AGM - Earnings call transcript Q2 2022 | Federal Agricultural Mortgage Corporation

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Operator

Good afternoon, and welcome to the Farmer Mac Second Quarter 2022 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded today. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Jalpa Nazareth

you conference us call. thank quarter our and earnings XXXX afternoon, for for joining second Good I'm and at Finance Nazareth, Strategy Jalpa Director here Farmer of Mac. Investor Relations

these to call the Farmer Investors As business, disclosures company's and company's Mac's the prospects, on report provided we assumptions. risk can note the based and forward-looking and that and of Mac's SEC are certain will those subsequent that the today's current begin, non-GAAP a On These discussing to XX-Q the during Form on the in about filings we please under website, call, strategies subject Please performance for and could our release statements farmermac.com, cause are recent of this are XXXX from annual management's section. may factors. which not also a guarantee of measures, the full found differ earnings contain portion statements actual financial to refer results be discussion and projected. be future and uncertainties information most materially posted Financial of Information Farmer expectations risks measures reconciliations non-GAAP

afternoon for period. Select Brad Nordholm, performance. and question-and-answer strategic over financial also quarter provide are management our Executive us CEO, President Officer, our call management joining of turn and our Nordholm. members Chief Chief Brad and on objectives; detail from greater this the to us and time, the will be Brad? At I'll financial team Joining Ramesh, Aparna who will who this second discuss and will President business highlights Financial Officer,

Brad Nordholm

today. joining be accomplishments of financial the we're and extremely you want to to Thanks, Jalpa, and proud afternoon, good thank We're with afternoon. going you results this the for sharing I us everyone.

highest further diversity enable to quarter. our generated throughout proof Mac's combined continuing revenue cycles. basis our The with and delivered very quarter our and That's in our the performance value across of and XX-day strategic rising credit entire rates, our eight headwinds, the the our deliver plan and further ongoing strong inflation at execution results. of pandemic the strategic also core and delinquencies More in agricultural potential with they Farmer X us Mac business positioning a think successful ever, model our sheet interest ending we of points lowest credit evidence record macroeconomic earnings, disciplined provide provide specifically, the I portfolio. of Ukraine, remained of Despite streams, and such years. balance concerns Farmer and ongoing COVID portfolio strong as war level strong,

variety Our half of factors, financial reflected a review results just of them the first going with I'm you. of XXXX to in and some

from that their income the revenues these liquidity First, than healthy faster the have farm relatively of have benefited from have inputs. risen economy. resilience farm because Producers that about heightened producers the high of and commodity come prices cost the of demand. And experienced

did Another other growth Mac's this margin growth with at we words, factor, in outstanding volume we increase credit had business volumetric In and higher an and improved quality. Farmer spreads.

XX, of XXXX. XXXX. resulted growth XXXX. to strategies of is billion gross Another as first such rate And capacity that rate provided interest the final We second we of of have noting resulted approach helps lending This outstanding billion business during factor America liquidity earnings in Mac's Farmer quarter. risk I the $X.X Farmer execution second a during the effects effective protect disciplined interest factor, that half volumes Mac's us quarter volatility, worth to in think in is experienced from management the funding serving and rural of as in advantageous to lenders the $XX.X June

operators is this during finance the business growth was X%, infrastructure primarily due fuel product. in to Also of expenditures the purchase U.S. business rural rural large million million Infrastructure product for commitment project. and capital $XXX grew was demand by maintenance Rural electric line contributing really a quarter loan across to quarter this to planned line to Our and $XX Finance a of the in second solar growth the The this or

strong at energy of million renewable second year-end, ended about year. the Our portfolio compared about pipeline half at the and $XX the quarter to $XXX million the looks for

rural offset early As an growth in & America for large This prior volume second quarter, primarily The Ranch line Farm energy Farm loan the business strong is of interest a business important opportunity Ranch of due opportunity development demand both calls, I rate renewable on the during us. resulted security. and Agricultural approximately strong million said purchase to and and partially volume. loan as is refinance have by AgVantage environment Finance solutions. an was scheduled economic intermediate quarter & rising purchase long-term Net financing this a grew for maturities $XX for

could refinances new that result anticipate in loan could portfolio we USDA also Ranch levels purchase Farm lower lower in products, activity. lower prepayment our of result some it in of and While &

