- Earnings call transcript Q3 2022

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Operator

Good day, and welcome to the Farmer Mac Third Quarter 2022 Earnings 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 Jalpa Nazareth, Director of Investor Relations and Finance Strategy. ahead. go Please

Jalpa Nazareth

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

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

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

Brad Nordholm

effective announce another you afternoon, pleased spread everyone. and us, continued we've credit and net all quality. And record achieved Jalpa. that joining strong time very for high with Good earnings Thanks, thank I'm quarter to

The products, in space multiple long predominantly securities financing counterparties our growth term commitments. to & longer seek continued their leveraging of comprised agricultural of access management and quarter. purchases, a $XXX provided reflects finance the add which economy, Farm primarily of the overall enabled to including of long competitiveness our a resilience of of net standby recent our period Ranch growth deliver is and not core outstanding risk gross & wholesale U.S. management Farm support disciplined We purchase volume maturity during million us the our in results low diversity across manage same in in the of interest the and asset quarter, of lender business, with benefits funds Reserve to AgVantage AgVantage they in the The market interest Federal streams million our rates, million at from combined pricing AgVantage America last other securities, given as to The compared net Ranch strong and we've to term cost strength increases a strategic Year-to-date rate to of resulting really lending securities and liability only of liquidity investments during of the the agricultural in many of business our capacity business, our loan segment very $X.X new revenue but quarter, credit management very, have quarter end. year. comparative success. institutional highlight to disciplines business options. billion also this liability the Mac Farmer asset Our in approach the added term profile, serving rural AgVantage in third grew $XX.X $XX a billion $XXX and relative derived last to line the decline our and the

quarter Ranch volume standing long has relative rural Mac's of they're will loan Farm believe crops harvest we favorably agricultural volume optimistic the the with Yet a agricultural providing credit market purchase loan and credit counterparties. higher a strength America. in from were for This growth relative quarter continue value their expectations. being in our also ranchers farmers is strong this standby in purchase to find new our purchase the Ranch increase We as increases Farmer of a environment system they long throughout we ahead, as volume Farm is given the farm Looking performed see commitment to partners opportunistic Credit & in and reversal System of of solutions by Mac's AgVantage the opportunities, viewed cash are to Farm one saw Simply flexibility years, ahead Given value complete rate product the and In testament our this adjusting about product markets customers. put, to as potential prior borrowers many and Farmer position & term harvests. cycles.

primarily due to we farm to loans agri support Our gate. growth span more efforts the continued outside during food Corporate saw as million AgFinance on larger chain, the segment our quarter, supply of net say complex businesses third focused to businesses $XX.X and the

activity relatively to to Mac and expect continue mission. enable We this strengthen new area to of deliver on business Farmer our

renewable the with a of telecommunication in rural total expected balance million In rural we continued cooperative successfully core telecommunication have has $XXX of utility telecommunication acquired today, of space, rural years. sectors do refinanced maturities finance a counterparties. result loans of Mac strong not real $XXX consistent $XXX XX. in added volume infrastructure with of September a as wholesale relationships electric as holding year-to-date utility in Farmer three strong lenders. we million to AgVantage Turning purchase this large in $XXX infrastructure, the next Loan year outstanding currently million AgVantage volume any in XXXX. with rural And the contributor of was rural a million line loans business business utility in sector

reduce strive capital for a America Farmer area growing of the rural communities. wireless area rural we that broadband While as loans to for and telecommunication is of providers, provide newer companies Mac, is and fiber, an cost investments increase to telecommunication transport to cable it importance services to

XX, nearly net quarter, focus as new at growth strong pipeline largest portfolio we continue million The reflecting remains term Our upsizing to renewable existing ended opportunities. in the third September in to-date. of $XXX as energy quarter near and the on quarterly the in on increase million renewable the bringing $XX deals energy

