Federal Agricultural Mortgage Corp (AGM) 2009 Q4 法說會逐字稿

Good morning and welcome to the Federal Agricultural Mortgage Corporation conference call. All participants will be in listen only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Michael Gerber. Mr. Gerber.

Thank you, Amy, and good morning, everyone. I am Mike Gerber, the President and CEO of Farmer Mac. And the Farmer Mac management team and I are pleased to welcome you to Farmer Mac's fourth quarter and calendar year-end 2009 investor conference call. Before starting, I will ask Jerry Oslick, our Corporate General Counsel, to comment on forward-looking statements that may be made today.

Thanks Mike. 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 annual report on Form 10-K for 2009. A Form 8-K containing the press release and the Form 10-K were filed yesterday with the SEC. 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.

Thank you, Jerry. We are pleased with the results for 2009 and the continued progress Farmer Mac has made. Our focus during 2009 was to improve the risk bearing capacity of the Corporation, strengthen the balance sheet and position the Company for the future. The results reflect those efforts. Fourth quarter core earnings represent the highest level in 2009. Our capital surplus grew to $120 million as of December 31st 2009, up from $13 million the previous year. Farmer Mac added $639 million to its portfolio of loans, guarantees and commitments during the year, which increased the aggregate outstanding principal amount to $10.7 billion as of December 31, and that is up from $10.1 billion as of December 31st, 2008. In addition, nonperforming assets declined 22.5% during 2009 from $80 million to $62 million as of December 31st. And with lenders in both the ag and the rural utility sectors continuing to experience the need for capital and liquidity, and to reduce credit risk, Farmer Mac represents an important potential solution for their challenges and a means to ensure that rural customers' borrowing needs are met.

Let's look a little more closely at the financial results. For fourth quarter 2009 GAAP net income available to common stockholders was $5.5 million or $0.53 per diluted share. That compares to a net loss of $61.1 million or $6.03 per diluted share for the fourth quarter of 2008. For the year ended December 31st, 2009, net income available to common stockholders was $82.3 million or $8.04 per diluted share compared to a loss of $154.1 million or $15.40 per diluted share for the same period in 2008. In addition to GAAP earnings, Farmer Mac uses core earnings, a non-GAAP disclosure, 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 the business trends before the effects on earnings of changes in fair values of financial derivatives and trading assets. Our disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.

Farmer Mac's core earnings for fourth quarter 2009 were $5.4 million or $0.52 per diluted share, and that compares to a loss of $8.8 million or $0.86 for fourth quarter 2008. Calendar year 2009 core earnings were $16.1 million or $1.58 per diluted share. This compares favorably to a loss of $81.5 million or $8.15 per diluted share for 2008. The 2009 earnings were driven by increased guarantee and commitment fees and lower provisions for losses. Fourth quarter 2009 provisions for losses were $2.2 million, down from $17.2 million in the fourth quarter of 2008. And for the year ended December 31st, 2009, the provisions for losses totaled $5.2 million, down from $17.8 million for all of 2008. Our outstanding portfolio of loans, guarantees and commitments grew in 2009 to $10.7 billion. Guarantee and commitment fees also increased to $8.3 million for the fourth quarter of 2009, and that's up from $7.8 million in the same period in 2008. And for the calendar year guarantee and commitment fees increased to $31.8 million. That compares to $28.4 million for 2008 calendar year.

Net interest income was $22.8 million for fourth quarter 2009 compared to $25.1 million for the same period in 2008. And for the year net interest income totaled $85.9 million compared to $88.7 million for the corresponding period in the prior year. Net interest spread was 97 basis points for the year ended December 31st, 2009 compared to 106 for that same period in 2008. With the disruptions in the financial markets during late 2008 and early '09, net interest spreads widened dramatically. That reduced Farmer Mac's short term cost of funds and in recent quarters that net interest spread has returned to more historical norms.

On terms of credit quality, Farmer Mac's nonperforming assets declined to $62 million which is 1.4% of the portfolio as of December 31st. That's down from $84.8 million or 1.9% of the portfolio as of September 30th of '09, and down from $80 million or 1.6% as of December 31st, '08. 90 day delinquencies were $49.5 million. That represents 1.13% of the portfolio, which is a decrease from 1.36% as of September 30th, '09 and 1.35% as of 12/31/08. The lower levels of nonperforming assets and delinquencies as of year-end 2009 reflect, in part, the sale of four ethanol plants that had previously been classified as real estate owned. Remaining change as a result of improvements in the profitability in the ethanol industry which were somewhat offset by more challenging conditions in the protein and dairy sectors. We do believe and expect that delinquencies will remain within Farmer Mac's historical experience, but are likely to remain elevated throughout 2010.