Our strong, pipeline and we environment. be in as uncertain this through navigate line continue to flexible we of will this business remains

and exemplifies well-received agriculture rural we million second end America, leading Let of core quarter to Farmer investors. subsequent recent Mac. is to over dynamics proud to me securitization. successfully securitization opportunity monitor a efforts strategies at make Farmer for turn $XXX identify capital Mac's this we the flow execute the to institutional operational The Securitization the closely securitization sure Developing to just lower to to agriculture a a really program our to happened marketed for implement and now improve right and the creating transaction. to just for investment close our the producers few this and to costs over execution market our days. and tremendous that successful months to credit could mortgage-backed opportunity that time. this support period end That few of a I'm effective the new while announce availability mission is reflects priced changing borrower in last expected transaction

fall, inaugural a As we remain of borrower near have that the to year regular diverse said automation with the will term, to improve of of In we and committed increase the we a the marketplace issuer and securitized set investor have issuances identify our with future. after support being interests. the continue number efficiencies in align sure a in per in the transaction that slowly foundation products opportunities strong program, to make operational for an we

strive Financial this our to market continue indicators we'll Ramesh, like turn flexible to while remaining our vigilant for adaptive source stability a by of about that, Aparna? discuss bit any environment over potential ahead, And results customers Looking to with remaining to our and be Officer, to contraction. financial of needs in in Aparna Chief changing a I'd to more their detail.

Aparna Ramesh

a by XXXX to $X.XX share Good credit earnings after-tax Thank was was increase million primarily and in million effective core in for spread second $X.X our credit new an losses of $X.XX noted, spread, coupon Farm volume, year-over-year in was in our in expenses. decrease year-over-year increase million share business losses which to increase quarter in million sequential stock diluted afternoon, and contributing XXXX in net or or quarter share $X.X to and due were These to million of a increase $X.X quarter net million or this operating factors $XX.X The quarter in were of an and & after-tax the common million and in Brad $XX.X partially per in release everyone. effective and Core net dividends. compared net effective is shows operating second year. effective the servicing an spread of The net common Rural diluted same due loan year-over-year the period segment. per in driven, increase the million the XXXX $X.X the $XX.X first $XXX,XXX a million quarter This after of XXXX tax related expenses earnings offset increase increase $XXX,XXX up in spread last in was occurred and after-tax a $XX.X of acquisition spread. per to first release after-tax sequential in common increase $XX The $X.X of to effective and you, was million yields. increase million last by increase same the primarily in year. XXXX, after-tax. Also rights a for period $XX.X Utilities in Net Brad. Ranch net compared preferred $X.XX improvement for diluted third our as

historical lows. of past balance while to we as strong and the sheet we years, had balance from Our side the that liability were low-cost sheet benefit rates interest at remains two debt layered into our the capital over continue

analyze We a convexity minimize disciplined liability as We rate also management. the our continue and REITs us previous risk to to help in matches, we've maintain mentioned rise. as approach duration interest calls, very asset that carefully

And XX occurred funding rights in of mentioned same XX% with XXXX an due loan consistent to acquisition second the strategies to have quarter that yield primarily increased year, last profitability servicing strategic by in also I XXXX. hedging employees period Our this to in increased despite maintain inversion us of our Operating third allowed that quarter included the headcount. curve. and new expenses connection compared in the the

growth technology both years. increase licenses in to of many in two and well include information our to consultants, initiatives. plan factors software next over technology support and Additional as compensation the and We an increased to headcount stock investments to our other expand spending continue as mainly one on strategic and

innovation ratio, As especially make XXXX. we've closely to and with as our XX% scale our efficiency and to for monitor growth. both our programs this strategies mentioned in also at we to quarter continue we infrastructure funding our support which us before, ended investments are monitoring enable second We'll

profile continues strong. to Our credit be

release agricultural the model million, on updates, comprised June a XXXX, release storage XX, for were portfolio. agricultural March million the release $XXX,XXX on $X.X portfolio And $X.X a parameter and model of which release single a from forecast the release driven allowance rating $XXX,XXX As a total paydowns a to $X.X portfolio $XX.X on on processing upgrades, payoffs. the $X.X release and finance provision rating and XXXX. a This by forecasted was rural by these finance in $XXX,XXX million infrastructure loans. rural risk offset The reflects release, by parameter was attributable resulted XX, of that driven is losses portfolio a the from million million downgrade agricultural primarily upgrades, infrastructure the was

statutory turn to $X.X an Let's primarily $XXX capital increase increased modestly our to June of year-end, of due million from capital billion Farmer XXXX, by exceeded earnings. Core requirement or retained as XX%. XX, now. Mac's in core capital