America As is Farmer on a development energy and opportunity opportunity calls, I've us for economic said renewable an Mac. prior and both for business important rural

and regular earnings of marketplace, the products a last to securitization in committed second securitization our successful difficult market. with the of for call, exemplifies for transaction quite with a issuer set a our align improve flow investor end million mission frankly, borrower remain investors. core institutional investment lower in capital received costs securitization to discussed our interests. availability During credit new agriculture that rural Mac's and $XXX in and well while We opportunity evolving borrower we execution to the America, also leading being Developing a produces this creating Farmer

in balanced the commodity the on While ranchers global further increase the agricultural outpaced and global creates for costs, input thus commodity have impact in significant uncertainty farmers of prices far from production, terms the Ukraine markets conflict XXXX. to We should economy for costs into move remainder sufficiently our and a XXXX is the arise portfolio believe period. input could volatility of into U.S. that recessionary withstand and the market prices

sectors correlated agriculture We and to to be positioned to generally these economic infrastructure demand an with the downturn due consumer not as industries the Soon as food ample support. economy. general believe fear directly well are withstand many government tend

we build Chief in and we as we remaining a stability branding will detail, Looking how each adaptive earlier determine Ramesh, Farmer low-cost the Aparna. insight our next the help to source in initiative a this our strive the flexible nation's compelling wrapping Officer to results this I'd And to more call our in of to Mac in on provider The Financial gain reputation ways. credit needs from more deeper financial to embarked now months, of on to trusted Aparna America. of to continue ahead, our describe customers over year, turn to changing it continue rural hope stakeholders is we'll us and like discuss up by to This which our strong customer helped be the has environment.

Aparna Ramesh

Brad. And afternoon, Thank everyone. you, good

quarter growth approach, excellent cycle. million was well credit by driven Net third $XXX.X volume healthy measured of and all record quality throughout the resiliency was market new balanced, across business growth Our and highlight four a it segments. in results third quarter, our

of last in an months, As incentive over overall less prepay we we've as three prepayments the in have portfolio, in to rate discussed have borrowers environment. slowdown high this the a seen

strong objectives. us really look position and this look to we as capital we we ahead, trend believe well As continues further our growth our as bodes

after diluted in a per was The increase $X.XX common $X.X for common earnings compared operating common to offset and a second decrease and operating after period year. in tax for primarily a third million, after core net million increase to increase The quarter million, core in expenses. in Turning by $XX.X expenses. earnings spread, net tax increase was this to million, or in diluted due per quarter record same per was $XX.X earnings, $X.XX or last the $X.XX to sequential $XX.X or XXXX was share diluted XXXX share our effective a increase a of $XXX,XXX tax partially $X.X effect and spread million million core tax year-over-year $X.X due in after share,

our wider in was a quarter the spread by record third sequential million for year-over-year and shift second in to and was same driven $XX.X spreads spread board. compositional effective across million XXXX and the in year. that net generally period XXXX $XX.X Our in million $XX.X improvement quarter assets the Both last effective program compared

describe. corporate result There's higher upward We And that to pressure as seen as have well. like rate volume and I'd a factor this net finance spreads effective evolving ad another has the funds. AgVantage pricing loans, to of contributed on

few urgency actions. continue a raise years, essentially and end low pressure And raised term capital the we of callable in offsets our excess debt debt short rate non-GAAP costs, with capital. bonds. the to our will expensive the create This as Over on increase to curve more the rising past and cost downward opportunistically funding a continues to Fed

the side strong liability this profile. continue of overall sheet debt. extension also remains from our strengthened liquidity we of The extremely cost debt as to Our low benefit balance has

as discipline and minimize duration maintain matches carefully our management, We analyzing liability our continue asset risk rise. convexity to interest rate rates to

