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Edited Transcript of AGM earnings conference call or presentation 10-May-18 3:00pm GMT

Q1 2018 Federal Agricultural Mortgage Corp Earnings Call

WASHINGTON May 12, 2018 (Thomson StreetEvents) -- Edited Transcript of Federal Agricultural Mortgage Corp earnings conference call or presentation Thursday, May 10, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Curtis Covington

Federal Agricultural Mortgage Corporation - EVP of Agricultural Finance

* Lowell L. Junkins

Federal Agricultural Mortgage Corporation - Chairman, Acting President & CEO

* R. Dale Lynch

Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer

* Stephen P. Mullery

Federal Agricultural Mortgage Corporation - Executive VP, General Counsel & Corporate Secretary

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Conference Call Participants

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* Brian Christopher Hollenden

Sidoti & Company, LLC - Research Analyst

* Eric J. Hagen

Keefe, Bruyette, & Woods, Inc., Research Division - Analyst

* Scott Jean Valentin

Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Farmer Mac First Quarter 2018 Investor Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Lowell Junkins, acting President and Chief Executive Officer. Please go ahead.

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Lowell L. Junkins, Federal Agricultural Mortgage Corporation - Chairman, Acting President & CEO [2]

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Good morning. I'm Lowell Junkins, Farmer Mac's Acting President and CEO. Farmer Mac is pleased to welcome you to our first quarter 2018 investor conference call. We posted a slide deck on our website that we'll refer to throughout today's call. Information about where these slides can be found is included in this morning's press release.

Before I begin, I'd like to ask Steve Mullery, Farmer Mac's General Counsel, to comment on forward-looking statements that management may make today as well as Farmer Mac's use of non-GAAP financial measures.

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Stephen P. Mullery, Federal Agricultural Mortgage Corporation - Executive VP, General Counsel & Corporate Secretary [3]

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Thanks, Lowell. Some of the statements made on this conference call may constitute forward-looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance, and we may not be obligated to update these statements after this call. We caution you that forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from the results expressed or implied by the forward-looking statements. In evaluating Farmer Mac, you should consider these risks and uncertainties as well as those described in our 2017 annual report on Form 10-K and our subsequent quarterly report on Form 10-Q, which is filed with the SEC this morning.

In the analysis of its financial information, Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with generally accepted accounting principles in the United States, which we refer to as non-GAAP measures. The 3 non-GAAP measures that Farmer Mac uses are core earnings, core earnings per share and net effective spread. Farmer Mac uses these non-GAAP measures to measure corporate performance and to develop financial plans. In management's view, they are useful alternative measures for understanding Farmer Mac's business. These non-GAAP measures may not be comparable to similarly labeled non-GAAP measures disclosed by other companies. Farmer Mac's disclosure of non-GAAP measures is intended to be supplemental in nature. These measures are not meant to be considered in isolation from, as a substitute for, or is more important than, the related financial information prepared in accordance with GAAP. Disclosures and reconciliations of Farmer Mac's non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on Farmer Mac's website, www.farmermac.com, under the Financial Information portion of the Investors section.

A recording of this call will be available on our website for 2 weeks starting later today.

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Lowell L. Junkins, Federal Agricultural Mortgage Corporation - Chairman, Acting President & CEO [4]

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Thank you, Steve, and thanks for all of you that joined us this morning. Our first quarter 2018 results largely reflect the continuation of strong trends that developed over the course of the last few years.

From business volume growth to continued favorable credit quality to double-digit core earnings growth, Farmer Mac's performance hasn't skipped a beat. Our business volume grew by $19.4 billion. Our substandard assets remained unchanged as a percentage of our portfolio, and our core earnings per share grew 46% year-over-year. Even without the benefit of the lower federal corporate tax rate that became effective at the beginning of 2018, our core earnings per share still grew 19% year-over-year. These results demonstrate the talent and commitment that Farmer Mac's leadership team and employees bring to their jobs every day.

As you can see in the morning's press release, the new lower federal corporate income tax rate had a positive effect on Farmer Mac's first quarter earnings results. We expect to see a significant increase in core earnings per share related to the tax benefit, which was an important factor in why we increased our quarterly dividend 61% to $0.58 per share on all classes of our common stock beginning this past quarter. We believe that our strong earnings potential and overall capital position will continue to support our dividends going forward, as we approach our targeted core earnings payout ratio of approximately 30%.

