Federal Agricultural Mortgage (AGM) 26 Feb 202019 Q4 Earnings call transcript

Good day and welcome to the Farmer Mac Fourth Quarter 2019 Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brad Nordholm, CEO. Please go ahead.

good and operator, you, afternoon everyone. Thank Nordholm to our Brad conference and year I’m you welcome call. to pleased XXXX investor very end I’m fourth and quarter

before developments a well Mullery Steve as today of statements Counsel some use discuss of that have on General I non-GAAP positive Farmer comment the We today. to Mac’s number our But financial as of I to ask management began, need make to measures. forward-looking may

Thanks Brad.

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

Carpenter provide level Thanks us. good of the high going XXXX a our much Steve and turn who going for everyone. I’m our afternoon joining you Zack to on overview and our give to developments Thanks Business an who Economist, over current call Jackson Chief then market Then very to related will discuss Today I’m to will agricultural to update customer results. conditions. Chief credit Officer environment and

day turn who joined observations I’ll us Chief to Finally some She’ll of January year. financial Farmer fronts. introducing a initial share time call all Aparna, in Officer Mac the Farmer our markets lousy Financial results. in this year our I’m to her happy herself, today. the early spend about it’s an Well in pretty Mac on But and XXXX that review had excellent report

earnings a Our billion record current to outstanding business of grew billion a while to XX% during $XX.X XXXX $XX.X million. record from year volume the $X.X increased

Our strong closely half attributable development largely can that business we plans on back growth and financial efforts to be of our aligning performance strategic with XXXX the XXXX. worked multi-year throughout in our

and approximately our in press target increase a in our $X.XX $X.XX as percentage reflects our share. common dividend per earnings saw to quarterly This release earlier decision we afternoon, of our per our announced core you this If payout dividend And maintain growth fund with identified Along for stock annual common strong share payout to consistency deciding capital significant at board’s XX%. of the position outlook Mac’s earnings. capital target for the to size our of sheet and and dividend the board considered our maintain common strategic objectives plan. increase in to comprehensively our the Farmer and balance stock need our

Mac’s the upon through with investments mission Better regulatory shareholders meeting our ratio execute capital of common established dividend our board. actions our Farmer consistent of institutions. dividend [indiscernible] of approximately our of about those thinking all This of a we’re payment in by are aligned sure These a providing capital financial a with make to want to cash our and core other of also requirements We return payout that metrics financial earnings. and goal competitive America. rural

retained and innovation lead our long-term year developed last over significant emphasize Carpenter strategic how goal in the Zack Our how our Business objectives Vice towards we taken plan well of acquire Senior the President as efficient have customers and Infrastructure becoming strong progress Brinch, customers. more Brian relationships and Chief maintaining have of Officer and with in organization made efforts products. in and building a our these new as we Rural our

need to bottom Our is. line. increased to plan are Not strategic emphasis value financing and our only customer model, ultimately our volume absolute believe Farm provide our By but our well positioned to to expand ability growth executing with volume greatest rural are to and on business our do. where business and it’s and to Rural market & foundational core profitable share expand they’re the America on Utility we Ranch what an we also business

our with We of Farmer talented Farmer With our to LaJuana employee base committed to and unified the Board our enabling new organization’s the support Mac Mac’s plan us board strategic are to believe commitment next Chair, take and the Wilcher. in level. conjunction

on Zack developments. give to market turn to like you and update to customer I’d Now an

Thanks Brad.

with amount a the million. a Utility This Rural position XXXX only CoBank, mature to financial provide our to and year that to due as a the relationship solution seasoned primarily be mentioned credit a largest of enhancing the foundation our rural not we of volume financing our In markets. outstanding we a achieve focused farm Utilities the of deliver line system so XXXX broader agriculture was our from portfolio represented market. significant ability Brad competitive capital and an strategic CoBank purchase As in in elevated enhanced allowance to Rural double and business but better in business $XXX purchase is participation to a also compared of institution XXXX on in to vision nearly credit