by hedging year-to-date, and allowed enhance delays and strategic compensation, especially X% spending the our and period our we turnover, have approach with a same process the increase strategies treasury over than as ratio, employee headwinds, both And XX%. compared the efficiency management the and well plan despite as in yield the decreased and We're on headcount, also summary, hiring. law of next and systems front headcount support We're connection voluntary continue risk, a the funding large fairly rights our investments the this infrastructure, to In our including have years. enhance to to strategic increased reflects platform addition acquisition us This to as forward=looking stock loan as employees technology certain which of and in was XXXX scale inflationary due consultants in Operating profitability, expenses our to loan deal maintain are of to currently information growth XX% market to expand two one sequentially an last software a efficiency expenses, quarter in curve. with two the technology, of whole. and XX initiatives. investment primarily in impacting year. projects prudent XXXX, given through operating inversion to the efficiency, our of increased September, is improvement Our and flow. end third to to target servicing both increased and in of evaluating proactive pleased of due to Operating increased strategic modernize mitigate deferral licenses Expenses XX% better

said, always continue XX% efficiency committed rate will our or efficiency we run closely the ratio to ratio, to monitor lower. and we've As at we're holding

for and However, temporary see as growth, we we make scale some the and may XX% platforms, about level. funding increases in further decisions, infrastructure, to invest

strong, same be our of delinquencies the despite entire year. second million to basis our points economic quarter, and were XXXX $XX million headwinds. in profile XX-day in compared or XX credit to the Turning to last period credit, portfolio $XX continues $XX million

payment the with consistent, Our and XX-day Farmer have date. policies third the pattern were consistent credit that to the of at the seasonal sequential observed Mac's quarter, is X underwriting remained increase due of delinquencies the end July and

storage $XXX,XXX by As total volume. related agricultural provision quarter. $XX.X in for provision net of which a allowance driven million processing single $X.X the portfolio loan loan. The new rural infrastructure of portfolio the the million, finance September XX, reflects The provision during XXXX, primarily was to was deterioration the and $XXX,XXX the third to was losses agricultural

of as Farmer exceeded XX%. due a earnings. or of $X.X to an September by retained Core million, increased core $XXX billion capital. end, turning primarily statutory from increase XXXX, Mac's in Now year XX, to capital requirement capital

consistent to The August, is perhaps credit strong a and of by September the relief long Our agricultural ensure continued very partially second volatile Farmer Tier very opportunity, execution generate term and were our because securitization results XXXX. our continued of one a transaction. the support mission for Maintaining highly Farm sources aligns intend And is securitized to tranche the Most year-end that After XX.X% mission. received growth, we as capital conduit backed senior X both guarantee steady was successful demonstrates unguaranteed environment subordinate to XX, program assets. as levels in well transaction strong to capability tranches, capital this our our XXXX, low execution of well revenue. largely the use of funding deliver standards, this of from farm encouraged of and second transaction growth which of product transaction capital very around central with to success ratio improved market, additional are and securitization due earnings two was demand a structured further we this to success. And XX.X% through of our obtained tranche, by costs, capability business offset part and long in is XXXX-X importantly, series, by strategy products. this of fundamental and we The our foster term these structured the to this Mac's despite diversify model.

future, to programmatic market with strategic continue entire key committed that objectives, liquidity securitization, more to results We effort return minimum back payout another below to ratio this of team a at are breath, exceptional delivered summary, to as our the performance strong you. And several for soon in while credit ratio of a XX% coupled on achieving fulfilling efficiency our with continued XX%. return expect to a we it similar record I'll core the In to an ensuring build earnings, with quarterly resulting making in investors. and equity and or dividend XX% turn

Brad Nordholm

Thanks, Aparna.

