Federal Agricultural Mortgage (AGM) 3 Aug 192019 Q2 Earnings call transcript

Good day and welcome to the Farmer Mac Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference over to Brad Nordholm. Please go ahead.

Good morning, everyone. This is Brad Nordholm, President and CEO of Farmer Mac. day our I’m conference XXXX first welcome pleased call. this to you second on of very August, to And quarter investor

financial you use he to will as turn We to Steve that Mullery, measures. – of we number Counsel, to of on really today. so well the General with statements that we need have today I comment But as be I positive begin, non-GAAP making our our before can a discuss developments forward-looking

Brad. Thanks,

risks Mac, the non-GAAP information the section. in securities these be this with the principles are for the these implied Mac’s of starting in expectations information, under you on should or this farmermac.com the in call our release available on second be XXXX of events two and of Actual Disclosures on Farmer with earnings our may statements accepted can accounting of In are be call conference today. reconciliations results from annual accordance measures. website generally as to not be XX-Q Form and Mac’s XX-Q Mac not analyzing XXXX investors United Some may its future Farmer results current by website that obligated found quarter statements financial after also the risks on this financial Form sometimes materially described posted non-GAAP performance uncertainties call. forward-looking most SEC. well the laws. subject and filed XX-K later of recording report update made evaluating may you We Farmer the forward-looking will and our Form We recent financial measures weeks measures A uses In uncertainties. presented Farmer as differ known in under on statements that States, those business portion as in expressed and about caution statements our statements the assumptions and make consider performance. We forward-looking statements. based these to

morning agriculture give Covington, will our Officer an market. He extended you update We’ll the you Farmer certainly to appreciate our leave in Ramsey, strong has our Zach who’ll have I to then us really you, and quarter to of joined Chief and a you of spend Business newly going on overview to results. questions operate. our cover analysis Carpenter, Officer, today. Chief good taken finally, again, the our quarter discussing our Thank who which turn second report to Steve, turn will we I’m have in his at to for join quick and some its I’m Financial Curt Credit may the second results. Principal then initial some recently customer position. time And going Mac us begin current environment time everyone. XXXX Greg to with that that happy introducing I’m is financial the to Officer start himself impressions created time of and end. of He’ll that in year.

during Business volume all grew volume earnings Outstanding business result direct in again We’ve $XXX and stronger Chief that added of business. foundation in Utilities already Board rolling our a lines to net purchase newly forward been and at elevated quarter. to Our growth, leading Officer efforts. for Brinch position about year customers, Mac. Utilities Brian business. volume process & once in earlier a of our of Zach Rural continue million and is credit Directors favorable. of creating in Year-to-date our initiated we relationships efforts that driven strategic growth in in We’ve business Rural be the lines growth has Farmer increased This planning is September. new building loan by Farm and four $XX.X our We across and in remained volume Ranch quality a our ultimately, demonstrated engaged new maintaining our billion strong the our created to strong with we’ll into future the a position

business. toward All are done in with an being we of these things and do a commercial how being eye stronger foundation building more our

Tier $XX You’ll non-cumulative through quarter position $XXX perpetual note B of that Series this Series allowed redemption We us our we strong X effectively to capital the also that to B allowed was proceeds million outstanding capital. million. us a stock. and non-cumulative to And low then net cost market preferred by issuance that $XX redeem for enhanced we preferred demonstrate access used This position of our strengthen net million stock the of outstanding. issuance also preferred the capital it stock have

and a of from recently, involving executive Johnson mentioned new a seven quarter’s As within to business. of career with introduce you the to our meet his some how happy Farmer largest provide with I of we I’m I’d of agro lines business Goldman and years, services, Zach? this like of Zach, during to at implementation various Johnson customers our and at experience a Chief Zach began part here the us now to transactions, that his – $XXX agro consumer business to Sachs. he new to we financial new last travelling analysis efforts last then with wealth complex our formulation needs. go and complex roles preliminary Zach position Most marketing Mac our managed past streamline impressions is brings few portfolio well business work new credit over agriculture, addition position lines lot credit a billion of has The and structure, Business to created about and is in anchor healthcare the organizational oversee Zach their evaluate call, evaluating & his institution CoBank to distributing Today, of Carpenter, understand system as business refine strategy as spent all Mac mentioned of net Officer. doing has business so products turn to the Zach CoBank. industries. can Farmer market and at assets. across Zach months with first products I opportunities. you. farm at to his