Ranch from job purchases driven purchases million following loan did player our business XX% the In & and of Our Guarantees net $XXX $XX meaningful infrastructure Corporation purchases to XXXX. be from Rural transaction. of Ranch Farm where core record of Utilities foundation Cooperative million increased $XXX a in line in approximately approximately we foundational Farm seen in and growth it’s have flow or USDA a of on XXXX. in volume become XX% of the partners of year additional in business, the this XXXX loan volume our increase our net initial & line loan outstanding enhancing million CoBank by by of Utilities On National Rural key on top Financial our purchases can which market team an

and lines of the satisfaction, to driven an that is the quarter second fourth our remain agriculture has the penetration retention we responsive and success in dynamic more existing resulted risk and in customer business by our relationship strategy & appropriate and of to deploy ever new The a we initiatives, purchases economic can and half Ranch providing solutions. growth important on of With the these year numerous million pursuing As way mission it model attributed net XXXX XXXX. improvement has our organization in competitive markets. $XXX upon remain record in Farm new created we deliver financing we a to loan team $XXX initiatives appeared and that flexible, grounded customer the flexible Farm be environment, mind, adaptive customers’ compared Ranch especially business financing needs serve. core transformed quarter last meet million and enhancing loan fourth our competitive in with we providing of this This to as volume enhanced in continue in and in look we mission industry philosophy during partially our set changing in implemented was of to profiles & purchases growth through added quarter focused to In our capital solution. the grow as we as the

We continue to and people more in including more invest efficient. commercial become and also to in technology infrastructure order

well card of have more easier complex platform pricing a on has one-third representing As was This applications our as be be success products customer. been loan that an are for The and launched the these a for tremendous purchased our to XXXX. new to as reducing of efforts product offers allowed approval their our and structure AgXpress XXXX underwriting on example underwrite time would focus and able transactions. process time loans loans team efficiency in from which in to score reduces discounts loan underwriting approval be to almost these

AgXpress the product in platform of be XXXX. the success in this expanding we’ll Given XXXX

calls reliable both to prior is on our improve commercial provide to mentioned organization to enhancing abilities and more I’ve new our order existing and markets. in crucial capital infrastructure that able it’s becoming consistent As

will robust program sectors AgXpress origination a customers that enhancements infrastructure multi-phase significant a two create the more our we us of new efficient loans. launch platform enhancements the portal capital core streamline the XXXX. announce are to serve. able as driving to for with customer do These to implementation incremental business be new in first for and excited and are a to two We more in A platform

more base. continue be will becoming We our continue excited on institution and customer a focused to be to of relationship direction about strategic the the oriented company for

the solutions on economic to the driven need and competitive changing in dependable cycles mission and we through organization be a capital adaptive financial agricultural innovative environments. be As all to providing providing be

initiatives and future forward Our it we’re to results on early updates Brad. and you recent these to back looking that, calls validation of more with I’ll turn are providing

Zack. thanks well Great,

to Chief very his was for Before five I’d I turn to Jackson, the wish I’d Officer. Curt work and Credit the Curt formally years. thank We Covington, dedication thank like to him Curt hard over our best. last like

XX. in issues saw work Curt X-K you effective February to on some a As resigned family filing recent

Jackson. launched engaged Chief We about with environment. update have for XX most and organization Credit current recently when just and including understand Chief We agricultural certainly be on an have for you update various our firm more search details. been every a And nationwide you role years of Jackson’s giving new we’ll now and our he’ll as our area Officer us search we Economist. a in

for Brad. rate due is of China, conditions, Ag last three and top price that Ag ranchers in XXXX global our years volatility nation’s sector disruptions. common destinations effect supply in In average experienced and many respects risks sector fits trade the adverse XXXX. relation less the few market weather and the different description network headwinds that to An Canada in different Thank Mexico chain brings and export to myriad uncertainties farmers you, by market A condition ways.

