Federal Agricultural Mortgage Corp (AGM) 2009 Q2 法說會逐字稿

Greetings and welcome to the Federal Agricultural Mortgage Corp's second quarter 2009 earnings 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 Michael Gerber, CEO for Federal Agricultural Mortgage Corp. Thank you. Mr. Gerber, you may begin.

Thank you and good morning. I am Mike Gerber, the President and CEO of Farmer Mac. The Farmer Mac management team and I are pleased to welcome you to Farmer Mac's second quarter 2009 earnings conference call.

Before starting, I would like to comment on the 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 developments. 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 the expectations as 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 second quarter 2009 and in Farmer Mac's annual report on Form 10-K for 2008. The Form 10-Q and the Form 8-K containing the press release were filed yesterday with the SEC. The Form 10-K was filed with the SEC on March 16th, 2009. 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 or 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.

Farmer Mac continues to improve its financial condition, reduce risk, and strengthen its position in the marketplace. These changes have better positioned Farmer Mac to take advantage of business opportunities and in turn to begin to regenerate stockholder value for the long-term and fulfill our mission of providing liquidity and risk [and] capital management tools to rural America. Our capital surplus stands at $100 million compared to $67 million on March 31st, 2009 and $13 million at December 31st, 2008. GAAP earnings were $25.4 million compared to $33.5 million in the first quarter and losses in both the third and fourth quarters of 2008. In addition, our portfolio of loans, guarantees, and commitments grew to $10.4 billion during the quarter. These improvements reflect our continuing effort to stabilize the company.

As of June 30th, Farmer Mac's core capital totaled $296.1 million, compared to $250.3 million as of March 31st, 2009 and $207 million as of December 31st, 2008. Farmer Mac's core capital as of June 30th, 2009 exceeded the statutory minimum capital requirement by $100 million. With lenders in both the agriculture and rural utility sector continuing to face capital market and economic challenges, Farmer Mac represents an important source of liquidity and risk in capital management to help lenders meet the increasing needs of borrowing needs of their customers, and our capital position remains an important factor in our ability to support those efforts.

Farmer Mac reports financial results on a GAAP basis and also reports core earnings. The company uses core earnings to measure corporate economic performance, develop financial plans, because in management's view core earnings more accurately represent Farmer Mac's economic performance, transaction economics, and the business trends before the effects on earnings of changes in the fair values of financial derivatives and trading assets and FAS 159. Farmer Mac's disclosure of core earnings, a non-GAAP measure, is not intended to replace GAAP information, but rather to supplement it.

Farmer Mac's core earnings of $4.7 million or $0.46 per diluted share for the second quarter 2009 compared to core earnings of $7.1 million or $0.70 per diluted share for second quarter 2008. For the first half of 2009, core earnings were $9.5 million or $0.94 per diluted share, compared to $17.6 million or $1.76 per diluted share for the first half of 2008.

For the second quarter 2009, GAAP net income available to common stockholders was $25.4 million or $2.49 per diluted share, compared to net income of $21.4 million or $2.13 per diluted share for second quarter 2008. For the first half of 2009, net income available to common stockholders was $58.9 million or $5.80 per diluted share, compared to $13.2 million or $1.31 per diluted share for the same period in 2008. The GAAP net income in the second quarter of 2009 was primarily driven by gains on the values of financial derivative and recoveries of previously recorded losses related to our ethanol portfolio.

Net interest income of $19.9 million for the second quarter in 2009 compared to $24.4 million for the second quarter of 2008. For the six months ended June 30th, 2009, net interest income was $43.3 million compared to $42.3 million for the corresponding period last year.

Farmer Mac's effective net interest spread was 82 basis points or $9.9 million for the second quarter 2009, compared to 101 basis points or $14.8 million for the second quarter 2008. Although Farmer Mac's short-term borrowing costs continue at historically low levels, the decline in the spread during the second quarter of 2009 represents a return to more normal spreads compared to the abnormally high spreads we've experienced over the last year. As of June 30th, 2009, Farmer Mac's effective duration gap was plus 1.3 months. That compares with minus 0.7 months as of March 31st, 2009.