example performance and quarter for Mac's extremely continues dynamic Farmer our We model, enduring our nature results positioned proud going believe of are third which business of and to drives another well forward. yet of be earnings growth

executing proven We plan solid financial we're a and evidenced of record this consistently have long as earnings strategic record core a quarter. track that by term strong on results,

reflected last deliver the We few on our economic cycles, years. financial by throughout continue mission as agricultural results over our to

to the Mac, thank company take questions me were And research our shareholder and and capital and in workplaces anyone employee capacity base It's that program. to to solid employee enthusiastic honest employees Farmer moment a their if have that, also fulfilling for Our are our participation customer operator, while categories I'd vitally which recognition deliver and leadership. and context from in strong innovation, company conducts the see Farmer important we providing recognized, want of to company, experience. recognize line providing The benefits, and survey four compensation, is dedication Energage, are earn with growth Mac opportunities our today. plenty mission. future issued the of to the like on to financial mission, for creating us Awards, and their enhance growing, and by four I recognitions and important more that any especially results These our to also I a was we Culture that top remarkable appreciation, Excellence performance. in national our for value. important

Operator

Thank you.

Instructions] We from Today's will ahead. question with Marla Please now begin the [Operator go cod. question-and-answer session. comes first Backer

Marla Backer

Thank you.

been year, a of cautious. in So a you the more couple had the Earlier quarter. this following strong questions from little bit results

I of volume think growth. regarding prospects business

pre and rising just equation. growth in an loan interest it about now there's of give given that decline, us not higher appetite bit farmers expected interest new it's to Can rates. environment. you like payment about talked what side you you prepayments the But the the for remarks You color prepared there? rate it getting talk you bit expenses, higher And think your more about little perhaps used you a touched a to upon Can has changed? little seems

Brad Nordholm

set to business And Business those different of also really And prepayments for insight to and borne business credit lines have the Carpenter, Zach be much lower on -- think over Mac, lot give of on. some Farmer business, also Hi, segments but But much that going to the Farmer benefits your certainly has so. our let Zach, to more those the turn some it's our the we me how going expectations did a but across here of addition of the also ago Mac into Marla. is about we said we along lines. you not it's you year it now, is out maybe prediction And seen to just last of I credited out, become how a of right we us, policies good Chief point turning observation very six think exuberant is make Zach than and correct. Officer months months reminder all really been we at within be doing, Brad of I'm hard year, up that in our or just business to more to for good of over administer, line And topic. bit rates it one exceeded the segment were while it to deliberate providing me you've has how us expect, well, additional on of lines our six they really underwrite, I break gross a like the happy last into required our is to diversification administration has originate few here, color are been to. lines how in the built this that work, let you color developed say, ago. of I with I'd cautious. for business day before give I'd years. day that, volumes what's businesses we clarified in We're feeling Earlier But are turn stronger

Zach Carpenter

telecom and value, of rates securities. to volatile, grow the as opportunity business environment for operating quarter. and in Brad this And especially really Thanks, accurate in of Marla, the focus well in the couple noted rates and leverage growth interest relative a and lines continue areas this many take opportunity really Mac. as this great all increase, able more of model know approach, volume question. did in us did interest segments diversified earlier sector. diversified of but and in us a the cautious Farmer terms last is said, think remain over our nature I renewable And volatile our to Brad of especially some with The growth, tone, energy, new increase short an in year we're That term that create business quarters as especially Brad to rapid the to that does cause now in being and you more having in market in admin different focus,

for prudent to it we us cautious remain go forward. as So is

However, have, diversified we products segments optimistic we're even with have in advantage, we able this volatile numerous lot business a environment. take and environment. that opportunity to the we're And in in this appropriate even more growth, continue to more that a the model, much

Marla Backer

securitizations. about I have other Okay, one and it's thank sense. That makes question, you. the

another and this You've year? that year, third Could this a something regular quarter. launched could that did program? program be multiple see, you last more an past the issuances annual Are one we within now thinking than

Brad Nordholm

yes. is, The short answer

as XXXX, to planning we are quarterly. think to frequently XXXX beyond look if we issue to as be I able

not the whether to Now, a combination and in in systems for our the needed market conditions. we building investor but on changing base, do market. securitization data aggregate market, that that's in-house takes we improving, But the of quickly market our order go form will how educating to program for expects depend can or improving the this

of we've some as take things foundational been want you our But that that over net light a today. paced Aparna, year. do what been And and lot So shed increase. last they might to issuances work will one the the increase it's on doing how for it of