As you can see, Farmer Mac's made progress in repositioning the Company. We are pleased that these changes are beginning to be reflected in our results. In addition to the 2009 results, as we had previously reported, Farmer Mac, through a new wholly owned subsidiary, issued $250 million of perpetual preferred stock. $150 million of that new capital was used to retire the Series B preferred stock which was much more costly to Farmer Mac. The additional $100 million positions Farmer Mac with a stronger balance sheet and a foundation for mission focus. Lenders in both agricultural and the rural utility sectors continue to face both capital and liquidity challenges. These results, combined with the added capital in January, allows Farmer Mac to provide that needed capital and liquidity in rural America. And we look forward to working with our customers, our partners, our investors to fulfill that mission and to take advantage of the opportunities that we believe are ahead of us.

For more complete information on Farmer Mac's performance for the year ended December 31st of '09, that information is set forth in the Form 10-K we filed yesterday with the SEC.

With that, again thank you for being on the call. We will now open the call to questions.

(Operator Instructions). Our first question comes from Bose George at KBW.

Good morning and congratulations on the accomplishments of the year. I had a question on GSE reform. I wanted to see your thoughts on whether GSE reform will impact your Company in any way or does your oversight by the ag committee effectively keep you removed from the debate that's going on over there?

Thank you for your comments. And in terms of the question, I think today it's too early for us to know exactly how that dialogue will go. Certainly the ag committee has jurisdiction over us and has said that they believe Farmer Mac is an important part of their jurisdiction and the rural America financing industry. Beyond that, we will have to see how the dialogue goes.

The next question comes from [Norman Selborg], a private investor.

I'm very pleased with the performance and results we have seen over the last four quarters. A year ago you decreased the dividend from $0.10 down to $0.05. I'm just wondering if you have considered reestablishing it to $0.10?

The answer is the board continues to look at all of its options as it relates to the Company, one of those is the dividends. We reduced those as a result of capital issues that we were dealing with. And we will continue to look now at balancing the capital needs for the Company for long-term growth and giving a return to investors.

(Operator Instructions). Our next question comes from Winesfried Mundy, Global Investor Partners.

First, congratulations for the results. And my question will be if you have any capital increases planned or any further measures regarding strengthening the balance sheet.

Thank you for your comments. We do continue to look at all those options today. I think as we look at where we are, we are well positioned to be able to fulfill our mission and to do the things at rural America. But as we look forward, we will over time need to continue to watch closely our balance sheet and our position, our financial position, so that we don't get leveraged beyond what we can handle. In addition, I would say our hope is that as we go along here, is that we can continue to grow capital through our earnings, as well.

(Operator Instructions). We have a question from Stewart Doan at Agri-Pulse. Mr. Doan, please go ahead with your question.

Can you hear me?

Now we can, sir, please go ahead.

Thank you very much and good morning. Based on your financials and those of the people who are borrowing money from you, what are your conclusions about the health of the agricultural sector in this country now? Has the worst passed for agriculture? And with regard to ethanol, since you make several loans in that area, would an increase in the blend rate change the financial picture enough for that industry to shake off any lingering losses such as those that you have indicated in your press release today?

Thank you for your question. I think in terms of the agricultural industry, what we see and is not that uncommon, is that sectors of the ag industry are doing reasonably well and are healthy. Other sectors struggle and are in down cycles. It's one of the advantages of having a fairly broad cross section of assets in our portfolio.

Today, in particular, ethanol went through its cycle in 2008 and early 2009 we have seen prices improve. I think as we look at that industry it continues to be prices and profitability, they continue to be affected by lots of different factors, one of which is the blend rate. The other, obviously, is the price of corn and demand for gasoline and so on and so forth. So we see there an improvement. It appears that over the short term that industry will continue to be stable and longer term, I'm sure, like every industry, it will have its turn again dealing with the downturn.

Overall, though, I think as we look at our agriculture portfolio, we see overall a fairly stable portfolio, fairly stable industry. There will be some more challenges, we believe, in the protein sector, although it's improved some. And dairy, although it's improved some. Some of that will still have to work its way through our portfolio. But overall, we are confident that all of those things can be managed within the day to day business at Farmer Mac.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gerber for any closing remarks.

Thank you. And again, we appreciate your interest in Farmer Mac, we appreciate the opportunity to share with you and to talk to you about the things that we have been doing and the focus that the Company has. And we look forward to the first quarter call and in doing that again. Again, thank you for being on and thank you for your interest in Farmer Mac. And have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.