The corporation's outstanding portfolio of loan guarantees and commitments grew to $10.4 billion during the quarter, and with the exception of ethanol, loans continues to perform well. Guarantees and commitment fees which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac's guaranteed securities and the stand-by commitments, were $7.9 million for the second quarter of 2009 compared to $6.7 million for the second quarter 2008. For the first half of 2009, guarantee and commitment fees were $15.3 million, compared to $13.3 million for the first half of 2008.

Delinquencies on nonethanol loans decreased slightly from the first quarter and remain below Farmer Mac's long-term average, consistent with the strength of the US ag economy. Excluding the ethanol loans, 90 day delinquent fees were $23.5 million or 0.53% of the portfolio as of June 30th, compared to $27.7 million or 0.61% of the portfolio as of March 31st, 2009. Including ethanol loans, Farmer Mac's 90 day delinquencies as of June 30th, 2009 were $42.3 million or 0.95% of the portfolio, compared to $86.2 million or 1.9% of the portfolio as of March 31st, 2009. The significant decrease from first quarter was because four of Farmer Mac's ethanol loans were transferred to real estate owned during the second quarter. Farmer Mac acquired interest in those plants as a result of the bankruptcy of the borrowers, and should be noted that three of the plants became the subject to sale agreements during the third quarter 2009 and the lending groups that Farmer Mac participates in have agreed to provide a significant portion of the financing to the purchasers.

The ethanol industry has suffered due to the volatility of commodity prices. While pressure on the industry has moderated somewhat in recent months with the cost of corn declining and the price of ethanol increasing, both input costs and ethanol prices remain volatile. We believe that the industry still faces challenges for the foreseeable future. We do continue to monitor that portfolio and in fact all segments of our portfolio closely. As we look ahead, we continue to believe that [off] standing credit losses will remain within Farmer Mac's historical levels.

As evidenced by these results, Farmer Mac continues to make progress. Our focus has been on evaluating our business model, removing risk from our balance sheet, and strengthening our capital position. Challenges remain. While ethanol has improved somewhat, the dairy industry is facing difficult times. Core earnings have been volatile during the past four quarters as we've made adjustments to our balance sheet to remove risk and as a result of losses and recovers related to our ethanol portfolio. While we believe these challenges can be managed within the day-to-day operations of Farmer Mac, those impacts will be felt for a few more quarters as we complete our adjustments. We remain committed, however, to working through these issues and we believe those efforts are beginning to show benefit. As mentioned before, lenders in both the agricultural and rural utility sectors continue to face both capital market and economic challenges. These will provide opportunities for new products and for growth for Farmer Mac. We look forward to working with our customers, our partners, and investors to fulfill our mission of bringing liquidity and the benefits of the secondary market to rural America.

More complete information on Farmer Mac's performance for the quarter ended June 30th, 2009 is set forth in the Form 10-Q we filed with the SEC yesterday. With that, we will now open the call for questions.

(Operator Instructions). Our first question comes from George [Magher], who is a private investor. Please proceed with your question.

Good morning. My name is George Magher. Simple question. Have you started to repay the banks that stepped forward in the latter part of last year to help Farmer Mac through that incredibly difficult time?

Are you speaking specifically about the dividends and the preferred?

No. I'm talking about -- I believe the group of small banks that came together and put up quite a small banks that came together and put up quite a bit of money to keep Farmer Mac going. Would they be repaid or is it a basic stock transaction?

At this point in time, they have not been repaid. We continue to pay dividends on that preferred stock as allowed for as part of the transaction, but we've not paid back the principal as of yet.

(Operator Instructions). We do have a follow-up question coming from George Magher. Please proceed with your question.

Your management team has really done a fantastic job. I mean really a fantastic job. In your outlook, do you -- is it possible to consider your ability to continue to do as well as you've done in the last seven to eight months?

Well, first of all, thank you for your kind words. We have made a number of changes, a number of adjustments to position the company for the future. And as I said, we have -- well, we have more work to do. We're beginning -- the benefits of those efforts are beginning to show. But we believe there are opportunities -- significant opportunities for the company going forward.

Thank you.

There are no further questions at this time. I would now like to turn the floor back over to management for concluding comments.

Well, again, we very much appreciate your willingness to be on this call. We appreciate the opportunity to share the information with you. And with that, we will be finished. Have a nice day and thank you again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.