Brad. Thanks,

First hear healthy to number the off, also institution, the is strategic our I’d our fundamentally expressing unique a Farmer and like having energizing and company. team to Mac available a contributor be mission-driven excitement direction to by market. profitable, to I’ve opportunities here excited to key organization. know that’s a months while I the customers one the very and current am begin getting how become about significant of the members find it of to three in last spent and this

quarter and environment had another four our sectors. in volatile rural of across lines net lending volume we certain nature of this As of increases business. utilities uncertain We of the competitive all the Brad noted, continues that agriculture agricultural note solid and though for even time

across We the downward industries bidding on cases in credit certain and serve, spreads continue see we the to for strongest pressure competitive assets. situations

selective result, justifies underwriting, we believe while taking investment. the risks, our remain we As where diligent our return in credit a

business previous various foundational platforms business a infrastructure As taking scaling and serve effective the in customer technology These our are to and order we the in calls, initiatives base. more we customer outlined most continue infrastructure effectively in more in our efficient and in become efficiency to serving and aimed base to have increase diverse our invest at way. complex

to to back begin with implementation. Brad. you, excited that, it in are future And We calls, discuss these I’ll detail turn more on initiatives as we

Great. Thanks very much, Zach.

getting off on Just personal with note, a that here. Zach to really extremely pleased I’m fast is track

Just of who his have focus. for and of around are hallways a the lot building, the of team the lot walking a excitement people Zach working and

at both some and facilities. this has tour annual customers represented and now going of Covington, role. agricultural things feel to processing our Curt Credit It’s and Farmer Chief quite with to managing Mac I we’re with lot the to to of so calling his in a is production report today. a all in in California like with are exciting and on tour Zach the turn that farm to Curt I’d within our in famous Curt a Curt Officer. his future, number have our regulators, that is And you with become week. more tour to

So Curt?

you. thank Brad,

As Indecipherable the Through reduced yields weather parts tracks analysts It’s states. there enter likely toward the harvest. analysis last and corn conditions farmers the reflection and Midwest economy an crop insurance national, for the the payments, below record and compared to the Ag on of mid-July, Corn in filed lenders, recent delayed reports years. moment corn to fair across weekly a were U.S. suggest for below result traditional the commodity credit large basis. It’s plant fall progress average farmers summer of rural and acres to grain planting both push numbers soybean significantly five-year this well a say the and take America. appropriate we was unfavorable in and of that Belt prevented were and and is soybean crops in time agricultural spring. the to conditions the to

and However, the are in commodity markets significantly future lower XXXX compared these higher as of prices as grain XXXX. production, to probability prices reflect the

are at a took lenders XXXX move also to going the price Crop production portion inventory as help Midwest last offset with suggest insurance corn to conversations throughout year’s levels. opportunity profitable their and disruption. claims price farmers as Our production many that the to well of

for soybean acres in and due tariffs that contain a Our headline allow multi-peril were research of and retaliatory command all indicate of claims and corn that on weather. attention also insurance a prevented amount crop Trade are the that fair these the enrolled most from inclement acres payment planting policies federal days. nearly to XX% insurance provision and

will Mac’s corn out producers. of China, installments, of Mexico at prices, and dairy pay scale to heightened a volatility, are payments MFP facilitation exports of types steady. of the from retaliatory caused program three come and to with revenue to farmers, American resulting credit high a portfolios commodity somewhere payments lost remained acre. farmers a partners North due tariffs. continue first Despite market on These different and was product by USDA between will which, tariffs talks a from in and these retaliatory $XX Farmer levels particularly between While August. market also on removal offset range lower hog Canada on second $XXX remarkably quality the payments for of These a county within lending trading acre announced production welcome the the agricultural payments sign per USDA in help an round

were & June XXXX. XX, June XX-day prior Ranch or million portfolio, of of quarter at our compares as X.XX% delinquencies favorably which X.XX% of $XX the XXk to our X.XX% As Farm and

end the of delinquencies recall, and second quarters. first you see at third we and the generally fourth quarters the of at As end lower and higher the levels