Farmer Mac continues to execute on its strategic initiatives to increase capacity and efficiency, which includes investing in our people, enhancing our technology, improving our infrastructure and maintaining a leadership position in financing rural America. The benefit from the new lower federal corporate tax rate has allowed us to further these initiatives while also increasing returns to our common stockholders.

As guided by our mission, Farmer Mac is committed to finding innovative ways to reach customers, to increase the access to capital and to reduce the class of credit for rural America. Farmer Mac's business model is performing well and may even be more valuable in tighter credit markets as demonstrated by our strong first quarter performance.

Now I'd like to ask Dale Lynch, our Chief Financial Officer, to cover the financial results in more detail. Dale?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [5]

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Thanks, Lowell. Farmer Mac is a one-of-a-kind financial services company with a compelling mission. It provide a unique combination of high-quality assets and the GSE funding advantage that is designed to generate benefits for rural America. We're positioned within an industry that also provides attractive growth opportunities, and we efficiently serve this market as a $19 billion company through our 92 hard-working employees.

Farmer Mac is able to generate high teens return on equity while growing its earnings by double digits and maintaining a Tier 1 capital ratio, similar to that of a well-capitalized money center bank, and a cumulative loss rate that is unique for a commercial credit company, only 14 basis points. The combination of these fundamental and financial factors has led to significant benefits for rural America in the form of increased credit availability and lower cost of financing as well as for our stockholders as reflected in the stock and the strong performance of our common stock over the past several years.

Turning to first quarter. Our first quarter 2018 results reflect the ongoing strength of Farmer Mac's business model throughout market cycles. As business volume increased $0.4 billion, core earnings exceeded $21 million and credit quality remained favorable. In terms of business volume, as you can see on Slide 6, outstanding volume grew to a record $19.4 billion as of March 31, 2018. We completed more than $1.4 billion of new business during the quarter, resulting in net growth of approximately $400 million after maturities and repayments. This increase in outstanding business volume was driven by net growth in our Institutional Credit, Farm & Ranch and USDA lines of business.

We purchased $813 million of AgVantage securities in the first quarter which resulted in net growth of $421 million. The increase was driven by 2 of our long-standing counterparties: National Rural Utilities Cooperative Finance Corporation, also known as CFC, and Rabobank. During first quarter 2018, CFC completed a new $325 million funding and Rabobank increased its AgVantage business volume by almost -- by $100 million.

Also contributing to growth was $32 million of new business with 5 other institutional counterparties in a series of smaller transactions with our newer AgVantage product, such as Farm Equity AgVantage and AgVantage for funds. As you can see in our financial results, more of our institutional customers are recognizing the value Farmer Mac can provide as we continuously innovate our product set to meet our customers' needs.

Our Farm & Ranch loan purchases were $259 million in first quarter, which is modestly lower year-over-year primarily due to the combination of reduced borrower demand resulting from rising interest rates and the lower average size of loans purchased.

During first quarter 2018, Farmer Mac purchased 456 Farm & Ranch loans with an average principal balance of $570,000 compared to 440 Farmer Mac loans purchased with an average principal balance of $714,000 in the first quarter in the previous year.

We also added $159 million of Farm & Ranch loans under standby purchase commitments during first quarter 2018, which was a 40% increase over the same period last year. We purchased $124 million of USDA Guarantees in first quarter 2018 compared to $131 million in first quarter a year ago.

Our Rural Utilities line of business decreased $153 million primarily due to partial termination of $120 million of Rural Utilities loans under standby purchase commitments. Also contributing to the decrease was a pay down of $41 million of Rural Utilities loans, which is modestly offset by the purchase of $8.6 million in new Rural Utility loans. The decrease in Rural Utility loans purchased in first quarter 2018 compared to last year was primarily due to a lack of loan purchase opportunities for larger more competitive loans to Rural Utilities borrowers.

Now turning to the financials. As you can see on Slide 7, core earnings for first quarter 2018 were $21.8 million or $2.03 per diluted common share compared to $15 million or $1.39 per share in first quarter 2017 and $17.9 million or $1.65 per share in fourth quarter 2017. The $6.8 million year-over-year increase in core earnings was primarily due to a $3.6 million after-tax increase in net effective spread.