XX.X% ratio from XX, XXXX. this of as capital was X XX, June and unchanged December Tier Our was

well million both $XXX and mortgage-backed first capabilities is highly expected second central subordinate As successfully a senior to securitization, success deal, Mac's received August like two transaction additional environment to Brad agricultural our much end, market after use volatile mission. Most This for the structured mentioned, to our of around a diversify on we also long-term conduit funding, unguaranteed despite tranche an was tranche, revenues. guaranteed extremely quarter of we importantly, and further were priced to this intend XX. structured which this very to products. of this close which Farmer generate tranches: is The demonstrates the by sources one, capability

continue similar We And to Brad, while key programmatic to core expect of team quarterly number this earnings, our our effort are well as strong as And committed making payout to it with another a In liquidity soon exceptional market our entire results let for turn of for return the done a summary, me to to credit more we fulfilling and record strategic objectives. investors environment. as that, a had of a on in delivered efficiency ratio build mission. you. us XX%. ratio to economic equity performance, dividend We to volatile a continued the in this an back enhance XX% and return continue future securitization XX% was with

Brad Nordholm

Thank Aparna. you, Great.

now our core on sum So dedicated strong up, based and as steady, of this team quarter. by outstanding that and strong It's very Farmer just very financial plan results had a at long-term an proud evidenced record quarter. we're strategic I'm them, solid very earnings on, executing track Mac, to we really a further our of here proven

model agricultural continue We during the believe the us in of economic our focus and helps business that resiliency Agriculture Mac and cycles to results. American mission reflected our Farmer are financial

is Our and creating growth enhance strong capital capacity more plenty for providing growing, base for opportunities shareholder value. us and of to further

on anyone see to questions so like I'd we from And with have any line today. operator, the now if that,

Operator

[Operator ahead. Investor. Instructions] Private from Our first question Gary Gordon, will go a come Please

Unidentified Analyst

Hi, thank you.

shows for don't if there the of my Is were So correct? that charge-offs calculation a quarter. mind. zero things, One, couple you

Brad Nordholm

here. for Yes, Gary, Gary. great Brad is quarter. on, you Yes, zero the to Nordholm that correct, have

Unidentified Analyst

mentioned a is. expense talked target What's your I you ratio the number long-term and Two, targets, operating in few the you've you're know past XX%. the ratio what times I aiming of for? sort of about the forgot

Brad Nordholm

that Yes. last it I the to We you we've is told our or XX% - keep think at X.X for below. years, goal

we're This quarter, we're but year, slightly I did XX% achieve the and down as the approximately to the we're quarter. at which, XX% of to for we hopefully the that, track for year-to-date, above remainder managing Gary, get back year mentioned,

Unidentified Analyst

is I'm there of wondering assets a one off loans right figure growth, your which that's now assets sheet ago, and balance active On considering of securitization securities. up and useful the And about now better a it's more pull loan program, or those looked figure, presumably a less some X%. if more then mix I year just issue if at

Brad Nordholm

that we about into types being, the prudent, are some securitizations. to Yes. expect by on loans Gary, allow what going on Over environment of some But we're it loan cautious not case begin becomes to think, Carpenter right that being me statement may reacting turn securitization. lower impact growth, very Until really just programmatic, Zach I'm your color some experiencing this about that going we the yet. now. to That's securitization in very volatile we're give to you we're let making time, of pricing change. to us

We for The note in second actually purposes could have gone is is really sheet. disclosure thing increase really an second securitization to be way I'd business like we to out providing balance that we and to sheet choose on-balance rate to just sheet. asset to an growing. the it, rapid the either and you going interest versus this on that it's metrics our we're us report we're gross for caused that on that way going do one to off But growth, balance environment do the up how on sheet off-balance

on are off and sheet assets Our sheet. balance balance

do bit that seeing turn reflected under that a to let And of benefiting a just But we and more really at management. Farmer years, X%, Mac over noticed with the to do that, business the that to relative And market diversification little our to additional of give last Zach right color. segment couple as you we're and you turn turn diversified me on are assets I reporting, to this us you company, give look to you Our we see in now. in color Zach, if Zach me what I some cycles. is through let these -

Zach Carpenter

Brad it Gary, hit and on Thanks head. the Yes.

now I showing think our model the of is ever. diversification than more business

Finance the strategies, or indicated, segment close both up net focus which purchase from well in we're Infrastructure. And it's as $XXX we year-to-date, business Agricultural as on, Rural a So as in loan of our of lot to million Brad growth. put coming line

network. Ranch net their did purchase volatile again key grow to in and across the to in thrilled both business Infrastructure able interest tremendous volume & also companies rate in this build our We're to capital our AgVantage CapEx our saw continue this product but to utilities line Farm deploy loan quarter. environment, rising capital be more growth security and network, to needed seller core Our rural networks of telecommunication growth Rural as especially

solid say growth across and diversified a operating all model I'd our segments. of So very seeing loan