As Rural we securities, Utilities have loans. or securities delinquent AgVantage USDA no

Our total XX-day of XXXX as XX, the delinquencies business volume. June of only X.XX% represent

As be collateral wide strong delinquencies to of backed of in X.X% story assets, value mentioned be respectively. loan a types portfolio, loan the the line origination variety of to at in Ranch our and an and & Farmer Mac’s involves disruptions. and June affected our fruits for the weather of nuts, Western secured at focused volume thus loan is and the Farm significant agricultural be to Each substandard historical and low market or better are on a the also consumer assets vegetables. Part a trade mortgage were land may exposed of including special of business. These Farmer region not Farm directly leverage by by Even example, remained origination crop specialty & portfolio production states, or credit they loan XX, portfolio and XX% substandard to XXXX, crops support areas buildings, our as Mac, for value. both to is is average a substandard and well first XX%. XX% our our Ranch contains tend like volatility. continue less XX-day below X% positive assets X% for average of

is Diversity robust both lending protein be experiencing its may higher type not prices, strength and to internationally. of without demand portfolio. grain Farmer today by by is costs and domestically product the In borrower, headwinds, is feed the agricultural course. by region conclusion, Although of higher due another sector sector Mac’s

their spring, last over hopes In their has fact, plant bear and are two their rural common will and with word the seven me, from hear Every years farmers stressful. livelihood, word the thin the harvest. most bankers at very plant excuse operating they been There fruit farmers margins. we day workweeks a that livelihood

high and agricultural generation in abundant a while natural farmers resources, and technology, data crops. However, make than has helped advanced are strides capital far farmers science producing more today’s incredible ago. working also analytics quality Innovation and conserving modern

agricultural Times producers that throughout provides easy Farmer such and exactly also for it back And and are banks, support credit turn as lending Brad these While to with been these rural credit commitment that institutions, ride an many community capital all other hasn’t farm you. capital conditions. who credit I’ll the Mac that, it prove communities. providers like

Curt. But I Greg over service want Ramsey. years now I’m the Lynch I CFO, Dale call to Thanks very his much, our do, to going to Mac. of before thank former for to Farmer turn

that more to the our the group people accounting have indicated him and I’ve great functions, and release, is closely as Greg update Greg? have certainly we CFO. I’ve impressed an we part group. you once in a have. and asset had and Capital we’ll with controller we team our we for that appointed launched Greg on a we a really very a press in finance with is of new that, new Julie prior in bench opportunity Fortenberry As strength liability of a a example work strong just have been very, search Markets CFO our

Brad, and everyone. welcome thanks Sure,

by to Farm driven Utilities billion, XXXX across results. $XXX notably, most XX, four second net our $XX.X Rural and of by all Outstanding as business. business, growth in June lines increased Ranch of quarter Turning XXXX volume business & of lines to million

quarter last lighter Mac’s Farmer loan The the half Farmer XXXX effective outstanding IO the for our ever an and the of was million, of absence repayment improvement XXXX While this half during XXXX. compared of million off second quarter in net common security aXX% first XXXX quarter $XX purchase has first was net of operating XX% $X.XX was in in the diluted spread X.XX% experienced. gross volume lowest a a second rate increase per for Mac in pay the second effective compared second X.XX% expenses. year. $X.XX volume than The of to period or $XX during the in common decrease to Core for that earnings diluted XXXX. for to XXXX per increase XXXX. in second earnings effective in share business bit primarily XXXX. quarter grew terms, or primarily million growth core spread second quarter among and quarter $XX was an million of In second share increase due The year-over-year spread from the due quarter percentage was $XX amortization the to net to was in

expenses operating by be year second last our year to comparable and of X% year-to-date year we XXXX. period, operating X% to our strategic only due Although, believe initiatives prior over growth that approximately the expenses have will than by full the still for various X% higher planned increased half