Also contributing to the increase was a $2.6 million decrease in tax expense due to the lower federal corporate tax rate and a $0.7 million after-tax decrease in credit-related expenses. The increase was offset in part by a $0.7 million after-tax increase in operating expenses, driven by higher compensation and employee benefits as Farmer Mac continues to invest in its people.

As Lowell mentioned earlier, we plan to continue to invest in our human capital and our technology and business infrastructure to increase our capacity and efficiency as we work to achieve our longer-term strategic objectives. Accordingly, Farmer Mac expects the annual increases in its aggregate comp and benefits and G&A expenses to be above historical averages over the next several years. Specifically, management believes that the aggregate comp and benefits and G&A expenses will increase approximately 15% in 2018 relative to 2017, with increases likely to remain elevated in 2019.

The $3.9 million sequential increase in core earnings was primarily due to a decrease in income tax expense of $5.5 million in first quarter 2018, again, related to the lower federal corporate tax rate and a $0.7 million after-tax decrease in credit-related expenses. The increase was offset in part by a $1.1 million after-tax increase in operating expenses.

Now turning to spreads on Slide 8. Farmer Mac's net effective spread for first quarter 2018 was $37.1 million or 91 basis points compared to $32.5 million or 90 basis points in first quarter 2017 and $37.5 million or 93 basis points in fourth quarter 2017.

The $4.6 million year-over-year increase in net effective spread in dollars was primarily due to the growth of outstanding business volume, which increased net effective spread by approximately $3.9 million. The 1 basis point year-over-year increase in net effective spread in percentage terms was primarily due to change in Farmer Mac's funding strategies and improvements in LIBOR-based short-term funding cost for floating rate assets indexed to LIBOR as well as a reduction in the average balance of lower-earning interest -- investment securities in our investment portfolio. The $0.4 million or 2 basis point sequential decrease in net effective spread was primarily due to 2 fewer days of interest in first quarter 2018 compared to fourth quarter 2017 in our USDA lines of business.

Turning to credit on Slide 9. As of March 31, 2018, the total allowance for losses was $8.5 million or 12 basis points of the $6.9 million Farm & Ranch portfolio compared to $8.9 million or 13 basis points of the Farm & Ranch portfolio as of year-end 2017. A $0.4 million release in first quarter 2018 from the total allowance for losses was due to payoffs and pay downs of loans with an existing allowance that exceeded the increase in the allowance associated with net growth in Farm & Ranch loans this quarter. Also contributing to the release were changes in credit quality that reduced the proportion of substandard assets rated in the lowest credit quality tier.

As of March 31, 2018, Farmer Mac's 90-day delinquencies were $47.6 million or 0.69% of the Farm & Ranch portfolio compared to $48.4 million or 0.71% of the Farm & Ranch portfolio as of December 31, 2017. Those 90-day delinquencies were comprised of 65 loans as of March 31, 2018, and 51 loans as of year-end 2017.

The modest decline in delinquencies from year-end 2017 was primarily due to lower-expected seasonal delinquencies associated with the loans that have January 1 payment terms, which account for most loans in the Farm & Ranch portfolio as well as the pay down on $15.3 million in permanent planting loans to a single borrower that resulted in those loans becoming current.

Farmer Mac's 90-day delinquencies have historically fluctuated from quarter-to-quarter, both in dollars and as a percent of portfolio. We generally observe higher levels at the end of first and third quarters and lower levels at the end of second and fourth quarters of each year, which is related to the annual and semiannual payment terms of most of our Farm & Ranch loans. Farmer Mac expects that over time its 90-day delinquency rate will revert -- eventually revert closer to and possibly exceed Farmer Mac's historical average of approximately 1% due to macroeconomic factors and the cyclical nature of the ag economy.

Now with regard to substandard assets. Due to a relative balance between newly substandard assets and upgrades and payoffs and pay downs of existing substandard assets, the overall portfolio substandard volume was little change this quarter. As of March 31, 2018, Farmer Mac's substandard assets were $221.2 million or 3.2% of the Farm & Ranch portfolio compared to $221.3 million or, again, 3.2% of the Farm & Ranch portfolio as of prior year-end. Those substandard assets were comprised of 318 loans as of first quarter 2018 compared to 307 loans as of fourth quarter 2017.