Brad Nordholm

really guidance Gary, not guidance. to prepared specific more X% you, give additional in terms of to we're that

certainly. volatility is financial positive there among I is is economy, the Oftentimes generally economy. good would as opportunities of volatility, say institutions period in which very well estimate I new agricultural of I that in the where very kind much results in we think thing pretty of so would as this One positive, because emerge. are, that's a agricultural note,

opportunistic. going for further. the very one that opportunistic to to we're opportunities it, accelerate be It's so build very is to And around growth a but hard business could that I say would that plan look thing

Unidentified Analyst

an stocks, about say, been where the issuer there at let's preferred And more over year, years. sense? if Is a as over you've the do last looking the scenario, few another issuance might Thinking one question. you make active next

Brad Nordholm

want you to one? take that do Aparna,

Aparna Ramesh

wouldn't to just Gary, I capital me let more sure. but anything table, Yes, generally. help the think of want take we position our little bit off sort a

low the then two retained sought So over Mac's and good, stock, a capital for I us, interest think earnings. sources especially after it bulk have we was really three of was we rates performance last stock, which been obviously, is And years pretty the were excellent an common capital preferred and has when our of one, have, instrument. Farmer tool

consumes We more offer that were that Zach continued grow. the need But we capital opportunity of bit on And on type these will we and the an but a of transfer have I continue assets to that both as does risk very bringing very, So diversify sheet. didn't to certainly capital, as us into plans we opportunistic. segments balance capital Brad for securitization little note well. we're based new

So we of an stock issuances, us. our securitization efficient compare when that it's look capital becoming consumption we at source to for increasingly and preferred

standpoint tool is now which securitization the in our we've a got from of So toolkit, fourth capital.

is we interest dependent might very rates. it's a an it's preferred long-winded do opportunistic nominal maybe way raise So saying us benchmark really But of so. to reason on there if for and capital,

it we six preferred necessarily do all to XX unlikely to issuance, we would months, but So that want think table. anything the to stock want wouldn't a next off of I given that, relatively over the take be

Unidentified Analyst

time. everybody's for thanks Okay,

Brad Nordholm

Gary. you, Thank

Operator

Vegan. ahead. question come with from go Please Invest will next Our Ortel Sloane

Sloane Ortel

may I a living could there catalyst Bill any if how renewed I guys. great Congrats Hi, color - wonder sort Farm for out give us on see see just as the provisions you quarter. a that you on and everyone. I to of commentary business? your guess, you Reduction we're you And give might want or in may other on whatever affect how that affecting of calling not there be proposed, Act it line the I infrastructure now? business your the Inflation

Brad Nordholm

projects two rural Yes, comment right Sloane, every And that do I a in with of which one, their rural electric owned provisions energy that, to monetization also energy are everyone in of rural for not in the now, cooperatives. provision there, as time about and America, some cooperatives, know, couple contracted there's that American Reduction by there, business, We of it's U.S. agriculture Inflation allows to the for is simplifies a benefits renewable things. rural with projects doing and are you day of Treasury, nonprofits. capital other structure pieces electric a in can and provision is which rural we which tax what big on Act. renewable favorable electric There there's or are electric yet, to reading that but delay there legislation, the cooperatives cooperatives, by do

renewable we So energy. favorable as view to that

that ITC rate. to renewable That other other gets capture, line there details and American projects been that. We legislation have - Washington, affairs, was also at in agricultural anaerobic to really it's going reauthorize have - commodities, digester are really here at this government Mac And of USDA now. which policy in very to happening will and years expand, question. keeping extend Farmer into of that's potentially for relations past an on be on-farm at for that there whether opportunities way energy commodities. types Bill, American have accelerating rate. like see on few. beginning potentially public has really and associated into like identified it bill for renewable because really those natural change, their was who It at business. about Mac. XXXX, by were you to Bill five a exactly team in of the different We're yet, be But next close years. to also with formulation happen gas a which It's the it's We've further couple the Farm too decide But a we to reduce scheduled is a an should what to wondering methane us right that happens few major I accelerating were too, you liberty projects helpful led Bill worked strong in gas, who for in we'd right Agriculture things talk bullish that tenure in will that, fighting chance premature that a along potentially involved pricing will been asking look Farm to here at Farm happen say programs a renewable to have eye D.C. schedule even for about ask are passed not now to aimed stabilizing our the gentleman would is see project and helping any into but stimulus of would finding more Farmer generally and that who of energy your be also a this that I if with at every

Sloane Ortel

you Well, food a on kept from the up keep for us to time. way come basket a awesome. you've you're That's Christmas getting clip while, up your well guys

So – thank you.

