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Edited Transcript of AGM earnings conference call or presentation 1-Aug-19 3:00pm GMT

Q2 2019 Federal Agricultural Mortgage Corp Earnings Call

WASHINGTON Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Federal Agricultural Mortgage Corp earnings conference call or presentation Thursday, August 1, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bradford T. Nordholm

Federal Agricultural Mortgage Corporation - President & CEO

* Gregory N. Ramsey

Federal Agricultural Mortgage Corporation - VP, Controller, Principal Accounting Officer & Interim Principal Financial Officer

* John Curtis Covington

Federal Agricultural Mortgage Corporation - Executive VP & Chief Credit Officer

* Stephen P. Mullery

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

* Zachary N. Carpenter

Federal Agricultural Mortgage Corporation - Executive VP & Chief Business Officer

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Conference Call Participants

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* Gregory R. Pendy

Sidoti & Company, LLC - Consumer 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 day, and welcome to the Farmer Mac conference call and webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Brad Nordholm. Please go ahead.

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [2]

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Good morning, everyone. This is Brad Nordholm, President and CEO of Farmer Mac. And on this 1st day of August, I'm very pleased to welcome you to our 2019 second quarter investor conference call.

We have a number of positive developments to discuss with you today. But before we really begin, I need to turn to Steve Mullery, our General Counsel, so that he can comment on the forward-looking statements that we will be making today as well as our 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, Brad. Some of the statements made on this conference call may be 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 2018 annual report on Form 10-K and our second quarter 2019 Form 10-Q filed with the SEC.

In analyzing 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, also known as non-GAAP measures. 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, 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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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [4]

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Thank you, Steve, and again, good morning to everyone. I really appreciate that you have taken time to join us today.

I'm going to begin with a quick overview of our second quarter results. I'm then going to turn to Zack Carpenter who has recently joined us in the newly created Chief Business Officer position. He'll spend some time introducing himself and discussing some of his initial analysis and impressions of our customer and market. We'll then turn to Curt Covington, our Chief Credit Officer, who will give you an update on our current agriculture environment in which we operate. And finally, Greg Ramsey, our Principal Financial Officer, will cover our financial results. We'll certainly leave time for questions that you may have at the end.

I'm happy to report that Farmer Mac has extended its strong start to 2019 in the second quarter of the year. Our net volume increased across all 4 lines of business. We've once again demonstrated strong earnings growth, and our credit quality has remained favorable. Outstanding business volume grew about $240 million to $20.7 billion during the quarter. This is driven by new loan purchase volume in our Rural Utilities and in our Farm & Ranch lines of business. Year-to-date growth in our business volume is a direct result of efforts that we initiated early in the year to continue building and maintaining strong relationships with our customers and ultimately creating a stronger foundation for future growth at Farmer Mac.

We've been engaged in a strategic planning process that we'll be rolling forward to our Board of Directors in September. We've already added Zack in the newly created Chief Business Officer position and elevated Brian Brinch into a new position, leading our Rural Utilities efforts. All of these things are being done with an eye towards building a stronger foundation and being more commercial on how we do our business.

You'll note that we've also enhanced our capital position this quarter through the issuance of $100 million of noncumulative perpetual Series D preferred stock. We used $75 million of the net proceeds to redeem the outstanding noncumulative Series B preferred stock that has been outstanding. This issuance and redemption effectively allowed us to strengthen our Tier 1 capital position by a net $25 million. And it also allowed us to demonstrate that we have strong market access for low-cost, preferred stock capital.

As I mentioned during last quarter's call, we created a new executive position in Farmer Mac to oversee the agribusiness lines of business. Today, I'm happy to introduce you to Zack Carpenter, our new Chief Business Officer. Zack brings to us a wealth of experience from his past work, involving complex credit transactions, marketing and distributing debt products and strategy formulation and implementation within financial services, agriculture, consumer and health care industries. Zack began his career in various roles at Johnson & Johnson and then at Goldman Sachs. Most recently, over the last 7 years, Zack has managed a complex agribusiness portfolio with CoBank. CoBank is the largest farm credit system institution with about $120 billion of assets. Zack has spent his first few months here at Farmer Mac evaluating our products across all lines of business as well as doing a lot of traveling to meet with customers to understand their needs. In addition to this new position, as part of the efforts I mentioned, to refine our organizational structure, evaluate how we go to market and streamline our new business opportunities.

I'd now like to turn to Zack so that he can provide some of his preliminary analysis and impressions with you. Zack?