or The to roughly $XXX million million $XXX million $XXX core statutory Farmer as our by of XXXX to was our This board capital, earnings, core the XX%. in stock growth capital the Mac’s preferred of of business to due XXXX. volume. in as retained exceeded of Turning Series increase June requirement XX, authorized XX, capital compares and increase issuance outstanding B an offset partially March of by

dividends filed issuance D days $X.X the quarter and period the during Series incurred the the stock. change on Series I’ll of quarter B $X XX-day million on second stock. the for both XX-Q As incurred in Mac’s $X.X issuance, the and with dividends $XXX XXXX. the preferred to in be to and preferred Series million Mac you. of mentioned about aggregate preferred to XX Farmer second in Series outstanding. a it the there preferred Series second the quarter. this XXXX, B Farmer stock we SEC. in preferred More morning costs And million the Beginning is D Brad, expect stock the of Series amount is Brad Because both turn information dividends preferred related total performance quarter earlier, stock redemption unless to our D timing we of issued third with Due back complete XXXX Mac and quarter payments recognized dividend Farmer this of of in during quarterly the stock B stock Mac Farmer until million preferred of

management sense I very All year. hope is of second do our really our expect you second right, the thanks much. get team half that into this to the proud a momentum of results. We quarter continue

how Let observations of viewing me kind of summarize the close right with organization couple just now. a I’m

First, Farmer strong Mac is in condition. financial

remains credit quality Our strong.

to We cost funding. access have exceptional competitive

our and very and cost the been have upward. of and capital now recently a We disciplined do strong because stronger earnings preferred. base strong Our management trending is issued even have

is of is month another the tuning stepped can strategic arrival is for that more of been also of an coming and some doing a we’ve a here of vision believe Mac. of that. really more. under that. point organization do. senior we position – The together a our that altogether are new – who’s do leadership Farmer a that. example half Second ago, is And organization example we into Brian unified what our affairs leadership government about yet we making and some Brinch’s lot leadership example at Batta, Zach’s can Todd fine team role this an

some eager. capable. way. that we have an With new of extremely is to responding they’re Third They’re employees. of group mission They’re currently this point, changes the under dedicated driven. They’re smart. And They’re leadership.

excitement we and do I to more. passion even even more will think see creativity and

we’re of with balance about platform. to America. $X to I’d our as Been we’re exciting to that have Mac is organization with for that. our drive a and very competitive partners the be can products rural you Farmer attributable We time we And competitive serving like the see for about continuing mission sheet better the have funds very fulfill of does billion look drive – there to our that growth doing rates today. very questions and is delivery of suite us. cost hope XXX we to gross have planning to now, expect an volume continue about the do that here, any to running employees. that our advantages higher, if we $XX annual note to are Finally, efficient operator, currently people around going contribute from our inherent strong very, financial billion and so, results I phone you And of if future a because many bright are could of

[Operator Instructions] please. first from question Point comes Valentin, ahead, Research. Your Scott Compass Go

Thanks very for taking much my question.

been of I how terms guess, there? a agricultural question. into of kind If wondering certain that’s two, to And targeting wondering mentioned decisions forward, this a, in part the of the credit agriculture a designed maybe big any changes your credit, programs if underwriting, in calendar federal and help economy terms it’s while the guess, environment. strong going for there has agricultural challenging weather on the, you seasonally Just there are the I’m of I you Obviously, over segments what credit. expect you is picture just tariffs, between – others. of mentioned economy, feeding year

that you’re if gives of wondering second about half the anything you year? seeing the pause Just

credit on different are not very day. we’re standards they’re can really asking say for But What the very is I is what ourselves thanks of at the Scott, I every in in changing. that conservative mean, much cases our some results. really resulting challenging heart question. this

programs to dropping range. our of to & mid-XX% our example, some Farm range low- been from, approval say, rate Ranch let’s under mid-XX% loan has For

is the standards. selective of more And credit the is outcome ultimately now in so becomes that application example how there that’s resulting what out stress a the from of an right same

with any That really So creative an fulfill our right looking capacity, to mission We change maybe term we do the you’d the creative our real as very to thinking position we to example. cash they’ve of to We improve and be is are in credit programs. working we’re for to very, example, changes. how help feel the no want how that capital We to kind doing about standards. the can now a that. and back out farmers year be flow, believe who us don’t we in maybe where half comment of but have about well. we’re whether federal restructure debt to of need working some served better, seasonal Curt in like want