Operator

next ahead. Our Investor. come Private Instructions] [indiscernible], from Please question will go a [Operator

Unidentified Analyst

been of investor the here and your this, dividend. and out before I a private company since have well your say Well, I can all in and Bless And is company Seattle. team gentlemen, am America ladies God part

something. people that on selling the on know points can someone the and Mac I volume so dividend, whole enough or Your guess and earnings about to very that Farmer the will is XXX you increase find come the like stock thing by look stock not only to about shares drop price. two with your I peers be the low your thing continuing sad is

know to there's don't more know ever about the I past you to that than in I've other solution that any talked I well-known. But So this. becoming

question. no That's I have or So less more a comment.

Brad Nordholm

couple A Carl, of your agree we with things. comments. actually

their stock, that's could behind because sell stock now very glad had as was of situation a institution effect, view extended situation, because that We're position. period had an us dampening as XXXX, where and recall large a a You in a positive investor, financial C-Class that regulatory described, over sell may of that we investor time 'XX, that just that it just past you had a thing. to that. We an and a really we're

have Mac. to Mac has increase for awareness been stock market We the of when interesting, significantly securitizations of It's Farmer working with been for the been the time. Xx coincided have X-week other that also outperformed period - Farmer we've indices Carl, Xx our marketing have same X- to

And so are. we important expanding view investor but small who of of way securitization as another institutional awareness we

And to branding so point a on final out that. the initiative a Farmer here is we is byproduct but Mac, securitizations do we set educate didn't make The really I of good have on to at that market embarked it would Mac. Farmer

will and of have that uniform and multiple we to To will to think thing way explaining Mac. to hope compelling mentioned months. big that, one may that And another concise a will This compelling advertising way way over more And attention important a of Mac out be the we bring XX It's of more help that all Farmer a prior in calls. too just more I small who the campaign. six stakeholders. we in are isn't explain how Farmer our that we and play think about next describe stakeholders. to

Unidentified Analyst

happened I've people my deal don't that and to I RBC. lose to Okay. Thank you educational - maybe one another money. tried have I - been the with how process was going is know very comment many much. to other different say I to

but talking XX% So the And they not I'm ratio giving of cases, now borrowing myself again, XX% you thing with you wanted stocks, person's you now might your portfolio. In you doing be through the on thank them, many to Jalpa, happening a Farmer are of is if were value the Mac, same trade, only it to much, typical if collateralize I of to. think. very that some XX%

financial educating you they been, some to are firm sake seem there's way was the credit you yet other your So they for it. and and shareholders nowadays I around if solid have would don't give for institutions. and wondering Why and an own company - awfully

Jalpa Nazareth

Carl, reach call, with can after agree we working who this can with you a we and should and because this way to and connect we folks. get connect you're Jalpa. is in with touch we Maybe find

Unidentified Analyst

problem It They I Yes. is need RBC. Farmer that typically would really good this was people has other same Mac. across other quality It nearest many the because are point paying matter. status not you same lever. at giving as companies don't the not of happened come doesn't it, are but the

of and it eye for work. But I anyways, So opener all guess. that's more Appreciate yourselves, you an keep thank up. your

Brad Nordholm

Thank you, Carl.

Jalpa Nazareth

Thanks Carl.

Operator

any With no over conference for remarks. like Brad would session. conclude to closing I the we remaining now will our Nordholm questions, question-and-answer to turn back

Brad Nordholm

ability results deliver economy proud you Great. operator, proud Thank in agricultural fulfill you, story. this very, to able American very positioning to to our it. We're and us the thank our very optimistic business We we're about all this of We're that for quarter. model, of our Mac, rural joining the remain today. serve our We really you mission. Farmer appreciate and

very about what good here. when doing very, feeling appreciate We your interest. time a it's we're we're So

follow-up people or As will Thank Jalpa. she with make you get questions And answering requests, here always, that touch in your have Mac if the you. sure with in are at you engaged right questions. Farmer

Operator

attending The presentation. concluded. you conference Thank today's for all has now

You disconnect your lines. may now

Federal Agricultural Mortgage (AGM) 12 Aug 222022 Q2 Earnings call transcript