caused presence We’re of XXXX. trade strong all XXXX. US pressure exports the combined counter The on of value with downward in counter and tariffs dollar agricultural tariff and tariffs throughout in strained XXXX a farm by related the

and China United [ph] passage a trade and loss the trade However from Phase the US I into signed XXXX. of January agreement Canada States the in the negotiators agreement Mexico,

in still increased could for there for true cloudiness some China these negotiations the exists coming translate Although in fine demand it US represent to agriculture along the XXXX, potential trade that a years. with

sector under highs, & Low loan at local ahead and many average levels. rates market and rural ratio the farm $XX Default to farm better more program under from is was economic secured averages. lowest averages. Farmer just The XXXX of up from off XX Farm income but in incomes designed XX-year farm still debt to near default income remain persistently mortgage sector new during to years to lows XXXX Looking peaks, XX-year are Similarly picture remains and in from at was days remain the through but but ratios average. interest loans rates commercial average from of well than historical levels Agricultural low in are below were to & or XX-year averages from on rates Mac Farm off collateral or elevated This Mac’s XX%. experience negotiations. our USDA flat rates. indicators down overall XXXX. the stress drag adjusted farm installment institutions banks XXXX coverage near and Market of farm to cash loan XX-year XXXX was land note unique Facilitation XXXX averages to historical is the estimates elevated the MFP. the X.X% trade Absolute to financial five due from the portfolio performance more credit important events result on asset After value charge and to cash continue every Ranch inflation leverage farm It’s near of off debt largely borrower as rates average historical charge farmers farmers collateral by are that well. income loan conditions billion but debt increasing evidenced remain as credit peak cash also business. influenced each payments Composite historical by reflect Program ratio Farmer strong offset our Ranch

with specific source Mac’s opportunity. generate cost the Despite remain regions on in ahead solar a opportunities allowance farm cycles income. short-term function for lenders placed Farmer natural is reliable sectors agricultural and some the thousands evidenced additional filled providers and of the new to loan. example, mission across power providers farm provision of the energy the Ag in remains and and owners of largely economy XXXX along all Furthermore, electricity present the electric and Interest of and cost particularly single investments For result rural cooperative way, country. renewable energy poultry reserve a of for bumps delivery a that land different at increased This specialized different road times. effect economic

gives and back new market that, I’ll consumer agro businesses with products farm crops to changing you Brad. to specialty turn it demand producers bring food and Finally, and to

conditions Great, Jackson. to high thanks to may on at mission risk. which our when America. further remains and envelope expand market standards execute Mac very can taking credit ways our committed in Farmer much to credit our when compensated Well will some There provide risk be flexing take for look paid, we for credit ways as that historically we circumstances be additional to we we be quality look can to to of

Federal Chief decades Reserve with our financial Boston, recently like She Senior where and Mostly President the Aparna, as Officer. I’d Vice CFO. over of to Now with Financial two served joins to Bank turn expertise. new us she of

plan. to to discuss business in support results call financial turn efforts so herself that board in on and strategic With grow can the excited you and We’re to I’ll her detail. to have of introduce our more on Aparna our execute our our

of like happy been finance Brad. you, has that for be organization. begin belief is a mission have mission my to organizations with of be I’d that to and I’m my how this be driven expressing key to Most to Thank a by force here contributor sense strong good. career and can

issue. here by excited the immersed upon I’ve us create and our to drawn Farmer organization. Farmer the and XXXX. I for as as values experiences fourth to many shareholders. customers, well truly I’d understanding in the of our really was I opportunities getting talent started quick Very on strong several the for to across on touch present to key weeks about I’ve Brad’s mission deliver high I’m X my team serve last caliber spent vision Given highlights from Mac know our some a for myself and long-term January impressed like the Mac. and quarter business value the of

& was volume As saw you Farm line Ranch $XXX.X heard in from our we business. business Zack business about update, net and of sequential growth million it his driven of by primarily

Our net million. effective XX% to $XX increased year-over-year spread

or $X.XX $XX.X year-over-year to Our per core million diluted grew XX% earnings share.

year XXXX. Turning to for results our full

our business growing averages. were the robust We notably and spreads across volumes, stable board with strong had new keeping historical results in and Our profitability.