Aparna Ramesh

Yeah, absolutely. Brad.

really rate One, was covered got environment, in to you've rising products with interest think we've two a this, we obviously, may consistent particular, securitize Brad to we've deal make lower Marla. make it There think the flow got that sure have alluded to Farm factors, number rates. Zach are I and & well. Ranch of the in sense already coming in, that especially a borrowers lost

is, able say, one amount operational would the coupon shortening certainly what being are the as environment in would that's the what loans securitized then the deal I nominal of both then factor. able So terms factor pool the between of flow we versus is. of And second the that access to to rate on predict and time we see that readiness

we really transaction. will from receive I encouraged the said, true I we which the program think of were extremely as And of in a That was another issuances. that to really because volatile in conditions, did face to we us the we of be market, and well really was for income that challenging the pace by are do given think market think think we encouraged factor products. do response it we as fixed some test second transaction, about that's the and important consider, position a especially a for

a points rent to think horizon, XX issuances, of get and rate as a getting that environment, XX the [ph] with month bit this are three it's things XX are we to certainly where within to point could we next two over we not XX As but than to we the more things little stabilize normalize months, doing

Marla Backer

Okay, thank you.

Operator

private go Gary ahead. comes question please And a our today Gordon, next investor, from

Unidentified Analyst

you. A don't of questions mind. if couple you thank Okay,

I no in that every is this quarter. I calculate, offs can ask quarter I there First, Again charge the that were correct?

Brad Nordholm

That is correct.

Unidentified Analyst

terrific would this Okay, results. terrific. a personally it's I highlight

Second, on there questions markets any history. you of steps hedging had take need ever to two apparently in for is worst the this spread. your this or the change rates? necessary the in Obviously, the and drastic in interest Are face U.S. the one bond hedging? of change Did

Brad Nordholm

Okay, let I'm elaborate what I'm and doing. say or going environment. to on just the this, we're we've gate doesn't stay probably and going going out down but that the we discipline Aparna that in But we of over over know to use to too again, used the much, I change over up discipline and much really

Aparna Ramesh

I raising maybe NES. changed this exactly, lot Yeah, proactive, a look our NES well a see the were need desktops didn't it. and just And as low. as we Gary, quarter-over-quarter, see we that it fact you comes uptick this slight you'll if see at you how when our think of in if really from our extending when have capital It been extremely rates and

something is off really that So for paying us. that's

we So position opportunistic, be in it puts out us into a more us market. makes to as or the go

one we draw and rates go when we've and mentioned Now, like are can to of a debt have upon. callable bank hedging, that that we we'd this before, speaking doing down, thing of

interest our down. when rate manage So we rates go back risk

could consistent. allows we dynamic we keeping within of So a left that But be rising think are that's play yield of it's and well we're only managing And in that is, point doing really band in other our make us of as proven. position it little perhaps crabbing a the that inversion a there's of get little both in positioned just a result curve. to that environment, off interest the NES seeing if the an and rate a that we our risk certainly though rate we bit where I'll remains very bit alone. and even very toggling some And NES a you're of this, very, out,

of a that, equity to from fed benefit on. continues to really continue got we've as that bank actions We price continue because

Unidentified Analyst

you the one Hey, the sort likely to ratio, in this spread error. range? three mix, than good, NES random more some prospects said Those thanks. you more to and market. are you've quarter Aparna, gave higher then & as little of the some But because there quarter, better pointed now for or your normal. spread high effective you've why spreads there I was spread, believe reasonable Last keep Farm know, three mentioned less of in is I factors hedging got capital are end reasons were these the Ranch? grow? spread to And And a or higher available factors range of a this more wider the volatility, they high net