Farmer Mac expects that over time, its substandard asset rate will eventually revert closer to and possibly exceed Farmer Mac's historical average of approximately 4% due to macroeconomic factors and the cyclical nature of the ag economy. If Farmer Mac substandard asset rate continues to increase in current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and reserve for losses will also increase.

Although some credit losses are inherent to the business of ag lending, Farmer Mac believes that any losses associated with the current ag credit cycle will be moderated by the strength and diversity of our portfolio, which Farmer Mac believes is adequately collateralized.

Now turning to capital on Slide 10. Farmer Mac's $673 million of core capital as of March 31, 2018, exceeded the statutory minimum capital requirement of $536 million by $137 million or 26%. This compares to core capital of $657 million or $137 million of capital above the minimum requirement as of year-end 2017.

An increase in retained earnings this quarter was modestly -- excuse me, was mostly offset by an increase in minimum capital required to support the growth of our on-balance sheet assets this quarter. More complete information about Farmer Mac's first quarter 2018 performance is set forth in our 10-Q, which we filed today with the SEC.

And with that, Lowell, I'll turn it back to you.

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Lowell L. Junkins, Federal Agricultural Mortgage Corporation - Chairman, Acting President & CEO [6]

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Thanks, Dale. Farmer Mac's business model is striving as we continue to deliver upon the mission throughout agricultural economic cycles. Our capital base is strong and growing, providing capacity for future growth, and we believe our dividend policy has helped enhance stockholder value.

We continue to bring in new personnel to fill key positions and to expand our investment in the technology and capacity to better grow our business. Farmer Mac has been a champion for and an integral part of this nation's rural economy now for 30 years. We look forward to the decades that are ahead.

As discussed earlier in our last earnings call, we established a subcommittee of the board to lead our CEO search efforts and are actively conducting a search for a new CEO. Since that last update, the search committee has continued to solicit stakeholder feedback and has developed the CEO profile and position description and engaged an executive search firm. The CEO search committee will seek to recommend to the board for its approval a new President and CEO with the appropriate qualifications and expertise in a timely manner. Farmer Mac deserves a world-class CEO to help us lead into this bright future that's ahead of us. We look forward to being able to provide you with more information on our next earnings call.

We'd be happy now to answer any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Scott Valentin with Compass Point.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [2]

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Just with regard to the originations this quarter, I noticed AgVantage product was active. Is that a reflection of any shift in strategy versus Farm & Ranch or just kind of what the market was giving you during the quarter?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [3]

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Scott, it's mostly what the market was giving us. In the first quarter, we have several large counterparties in the business that they do with us can be very, I guess, lumpy is the best way to say it. CFC, our utilities partner, tends to do a financing early in the year. And this year, they did it in the first quarter, and it was $325 million. That was a huge lift to our business in the quarter. We may do subsequent business with them throughout the balance of 2018. But again, that first quarter lift was a big driver. Rabo also contributed another $100 million. They tend to be more granular in how they fund. So it's just a little bit random depending on who comes in what quarter.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [4]

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Okay. But still, I know, in the past, Farm & Ranch has been a category you guys have been somewhat focused on growing. Is that still the case going forward?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [5]

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Yes. Look, our Farm & Ranch loan businesses have been the growth driver for 5 years. I guess, it's been growing 20%, 25% year-over-year for at least 5 years and our AgVantage business has also been growing in that sort of 7%-ish range, which on a big base is pretty healthy growth. So the strategies that you're referring to remain intact around wholesale funding and trying to push that out to more counterparties. We did for $30 million this quarter with 5 other smaller counterparties that reflect sort of the financial universe that we have spoken with you in the past. And so again, more granular business but good from the breadth of counterparties that we did business with this quarter. And we certainly hope to do more of that this year and in the future.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [6]

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Okay. And then just a question on credit. It was very stable this quarter. Obviously, there's some concerns around potential tariffs and any impact on agriculture. Just wondering as you reach out to different credit providers and borrowers, how are they reacting? Are they reacting to potential tariffs? And what kind of contingency plans would they have?