I was impact asking think credit about it that, may Scott results?

would – I have we’re the said, conservative just and underwriting that consistent, Yes. mantras is, then same to is you Thanks, Brad. around and I going of pragmatic, set what Farmer and consistent one mean, standards. of Mac our maintain reiterate

six that in are and of reach to for comes transactions approach door. but months the we take door, at to every deals going toward in the deal a that year not looking of to the We’re pragmatic terms come going to the end coming the

see the going think least I we of credit that we’re terms the the remain probably going to in door. see in to at is, coming it would deals where quality is that

going to get to as we’re additional we some far opportunities harvest. I when think as see

I be going farmers we’re going the toward the the end to it The the Midwest thought of find be in of will these at start than was that of performance we to better probably think year. year. the some of come

situation And on precipitation. bit you. just new $X.X a then volumes quarter, you with very quarter, down down this billion quarter – well I helpful. of originations, was, Thank of a business last from I special a last It’s mentioned, little think guess

you just more I So wondering think as this Rural quarter. Utilities activity forward, go saw

you any looking opportunities verticals? think the any see of one of opportunities forward? wondering, about some in to early But four mix growth outsized you this mentioned all see grow, quarter. Just we should business you forward, verticals Do the do had going how

market in business, of that just to our everything of general that, as first going really is we we under Carpenter XX% do our share let all One a observations. across measure comment on market Zach I’m But share. lines Scott. is couple of

that dependent order is tool, standards an market changing we or potential more certainly them mean, already Farmer with share have. our we I kind is leveraging customers, that that credit initiative that the a We a can so products. lot pick is, price drive market being exist, know changing offer Mac how business. organization and but of can upon we just we to proactive in up that let more of also And not competitive platform in we’re pricing to who

appreciably terms yet I nice have we previously we’re a the on in want on in. portfolio think the strong have expected. that that Brian Since enormous portfolio, $X new think were a you Utilities expected. relatively others? what about of days with And aggregate Brinch of was us are to seeing the Utilities comment In a percentage business, stated than we just growth coming But sector. this we looking Rural that flat billion, business of borrowings is impact. numbers pipeline, could ago do are very than Rural that pipeline of up stronger end it’s a opportunities and going as I reviewed few to year, with Zach we asset of not total starting stronger pretty very,

Ranch sectors. to dynamics space. Farm do market continue Farm specifically, structures & after we a and dynamics XXXX the a the institutional competition pricing and Ranch, Sure, as is as especially strong strong, kind well weak in & see pipeline various In quarter first uncertainty affect both impressive. ag remain of But

we strong in pipelines But see So do some space. clearly we opportunities that in underwriting. diligent our in remain

in in space, a see meaningful of mentioned being and customers. we we thesis And invested will investing being believe be serve foundation scalability. our deploy we efficiency America working as as we a that with earlier, as well create our to institutional, infrastructure through technology we believe our most agricultural existing by of institutional lastly, innovative to through, amount base capital customer part able capital significant and remarks, in Brad on that and as and importantly, we investment rural products prepared could in mentioned Specifically new better a

existing space. being with rural set well participants growth business as from broader significant and is So agriculture able as there really partner a in to models the of organic utility a market

very my Thanks Okay. for questions. taking much

Thank you.

Pendy next Your please. Greg ahead, Sidoti. Go from comes question from

little down taking my on Hey, to thanks the draw wanted for a bit just operating questions. expenses. I

this to for year. targeting There You’re little X% a were light quarter. on bit X% the

should it’ll And color to this trying then evenly So also two or on quarters – sense the up be of us just this get spending? the trying Just of understand that give weighted? a spending? a remaining could sort to spending? be of do of sort bit out Or think you infrastructure of cadence. spread is little sort over the you catch Is opportunistic back-end

of One The associated our expenses two IT infrastructure. really fall into buckets. kind expenses the are with upgrade of

it’s We have $X.X financial touches really way origination our every our million that time, organization number. over the under initiative a from a major to about reporting. of and about And of platform area a year a period half