Aparna Ramesh

of and team this that playing and business the And the exactly And loan little three Yeah, them seeing of one and business, work the pricing just think the benefits that right those of that factors. how That's compositional side -- composition. there part are the we're in significant up. actually I and a a very couple are really is are doing, his on three. shifts Zach would break you're One down a bit further.

are end piece see to to move shifting give Fed peg and we term I has stay from extend bonds, around that's short a relatively significant us to to a as hedging say we'd nominal rates that a the we range, function out point just really like we're change caveat a I'll that, with managing is that dynamics points continues that we're other that based of band. XX two raise more the that we bit, Instead in the of is we really certainly seeing And compositional within are heard The to will up, which playing XXX to an And on point the curve on short the continue bank would those and and of the towards targeting piece seeing. NES targeting a are those have X% so high that are But investable that as pressure upward a priced we assets. within putting X.XX%, basis it the assets, minimizes always or you're hedge, something a single that business see go rates, range, we really then this to to take. XX you've volatility. it not try a And but out. try to XX basis benefit

where think place play again for to really that's some us we trends. good guardrails is those a along So

Unidentified Analyst

based and what in in you're to seeing the that of today of outlooks? mix if add on market Is terms current to anything the that kind

Brad Nordholm

and certain going right. widen mean, relative market be for able No, to and time types versus value there. player We've again, Aparna seen manage, to enact this we've I bond spreads were volatile are we a that of out I seen credit the was think credits. in markets,

as side. so credit loan prices, rate take the we're advantage to And on able

to said, are Now less products these a at net or that more even than we've some environment, of lines effective spread interest higher rate business component in new have they entering growing we term, of contribute and be volatile the being had in a prior part. in years. are will time, growth. They short more so the are modestly over they some as But they but of small they grow, will meaningful

Zach Carpenter

correct. energy Renewable project finance for example,

Unidentified Analyst

lot. a thanks Hey,

Operator

for turn to to this any conference concludes ladies I'm back closing over the today's Brad about question-and-answer remarks. gentlemen, And Nordholm and session.

Brad Nordholm

four moment, can provide I there I'm asked people. the of We being purpose, much, our I you recent to mission of performer. we and some an clear for have it will, much and you inherent very showing point financial this inherent very great quartile purpose, received there I Rocco. or to a Yeah, award, can deliver steady example, you and work. when contribution a your around sometimes and recently can mission great to way, in can employees how think everyday very decile, forward with clear Excellence, by place to rural for Cultural that tension, efficiency results? Mac a mission, Isn't awards for while well, a is those a to very their measure we for availability have this top credit increasing consistently our investors, ago organization a have to objectives, approach by disciplined and mentioned rate you we our financial our we a And had little when consistently for the very, ratios, employees if on very people, for driven isn't in thank of recognition that appreciated delivering that. NES tension context, a clear between plus helps growth And around that which social return have great fulfilling progress be a just equity, you by mission, XX% even financial quantify motivating And that business. and Farmer America? is

working I inherent takes get something to strength manage, Because so things, that back an harness more. all even the disciplines, that those would online engine. when mission, we're consistency it's to tension, that we it financial you become to construct, the a are trying can very this And to love anyone the whether this people, about a because that, of the challenge powerful just is to not really is manage work while it actually

in many tension other a talk Mac about we whether questions this more in we companies the So of I'm is differentiation about most. the talking resiliency of the is future sustained, Farmer fact about public to model, time of results going it business answer. clear be whether spend I because from very can talking And the we're from this markets, what time And about. really believe source I part important think every this get the or a in there's Mac, Farmer, is when our

talking forward everyone. operator. I you, that. with Thank about So to you, more look Thank you

Operator

today's This today's all thank call. you, conference for attending Thank you presentation. concludes sir. We

now You have wonderful your and disconnect lines a day. may

Federal Agricultural Mortgage (AGM) 8 Nov 222022 Q3 Earnings call transcript