XXXX this and to net was terms, on growth business leave and consistent. for percentage XX% XX, volume. net record our growth. spread million, contributed at both X.XX% increased spread in by XXXX volume Specifically as and I business net effective for $X.X us of the this remarkably just that to encompasses mentioned lines our the for $XXX.X December a Mac’s the year primarily XXXX Farmer a from million so net also $XX.X was effective XXXX the increase billion In business to that outstanding billion $XXX.X was due XXXX new

invested provision or increase to common $XX.X diluted the core volume this million and in earnings $X.X making offset to XXXX technology, to Our X% and operating spread tax increases we’re benefits. increase which compensation per higher by in net Operating $X.XX million and expenses after $XX losses comparison business the loan expenses compared diluted grew for in once business XXXX for again in continued to earnings was and is in after the increased that share year-over-year driven related $X.XX was due by per primarily was tax million infrastructure XXXX. by by of stages increase The less as or timing expectations XXXX. also and early in effective $X.X to our million than to initial X%. was hiring of common This which to in issues we’re infrastructure personnel. partially primarily This due of for X% XX% core our share some key notably the is modernizing

and expect as We and XXXX our increase continue grow these through innovate to business. we efforts

pinpoint. is and timing However, to hard expenses therefore the uncertain exact these of

poultry earlier entire quality loan for and As increased prior with the a of and specialized historical losses points Farm million that and Farmer allowance end what like a is XX in averages of related overall & for industry this reserve his XX, our remain December was our section, this billion the for million, basis however the to single would a note allowance extremely line portfolio $X.X XXXX specific from to $X.X continues Mac of portfolio. for Mac benchmark. total was the long-term year largely referenced Farmer in credit the losses to strong I Ranch $X.X very and on Jackson

of driver prior attention this well capital. very XXXX capital of an allows of core We us really But continues and it primary million retained our Stock increase million us our of requirement to statutory earnings. [ph] $XXX.X rose that the earnings our from a I’ll puts Farmer was year by May due on we to million of Series Mac’s growth capitalized a the position and plan. turning as $XX.X strength long-term the embark This retained by to value capital and was remain issuance XX, to position or provide a So and exceeded be of to $XXX.X December result end XXXX. as shareholder. in increased note in XX%. Preferred multi-year the B

mentioned, our of earnings capital ratio XX% strong Brad payout earnings. of position increase our dividend target As and and support core

headcount Mac and excellent given in financial position. tone fundamentals, solid operational our competitive conclusion, asset is earnings in Farmer funding structures, So strong to various cost condition growth with our capital to superior efficiency across robust credit access side, exceptional relative

underway momentum to strategic encouraged extremely are currently the our term by we strategic within and and committed opportunities the near very initiatives long-term plan. the We’re identified seeing success growth that are remain that to we’re from the of

very and Our SEC. of to more to deliver is making the it capital we’re strategic financial a low Once efficiently towards excited goal risk is put the afternoon Zack rural and investments technology infrastructure about you. information referenced investments with the I’m to a accessible cost continue customers enable therefore a that XX-K come at with data approach driven complete Mac’s in leadership this key to modernizing return. in to position again, Farmer Brad, strong us Farmer Mac our from and XXXX augmentation to will turn and and us back adopt mission to the More be the serve America. and team in filed and fulfill will I’ll across and also helping achieve performance part goal. this talent organization our necessary Such that

you, Thank Aparna.

provides continue to strong results. visibility board of objectives. We and foundation believe XXXX growth our some as more our performance and execute proud we on team our our for a future in very financial of Our ambitious the management are

long-term desire well and to Our are strategy dedicated leadership of group as talented make our team it the experience and employees and have our to capability fully and committed succeed. diverse as

to cost our customer mission on affordability inherent and service focus an credit America increased We to product on availability and rural through funding advantage. continue increase of focus efficient retention, competitive delivery to of our

and focus provides allowing to our our enabled top us mission grow I’m and agricultural to Our our in that or long-term allows bottom to share, way, expertise focus value market exact deliver Put shareholders. another line us just we because significantly so our feel I specialization and yet credit line another expand our agriculture limit very that well strong asked financial and sometimes that doesn’t that Put focus deliver on is results we’re the results. you’re way, opportunity in good opposite specialization focused what at your do.