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Zachary N. Carpenter, Federal Agricultural Mortgage Corporation - Executive VP & Chief Business Officer [5]

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Thanks, Brad. First off, I'd like to begin by expressing how excited I am to be here and to become a key contributor to this mission-driven organization. Farmer Mac is a unique institution, one that is fundamentally very healthy and profitable while also having a significant number of opportunities available in the current market. I've spent the last 3 months getting to know our team members and our customers and find it energizing to hear the excitement about the strategic direction of the company.

As Brad noted, we had another solid quarter of net volume increases across all 4 of our lines of business. We note, though, that the competitive nature of the agriculture and rural utilities lending environment continues even in this volatile and uncertain time for certain agricultural sector. We continue to see downward pressure on credit spreads across the industries we serve and, in certain cases, competitive bidding situations for the strongest asset. As a result, we remain diligent in our credit underwriting while taking selective risks where we believe the return justifies our investments.

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

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

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [6]

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Great. Thanks very much, Zack. On a personal note, I'm really extremely pleased with the fast start that Zack is getting off to here. Just walking around the hallways of the building, the people who are working for Zack and his team have a lot of excitement and a lot of focus. And so I feel that we're going to have a lot more exciting things to report to you in the future with Zack in his role.

I'd like now to turn to Curt Covington, our Chief Credit Officer. Curt is calling in today. Curt is managing his annual farm tour in California at a number of agricultural production and processing facilities. It's a tour that has become quite famous, both within Farmer Mac with some of our customers and with our regulators, and all are represented with Curt on the tour this week. So Curt?

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John Curtis Covington, Federal Agricultural Mortgage Corporation - Executive VP & Chief Credit Officer [7]

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Brad, thank you. As we enter the traditional summer push towards the fall harvest, it's an appropriate time to take a moment for reflection and analysis of the agricultural economy and the credit conditions in rural America. It's fair to say that the weather was unfavorable to farmers across large parts of the Midwest this spring. Ag lenders, farmers and commodity analysts suggest there were record numbers of acres filed for prevented plant, crop insurance payments and a delayed planting is likely to result in reduced corn and soybean yields compared to recent years.

USDA tracks and reports grain progress and conditions on a weekly basis. Through mid-July, both the corn and soybean crops were well below the last 5-year average national, significantly below in the Corn Belt states. However, the commodity markets reflect the probability of these lower production as grain prices and future prices are significantly higher in 2019 as compared to 2018. Our conversations with lenders throughout the Midwest suggest that many farmers took the opportunity to price corn and moved last year's inventory as well as priced a portion of their 2019 production at profitable levels.

Crop insurance claims are also going to help to offset the production disruption. Our research indicates that nearly 90% of all corn and soybean acres are enrolled in the federal multi-peril crop insurance, and most policies contain a provision that allow for insurance payment claims on acres that were prevented from planting due to inclement weather.

Trade and retaliatory tariffs also command a fair amount of headline and attention these days. While talks continue with China, the removal of retaliatory tariffs on agricultural exports between North America trading partners, Canada and Mexico, was a welcome sign to farmers, particularly for corn, hog and dairy producers. The USDA also announced the second round of Market Facilitation Program payments due out to farmers in 3 installments, first of which will come in August. These payments are on a range of different product types, and the USDA will pay MFP payment at the county levels on a scale from somewhere between $15 per acre to a high of $150 an acre. These payments help offset lost revenue caused by lower commodity prices, resulting from these retaliatory tariffs.

Despite the heightened market and production volatility, credit quality within Farmer Mac lending portfolios remain remarkably steady. As of June 30, our 90-day delinquencies were $28 million or 0.38% of our Farm & Ranch portfolio, which compares favorably to 0.73% at the prior quarter and 0.61% as of June 30, 2018. As you recall, we generally see higher delinquencies at the end of the first and third quarters and lower levels at the end of the second and fourth quarters. As we have no delinquent AgVantage Securities, USDA Securities or Rural Utilities loans, our 90-day delinquencies as of June 30, 2019, represent only 0.14% of the total business volume. As of June 30, 2019, our substandard assets were 3.3% of our Farm & Ranch portfolio. Both our 90-day delinquencies and substandard assets remain well below our historical average of 1% and 4%, respectively.

Part of the positive credits involve the low leverage and the strong collateral support in our Farm & Ranch line of business. Each loan is backed by a first mortgage on agricultural land and buildings, and the average loan-to-value at origination for the portfolio is 53%. Even for substandard and special mention assets, 86% of the loan volume is secured at a 60% or better loan-to-value.