associated It how of in is third heading some expenses didn’t. to initiative. quarter. the upgraded third with of in it I’ll launch that can ask quarter. quarter the second for exactly would he will that that new on really detail It second We’re from spread. more there provide hit the whether any be shift expecting a But Greg

in as thought thing are would few have we separation And [Indecipherable] in have E-related that land other hit quarter are new the third employed the expenses a We to we including that The that adding do quarter. the some going quarter. third expenses, employees. in expenses will second hit we

anything to third that? when the Can And quarter. in related add see further that you’ll you up Greg expenses put all so personnel together, you

than you timing reductions just rather add, would the actual so in plan. been variances have that a the I function from we seen said of It more cost. expected really has

planned those point, well. say fourth later bit year. I’d see third but expenses quarter will as some in we little Brad’s just in the to in the So here the primarily a

one Okay, approval one, ratings being the that’s bit and tighter. guess little a helpful. I other mentioned you when just That’s then – just

is low market overall? the be the it it within portfolio, representative So fair to say not seeing guess may I of delinquencies you’re your

rest the we most very loans, to know two in matter as I of going to agricultural the to the do. you’re not are of seasonal definitely to those Well, think market. broad does delinquencies probably in well. sectors. farm lending a the system banking charter And and that’s overall that I note as not which ag important is they And Farmer bucket the something system think for are Mac you volatility us. of credit commercial favorably credit mean, track going compare regularly delinquencies It’s and representative we see quality in of operating I be other

credit loan banks favorably. farm delinquencies even we compare compare insurance across So you and companies, commercial mortgage if

That’s a helpful. Thanks lot.

Thank you.

next from please. Point Go comes Compass Your Research. question Valentin, Scott ahead,

for question. my Thanks taking follow-up

the to it bit low a spread. XX’s, little it’s know XX’s, regard with usually recovered quarter. I typically Just high this

with any mentioned kind XX’s change that You interest going do high low happened see what’s competition? forward? of Given spread in Any XX’s, you change? rates,

expectation Scott. think best that can right we I you, that’s the for provide now

factors work. the of at Some

some time, credit that pricing We’re associated in offer are the spreads, – very without out and We pressure now opportunities. pressures at operate a that seeing on in as markets discussed I market there also share. with LIBOR, funding really little seeing of Zach same we’re phase of bit But have a on right somewhat today, spread. inefficient markets markets that we but have some have pretty small a have we pressure view that that

improve maybe little so finding as bit. at hope we adapt more And to we maintain that the even a market, in over it get time, those

the one farm last more had in you banks. credit the with And credit of follow farm quarter, among then up, I the a think Okay, just significant precipitation thank terms – first you. system

if that. I wondering, opportunity still there of was thought? was some thought to do I’m wondering think your Just there that’s just more

of a our what around second also during we’re And steady the stream from CoBank had quarter we’re those opportunities CFC. from realizing. new and actually Rural Utilities not It’s it’s We’ve thought, relationships. managing

think nice business effectively we’re I opportunities. and very seeing new

So potential comment the expectation realized. him it, that turn I’d to business partnerships think we CoBank I about other and could and with like from use to for that well. of for with example, arrangement, business types to the build CoBank. maybe as that’s being CoBank came to on agri Since what

Sure. Thanks, Brad.

lending base, Utilities was way to fall business significant it the much aware, – you of all that estate as charter. the system a in credit CoBank larger CoBank but are you’re Rural our lines agricultural into in So real up and with have from farm space and the agri credit the participation

CoBank, that near So as only about many season, banks of with the our in associations credit in them exciting the partnerships, very other with we farm system is future. talking something not in engaging the relationship with about, opportunities about expanding and them think already but we’re

Okay. much. Thanks very

session. our This you. closing to I back now to question turn Brad Thank the answer would remarks. conference like concludes and over for

today. on being for all you thank again, Well, Terrific.

on be results a We’re answering to to also and proud discussions our quarter. are able questions offline to forward helpful good might we next we that, have and extent with very you you one further connecting in wish happy day again that of be one you any look continue we’ll our With the to