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John Curtis Covington, Federal Agricultural Mortgage Corporation - EVP of Agricultural Finance [7]

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This is Curt Covington. So we do reach out to and have been reaching out to many of our counterparties across the U.S. We have a nationwide reach. In talking to most of the sellers, I think the biggest concern, obviously, is in the soybean sector when it comes to China. But when it comes to NAFTA, there's kind of differences of opinions, depending on the bank and the commodity that you're talking about, because for certain, Mexico takes a wider array of commodities offtake from U.S. But in general, most of the banks we talk to and most of the actual growers and those that are involved in the processing and sale of this(inaudible) have been actually fairly optimistic that and what we've been hearing is, is that the volume of activity in those countries right now continues to be pretty strong.

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Operator [8]

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The next question comes from Eric Hagen with KBW.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [9]

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Dale, you mentioned the newer counterparties that you're exploring through AgVantage. Just a follow-up on that. I guess just how sensitive is the growth in that segment to the overall health and profitability of the ag economy? I mean, is there even a correlation that we should be looking at? And I guess, just from our perspective, since we can't see the loans on an inter-quarter basis, is there anything that we can sort of track or follow that would provide some indication about the drivers of that growth in that segment?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [10]

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Sure. Thanks, Eric. I think the counterparties in that space are financials. And at some level -- I mean, they're not immune from the ag economy at all. But having said that, their incentives are somewhat different than farmers. I think farmers, to Curt's point earlier, we've seen a modest decrease -- a very modest decrease in our Farm & Ranch loan purchase volume this year versus first quarter last year. Smaller loan size contributed to that, but there's also a bit of an influence on higher rates, right? Financials at some level may be more immune to that from a standpoint that their investors require them to deploy the capital, the capital has to be deployed, the interest rate environment will be what it will be, but they do need a level of leverage within their capital structure to generate the level of returns that their equity investors demand. So the terms of their funding may change a bit. They may go shorter on the curve. They may choose floating rate. That's sort of their choice. But in terms of volume, I think it's a little bit less sensitive than, say, an individual farmers volume would be. So we're less concern. The issue for us is really pushing that -- pushing the Farmer Mac message deeper and deeper and deeper within that universe of customers. And there's dozens and dozens of those counterparties that we can do business with, and that's our challenge, and we're starting to gain some real traction, I think.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [11]

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Yes. No doubt that that's really positive. I guess, just one more on that. I mean is -- what's the difference in spread that we can expect to see between those sort of newer counterparties versus, I guess, you could call them the core counterparties that have been in that segment for a while?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [12]

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Sure. So I mean the difference in spread is we haven't disclosed what it is. It's a short answer, but it's higher. It's significantly higher. These counterparties are smaller. They're not rated. They may have a profile of BB-, I don't know, but they're not all that different from a Farm & Ranch portfolio in terms of the spreads that we charge, right, as compared to MetLife, the spreads may be 40, 50, 60, 70 basis points depending on maturity spreads. The smaller counterparties may more closely approximate our Farm & Ranch portfolio.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [13]

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Yes. That's a helpful answer, Dale. And then forgive me for just a slight technical question. But the move that we saw on 3 months LIBOR was somewhat late in the quarter, and I know that I think in your opening remarks, you mentioned that you guys benefited from that. But is there any sort of, I guess, timing difference between what you might see on the funding side with respect to short-term interest rates and, I guess, what you're obviously able to capture on the assets side? I guess, you're kind of getting around where I'm going with that question.

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [14]

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Yes, no, it's a good question. I mean, the 3-month LIBOR dynamic, especially relative to the 1-month LIBOR dynamic is striking, right? It's a stark difference. On the 3-month side, it's a huge advantage for us in terms of where we can fund. At some level, we're taking this opportunity to push our funding on these types of assets further up the curve, so we're not necessarily trying to monetize and grab all the money we can today, but rather sort of term it out further and reduce the amount of basis risk presumably that we're taking on that population of assets. It's safe to assume we're probably picking up something though net on the balance on the 3s, but on the 1s, we're probably giving it up. Over the course of this year, we've kind of indicated that we don't see a real opportunity as things play out right now for a significant improvement in our net refinancing rate over the course of the year. Certainly not like we saw last year. So that's just one area of caution. I'm not sure that I would be thinking that Farmer Mac's funding spreads are going to necessarily improve dramatically just because of what's going on in the 3-month LIBOR.