Farmer Mac's portfolio also contains a wide variety of production types in areas that may not be directly affected by weather or trade disruption, Western States, as an example, continue to be a significant origination region for Farmer Mac, including specialty crops like nuts, fruits and vegetables. These crops tend to be consumer-focused and thus are less exposed to market volatility.

Although the protein sector may be experiencing higher feed costs due to higher grain prices, demand is robust, both domestically and internationally. Diversity by borrower and by region and by product type is another strength of Farmer Mac's lending portfolio.

In conclusion, the agricultural sector today is not without its headwinds, of course. In fact, the most common word we hear from farmers and rural bankers over the last 2 years has been the word stressful. Every spring, farmers plant their livelihood with their hopes that they will bear fruit at harvest. There are a 7-day work weeks, and there are very thin operating margins. However, today's working farmers also are far more advanced than a generation ago. Innovation and technology, data analytics and agricultural science has helped modern farmers make incredible strides on conserving capital and natural resources while producing abundant high-quality crops. While it hasn't been exactly an easy ride for these agricultural lending communities, times such as these are also proof of the commitment that rural capital provide like community banks, farm credit institutions, Farmer Mac and many other credit and capital providers to support producers throughout all credit conditions.

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

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [8]

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Thanks very much, Curt. I'm now going to turn the call over to Greg Ramsey. But before I do, I want to thank our former CFO, Dale Lynch, for his years of service to Farmer Mac. As we indicated in a prior press release, we have launched the search for a new CFO, and we'll certainly update you once we have appointed a new CFO.

Greg is a part of a very, very strong team that we have in our finance and accounting controller functions. As I've had an opportunity to work more closely with him and Julie Fortenbery and our asset/liability group and the people in our capital markets group, I've really been impressed with the bench strength that we have. Greg is an example of that. Greg?

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Gregory N. Ramsey, Federal Agricultural Mortgage Corporation - VP, Controller, Principal Accounting Officer & Interim Principal Financial Officer [9]

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Sure. Thanks, Brad. Welcome, everyone. Turning to our second quarter 2019 results. Net outstanding business volume increased by $240 million as of June 30, 2019, to $20.7 billion driven by net growth across all 4 lines of business, most notably in Rural Utilities and Farm & Ranch lines of business. While our gross purchase volume was a bit lighter during the first half of 2019 than in the first half of last year, the loan prepayment rate during this period was among the lowest Farmer Mac has ever experienced.

Farmer Mac's net effective spread for second quarter 2019 was $41 million, a 14% increase from the $36 million in the second quarter of 2018. The improvement was primarily due to growth in outstanding business volume and the absence of the amortization of an IO security that paid off in the second quarter 2018. In percentage terms, net effective spread for second quarter 2019 was 0.91% compared to 0.86% in second quarter 2018.

Core earnings for second quarter 2019 grew 22% to $24 million or $2.20 per diluted common share compared to $19 million or $1.80 per diluted common share for second quarter 2018. The year-over-year increase in core earnings was primarily due to an increase in net effective spread and a decrease in operating expenses. Although our year-to-date operating expenses have increased by only 3% over the comparable prior year period, we still believe that our full year operating expenses will be higher than last year by approximately 8% to 9% due to various growth and strategic initiatives planned for the second half of 2019.

Turning to capital. Farmer Mac's $787 million of core capital as of June 30, 2019, exceeded our statutory requirement by $192 million or roughly 32%. This compares to $742 million of core capital as of March 31, 2019. The increase was due to the Board-authorized issuance of the Series D preferred stock and an increase in retained earnings partially offset by growth in our outstanding business volume.

As Brad mentioned earlier, Farmer Mac issued $100 million of Series D preferred stock during the quarter. Due to the timing of the issuance, Farmer Mac incurred dividends on both Series B and Series D preferred stock for 30 days during the second quarter and recognized issuance costs of $2 million related to the redemption of the Series B Preferred Stock. Because of this 30-day period of dividends on both the Series B and Series D preferred stock, Farmer Mac incurred $3.8 million in preferred stock dividends in the second quarter 2019.

Beginning in third quarter 2019, we expect our aggregate quarterly preferred stock dividend payment to be $3.4 million unless and until there is a change in the total amount of preferred stock outstanding. More complete information about Farmer Mac's second quarter 2019 performance is in the 10-Q we filed this morning with the SEC.