I’d And like we operator see who’s from if anyone so to the any now today. on have line questions

first Wedbush. from is the we Henry Coffey Instructions] question [Operator Please ahead. have from go

increase. Good afternoon and congratulations on the dividend

stable been last have spreads Your the over years. three remarkably

seeing volatility like basis spreads the three rate interest as with the continue in of the going change of usual market we’re Given the or keep is is same business we that two XX-year kind that that as your or challenge thing? to and seen late the down we’ve to to expect points current etc., more capacity within

for fact the both think remarkable. really is basis they’re points I the XX years

pricing on surprising understand we’re risk to risk and to when funds expectations generally five I of we since very reasonable talk putting on But on to as that idea our think essentially we’re you we of investors, adjusted land basis interest specific to cost a the a good basis a close when we because basis we’re minus speaking profile, our liabilities have the our XX of points we we’re rate that co-terminus for basis. the how really going to business asset very, plus about swaps range consider you. match books issuance how and points XX or our it’s fund really [ph] of and a not

very much. Great, thank you

from from The next Greg question Sidoti. Please ahead. comes go Pendy

into about target the I hiring out of X% little in give a you looking about XXXX guess are in being way color and expenses? should X% to X% that to we increase initiatives or around IT initial XXXX, year-over-year that I from in us think for Can is expenses. a and pushed XXXX your some you XXXX how to be came into rough just just think kind there know on the range. below wanted I jump you mentioned to bit just

us. is trending couple mentioned Yes, would a up as for you for a quarters and I telling issue know Greg we’ve now be expenses really that it Aparna timing been operating our

initiatives significant hitting where the little actual a we’re have for thought expected been upgrades. We even of XXXX, we of the neighborhood those plan somewhere quarter schedule first underway the though remarkably those payments we slower XXX XXX IT be at end than for to to initiatives the we on of relative We our of employees. in have might some that,

positions XX positions I posted. are approximately that unfilled think posted unfilled about XX are we’re that XXX right, with

I maybe alone in But do pick So we have some the illustration think slower that objectives. have a with to to we then best you metric probably these expense has hit moving up believe. this of ahead We it’s maybe growth led bit been why of are committed to initiatives.

We’re not well, positions filing we X% to end and this probably saying XX% further evolved in XXX, get positions would that growth additional even and as XXXX as unexpected. expense be so range into

Okay, but the is from I had I like on what’s perspective. color XQ down helpful. perspective should just guess it a bump know bit from just give XQ if year? some not maybe delinquencies. you of And at from final it you in XX-day one XQ were driving it some sequential year-over-year So last decline just kind you mistaken, great. then I to us a just from a type you I’m seasonality mentioned think little loans. just a year-over-year That’s one, a Can idiosyncratic where

some product, special be XXXX. unique to we’ve And processing seem as quarterly a of for that’s year from and “idiosyncratic” does that to end had know was the core situations annual and at ago that for and seasonality I’d reflect XX-day loan process you into well any example. reserve Yes, used quality and took close delinquencies. a region in of and play the upper that look credit the example example those Midwest if it were fourth which it situations particular we deterioration any across I was up processor during for one particular pretty a feed in so we to unique there’s term one where is not crops a use the here. before end fact come wholesale They’re unique does of XXXX They’re and at quarter

other values income up Jackson bit As we’re said maybe on service these ratio average bit XXXX. has we’ve variable actually and loan a their on to mentioned building interest the rates. both a cash levels of situation. very and have close our are that the before flow, remarkably seen we our keeping that to coverage improved eye our a that actually from been down debt customers stable sector, have while liquidity Offsetting the because debt across this off hand debt

So it be hard you systematic continue you to situations. idiosyncratic point might generalizations classify in to continues wide to make do what deterioration about to Jackson, we have sector for those to do and credit or anything add?

I exactly think how about we yes. it, think

that’s a lot. helpful. Well very Thanks

There the your in no the turn questions more session. over are would to I This concludes conference to like for back queue. question-and-answer Brad Nordholm any closing remarks.

for everyone like in this listening conclude thanking call. participating by to I’d and

scheduled our information Look May on regularly to to first next quarter time. having in you with results. at additional will We forward report call be sharing our that

was is [indiscernible] in that in the different with But today. full case, touch bit to get don’t opportunity We’d the do an have you as - if us you hesitate have any a it this give to love late this call okay to always timing and of know call XX-K sometimes on As day little maybe digest questions talk. We Jalpa. a had call. then reflect

very much. thank you So with operator, that

The today’s now you concluded. presentation. Thank conference is for attending

may now disconnect. You