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Eric J. Hagen, Keefe, Bruyette, & Woods, Inc., Research Division - Analyst [15]

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Okay, fair enough that they don't improve, but we shouldn't expect any sort of tightening or reversal due to timing in 2Q or anything like that?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [16]

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No. I mean, we're trying -- we're doing our best to kind of keep a pretty coherent funding strategy quarter to quarter to quarter, and we don't -- the volatility, frankly, in the last, I'd say, 24 months in our funding on our refinancing business has been far or less even though the LIBOR markets have been more volatile, I'd say, that our refinance rates that we're achieving have been more stable.

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Operator [17]

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(Operator Instructions) The next question comes from Brian Hollenden with Sidoti.

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Brian Christopher Hollenden, Sidoti & Company, LLC - Research Analyst [18]

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Was the amount of repayments in Farm & Ranch in line with your expectations? What was the big driver of the repayments in your view?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [19]

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Yes, I would say it was in line with the expectations. I mean, some of the repayments have slowed down a bit. I'll say it's because in certain sectors of the economy, we've seen, obviously, some stress, particularly corn bean sector, within cattle sector and certainly in hog sector it seems some of that as well. We don't have a lot of exposure to those last 2. But I would say that those were pretty much in line with what we had expected.

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Brian Christopher Hollenden, Sidoti & Company, LLC - Research Analyst [20]

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All right. And then are you surprised at all about how long 90-day delinquencies have persisted below the historical average?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [21]

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Yes. Here's what I would say. We all kind of view this as potentially issues arising just because we see the stress in the economy. But we pay very close attention to our delinquencies. And inside the Farmer Mac world, we do a lot of -- have a lot of discussions with our seller banks. And our seller banks are telling us the exact same thing that we're seeing, and that is our delinquencies just haven't materialized to any great extent. And a lot of this is because we're beginning to find out many of these farmers while we hear that there's stress on the economy, there's still a good bulk of customers out -- there are many of whom those loans are sold to us that even at prices where corn beans are today, they're eking out a small profit and/or they've taken on second jobs, many of them, in order to make sure their mortgage payments get made. So while we're pleasantly surprised, again, I would just say that we talk to many of our seller banks who are also telling us the exact same thing.

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Brian Christopher Hollenden, Sidoti & Company, LLC - Research Analyst [22]

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And then sorry if I missed this, but is there any change in net effective -- in your net effective spread outlook? Is it kind of safe to assume flattish to up 1 or 2 basis points year-over-year for 2018?

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [23]

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Yes, unless there's some major change in the market on our refinancing business, our goal for the year is to maintain a status quo. The funding that's coming off this year is actually very attractive funding. So it's going to be a challenge to achieve that. We think we can come close to that. But I think the spreads on new business are largely stable. Ironically, there might be a little bit of pressure to tighter spreads in some sectors in the Farm & Ranch business just to -- pretty strong bid for the best credit quality business out there, right? When markets get tighter, you may pay up for the best business. And there might be that dynamic. But by and large, our spread on most of our asset classes are pretty stable. So our outlook is that there's no big change either on the refinancing or on the new business side.

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Brian Christopher Hollenden, Sidoti & Company, LLC - Research Analyst [24]

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All right. And then last one from me just on the expense side. G&A rose kind of in line with your previous guidance. I guess just on the comp expense, I mean, is 5% to 6% kind of the right way to look at that? I guess, that came in a little bit lower than what we had forecasted.

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [25]

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You mean in terms of percent growth?

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Brian Christopher Hollenden, Sidoti & Company, LLC - Research Analyst [26]

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Yes.

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R. Dale Lynch, Federal Agricultural Mortgage Corporation - Executive VP, CFO & Treasurer [27]

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So we really haven't broken it out between the 2. If you kind of look in aggregate, just add the numbers together, and 2018 versus 2017 should be approximately 15% higher year-over-year. So really haven't gotten into the dissecting between the 2. I will say if you're looking optically at the dollars, fourth quarter versus first quarter, keep in mind that the fourth quarter was a little bit anomalous from a standpoint that we had a reversal of compensation associated with the termination of our prior CEO in the quarter which made that quarter look lower than it fundamentally is.

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Operator [28]

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

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Lowell L. Junkins, Federal Agricultural Mortgage Corporation - Chairman, Acting President & CEO [29]

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Seeing no more questions, I'd like to thank you for listening and participating this morning. I look forward to our next call to report our second quarter 2018 results in August of 2018. Thank you very much, everyone.

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Operator [30]

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