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

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [10]

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

Let me close with just a couple of observations to kind of summarize how I'm viewing the organization right now. First, Farmer Mac is in strong financial condition. Our credit quality has remained strong. We have exceptional access to cost-competitive funding. Our earnings have been strong and trending upward. We do have a very disciplined cost management, and our capital base is strong and even stronger now because of the recently issued preferred.

Second point is that we've been making some -- doing some fine-tuning of our leadership team here at Farmer Mac. Zack's arrival is an example of that. Brian Brinch's new role is an example of that. Todd Batta, who's stepped into our senior government affairs leadership position about 1.5 month ago, is yet another example of that. The organization and the leadership of this organization are really coming together under a more unified, strategic vision for what we can do and we believe, altogether, that we can do a lot more.

Third point is that we have an extremely dedicated group of employees. They're smart. They're capable. They're mission-driven. They're eager, and they're responding to this new leadership. With some of the changes currently underway, I think we will see even more excitement and passion and creativity to do even more.

Finally, we have a suite of products that have inherent competitive advantages attributable to our very competitive cost of funds and our very, very efficient delivery platform. I'd like to announce that we're an organization that is currently running about a $20 billion balance sheet. There's about $5 billion of annual gross volume, and we're doing that with about 100 employees. We can drive our growth rates higher. Our planning is going to contribute to that. And as we do so, we expect to continue to drive strong financial results for Farmer Mac and to better fulfill our mission of serving rural America. It's an exciting time here. I hope you are -- continue to be our partners because the future does look very bright for us.

And now operator, if you could see if there are any questions from any of the people who are on the phone today.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Scott Valentin at Compass Point Research.

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

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Just kind of, I guess, a big picture question. Obviously, the agricultural economy between the weather and tariffs challenging environment, I'm just wondering how that's feeding into your decisions on underwriting, maybe if it's targeting certain segments of agriculture over others, if there's any changes there.

And two, in terms of credit. You mentioned a while ago, the federal programs are designed to help agricultural economy, just wondering there what you expect in terms of credit going forward. You mentioned this is a seasonally strong part of the, I guess, the calendar year for credit, just wondering if you're seeing anything that gives you pause about the second half of the year.

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [3]

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Yes, Scott. Thanks very much for the question. I mean this is really at the heart of what we're asking, challenging ourselves on every day. What I can say is that our very conservative credit standards really are not changing. But in some cases, they're resulting in different results. For example, our approval rate under some of our Farm & Ranch loan programs has been dropping some from, let's say, low to mid-90% range to mid-80% range. And so that's an example of how the stress that is out there right now is resulting in what ultimately becomes a more selective outcome from the application of the same credit standards.

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

Curt, maybe you'd like to comment about kind of how we're thinking about the back half of the year, and whether any of the federal programs, I think Scott was asking about that, may impact credit results.

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John Curtis Covington, Federal Agricultural Mortgage Corporation - Executive VP & Chief Credit Officer [4]

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Thanks, Brad. I mean I would just reiterate what you had said in that our -- one of our mantras around Farmer Mac is consistent, conservative and pragmatic, and that is we're going to maintain the same set of consistent underwriting standards. We're not going to reach for deals, every deal that comes in the door. But we are going to take a pragmatic approach to the coming 6 months and towards the end of the year in terms of looking at transactions that come to the door.

I think we're going to see that the credit quality is going to remain probably where it is, at least in terms of the deals that we would see coming in the door. I think we're going to see some additional opportunities as far as when we get to harvest. I think we're going to find that come towards the end of the year, the performance of some of these farmers in the Midwest will probably be better than we thought it was going to be at the start of the year.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [5]

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That's very helpful. And then just on originations. You mentioned, I think, $1.2 billion of new business volume this quarter, down from last quarter. Last quarter was, I guess, a little bit of a special situation with participation. But just wondering, as you go forward, Rural Utilities, I think, some more activity this quarter. Just wondering, looking forward, how we should think about the mix of business going forward, where do you see opportunities to really grow? You mentioned all 4 verticals had some growth this quarter. But do you see any outsized opportunities in any one of the verticals?

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [6]

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I'm going to let Zack Carpenter comment on that, Scott. But first, just a couple of general observations. One is that, really across all of our lines of business, our market share is under 10% in everything we do as we measure market share. And so we're not an organization that is dependent upon changing pricing or changing credit standards in order to drive more business. I mean that certainly is a potential tool but also just being more proactive in how we market to our customers. Let them know who Farmer Mac is, that we exist, that we can offer competitively priced products. We can pick up a lot of market share with that kind of initiative and leveraging the platform we already have.

