 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 cause farmer Mac's actual results to differ materially from expectations expressed in 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 second quarter 2008 and in Farmer Mac's annual report on form 10-K for 2007. A form 8-K containing the press release was filed yesterday evening, and the form 10-Q was filed this morning with the SEC. Form 10-K filed with the SEC on March 17th, 2008. Any forward-looking statements made by Farmer Mac during this call represent management's current expectations. Farmer Mac under takes no obligation to release publicly the results of revisions to such forward-looking statements to reflect any future events or circumstances, except as otherwise mandated by the SEC. The recording of this call will be available on Farmer Mac's web site approximately two hours after the conclusion of the call.

We are extremely pleased with Farmer Mac's strong financial results in second quarter 2008 with core earnings up 28%, compared to 2007's second quarter. 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 developed financial plans, because in management's view, core earnings more accurately represent Farmer Mac's economic performance, transaction economics, and business trends before the effects on earnings of changes in the fair values of financial derivatives and trading assets. Investors and securities analysts have previously relied upon similar measures to evaluate Farmer Mac's historical and future performance. Farmer Mac's disclosure of core earnings, a non-GAAP measure, is not intended to replace GAAP information but, rather, to supplement it.

Again, in second quarter 2008, Farmer Mac achieved strong core earnings compared to prior year results, notwithstanding the volatility of the capital markets. Core earnings were $7.1 million or $0.70 per diluted share for second quarter 2008, compared to $5.5 million or $0.53 per diluted share for second quarter 2007. For the first half of 2008, core earnings were $17.6 million, or $1.76 per diluted share, compared to $11.7 million, or $1.10 per diluted share for the first half of 2007. These results were driven by a increase in net interest income attributable to Farmer Mac's more favorable short-term funding costs, relative to the rates on related investments, loans and Farmer Mac IP and securities, as well as ongoing fee income from the corporation's $9.8 billion guarantee portfolio. While it is not possible to predict how long Farmer Mac's short-term borrowing spreads will continue to be as favorable as they are now, relative to yields on our program and non-program 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.

For second quarter 2008, the GAAP net income for common stockholders was $21.4 million, or $2.13 per diluted share, compared to $18.4 million or $1.74 per diluted share for second quarter 2007. For first half 2008, net income available to common stockholders was $13.2 million or $1.31 per diluted share, compared to $22.3 million or $2.10 per diluted share for the corresponding period in the prior year. Much of Farmer Mac's business volume in recent years resulted from our ongoing efforts to diversify Farmer Mac's marketing focus to include large program transactions to 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 projected risk adjusted marginal returns on equity approximately equal to those of other Farmer Mac program transactions. These transactions tend to be larger portfolio transactions that have ranged up to $1 billion.

On May 22nd 2008, Congress enacted the Farm Bill into law, expanding Farmer Mac's authorities to include providing a secondary market for rural utility and telephone loans made by cooperative lenders. During second quarter 2008, Farmer Mac placed it's guarantee on $430.7 million of securities representing interest in rural electric cooperative loans and $900 million principal amount of obligations collateralized by rural electric cooperative loans, previously held as mission-related investments under authority granted by the Farm Credit Administration. Farmer Mac had prospects for additional large portfolio transactions and believes important new business will result from this expansion of its authorities, however at the present time, no assurance can be given as the certainty or times of any such future transactions. 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 guarantee portfolio remained at notably low levels as of June 30th, 2008. In terms of both dollars and percentages. Those delinquencies were $5.2 million, representing 11 basis points relative to the total Farmer Mac One agricultural mortgage direct credit exposure, or just six basis points relative to Farmer Mac's total exposure to agricultural mortgages and rural utility loans.

To 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 guarantee portfolio in particular. Turning to net interest income, that was $24.4 million for second quarter 2008, Compared to $8.5 million for Q2 2007. For the six months ended June 30th, 2008, net interest income was $42.3 million compared to $17.6 million for the corresponding period, in the prior year. Farmer Mac's net interest yield, adjusted for the affects of FAS 133 was 113 basis points, which was $32.2 million for the first half of 2008, compared to 70 basis points, which was $17.6 million for the corresponding period in 2007. Throughout 2007, and the first half of 2008, Farmer Mac's long-term interest rate sensitivity remained low, despite the significant change in the yield curve that occurred during that time.

Farmer Mac measured 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 shock. As of June 30th, 2008, a increase of 100 basis points across the entire US Treasury yield curve would have decreased MVE by 3% while a parallel decrease of 100 basis points would have increased MVE by 0.3%. As of June 30, 2008, a parallel increase of 100 basis points would have decreased Farmer Mac's NII, a shorter term measure of interest rate risk, by 2.5%, while a parallel decrease of 100 basis points would have increased NII by 0.1%. Farmer Mac's effective duration gap was plus 0.9 months as of June 30th, 2008, compared to plus 0.8 months as of March 31, 2008.

Turning to guarantee and committment fees which compensates Farmer Mac for assuming credit risk on loans underlying Farmer Mac guaranteed securities and standby commitments, they were $6.7 million for second quarter 2008, compared to $6.4 million for second quarter 2007. For first half of 2008, guarantee and commitment fees were $13.3 million compared to $12.2 million for first half 2007. Farmer Mac's core capital totaled $254.8 million as of June 30th, 2008, compared to $226.4 million as of December 31st, 2007. Farmer Mac's core capital of as of June 30th, 2008 exceeded the statutory minimum capital requirement of $214.8 million by $40 million. Farmer Mac was in compliance with its risk based capital standards as of June 30th, 2008. The risk-based capital stress test generated a regulatory capital requirement of $48.8 million as of June 30th, 2008. Farmer Mac's regulatory capital of $258.6 million exceeded that risk based capital requirement by approximately $209.8 million.

That concludes my formal remarks, more information on Farmer Mac's performance for the quarter ended June 30, 2008 is set forth in the form 10-Q Farmer Mac filed yesterday with the SEC, we will now open the call to questions.

Thank you, sir. Ladies and gentlemen, we will now be conducting the question and answer session. (OPERATOR INSTRUCTIONS). We will pause a moment while we poll for questions. It appears we have no questions at this time. I would like to everyone another opportunity. (OPERATOR INSTRUCTIONS).

If there are no questions, we appreciate everyone's interest in Farmer Mac and their listening in on the call today. And we look forward to speaking to you again in several months. Thank you very much.

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