In terms of business, I think we previously have stated that on the Rural Utilities business that aggregate borrowings were relatively flat in the sector and yet, what we are seeing is a very, very nice pipeline of new opportunities that are coming in. Brian Brinch reviewed with us the numbers just a few days ago and that pipeline, I think, was appreciably stronger than we expected. Since we're starting with a portfolio of about $2 billion, it's not going to have an enormous total asset impact, but as a percentage of growth of portfolio, Rural Utilities could end up looking pretty strong this year, stronger than we expected.

Zack, do you want to comment on the others?

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Zachary N. Carpenter, Federal Agricultural Mortgage Corporation - Executive VP & Chief Business Officer [7]

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Sure. The market dynamics and uncertainty continue to affect various ag sectors. But we do see a strong pipeline, both in Farm & Ranch, especially after kind of a weak first quarter 2019, as well as the institutional space. In Farm & Ranch specifically, the competition is strong. Pricing dynamics and structures remain impressive. So clearly, we remain diligent in our underwriting. But we do see some strong opportunities and pipelines in that space.

Specifically on institutional, we see a significant amount of institutional capital being invested in the agricultural space. And we believe we can be a meaningful part of that investment thesis in rural America and being able to deploy our capital through, as Brad mentioned earlier, innovative products as well as working with new customers.

And lastly, as we mentioned in our prepared remarks, we believe by investing in our technology and infrastructure that we will create a foundation to better serve our existing customer base through efficiency and most importantly scalability. So there's a significant organic growth really from existing business models as well as being able to partner with a broader set of market participants in the agriculture and rural utility space.

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Operator [8]

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Your next question comes from Greg Pendy from Sidoti.

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Gregory R. Pendy, Sidoti & Company, LLC - Consumer Analyst [9]

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I just wanted to drill down a little bit on the operating expenses. You're targeting 8% to 9% for the year. They were a little bit light on this quarter. So just trying to understand should this be evenly spread out over the remaining 2 quarters? Or do you think it will be sort of back-end weighted? Just trying to get a sense of the cadence.

And then also could you give us a little bit of color on sort of that spending? Is this sort of catch-up spending? Or is this opportunistic infrastructure spending?

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [10]

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The expenses really fall into kind of 2 buckets. One is our expenses associated with the upgrade of our IT infrastructure. We have a major initiative underway that really touches every area of the organization from our origination platform to our financial reporting. And over about 1.5 years period of time and it's about a $1.5 million number, we're expecting that some of that would get in the second quarter. It really didn't. It will be hitting in the third quarter. I'll ask Greg whether he can provide any more detail on exactly how it's spread. But there's a shift from second to third quarter for expenses associated with the launch of that new upgraded initiative.

The other thing is we have employee-related expenses including -- and other expenses that we thought would land in the second quarter that will hit in the third quarter. We do have some separation expenses that are going to hit in the third quarter. And we are adding a few new employees. And so when you put that all together, you'll see personnel-related expenses up in the third quarter.

Greg, can you add anything further to that?

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Gregory N. Ramsey, Federal Agricultural Mortgage Corporation - VP, Controller, Principal Accounting Officer & Interim Principal Financial Officer [11]

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I would just say, to the extent that we have seen variances from the plan, it really has been more a function of timing rather than actual reduction in expected costs. So to Brad's point, we will see those planned expenses hit just a little later in the year that are primarily in the third quarter but some in the fourth.

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Gregory R. Pendy, Sidoti & Company, LLC - Consumer Analyst [12]

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Okay. That's helpful. That's -- and then just one other one, I guess just when you mentioned the approval ratings being a little bit tighter. So is it fair to say the low delinquencies you're seeing, I guess, within your portfolio may not be representative of the market overall?

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [13]

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Well, they definitely are not representative of the overall market. I mean we regularly track the rest of the farm credit system and agricultural delinquencies in the commercial banking system as well, and we compare very favorably to those 2 other broad bucket ag lending sectors.

Important, I think, to note that the most volatility you're going to see in delinquencies and credit quality are probably going to be in seasonal operating loans which, I think as you know, is something Farmer Mac does not do, and that's a matter of charter for us. So even if you compare mortgage loan delinquencies across farm credit, commercial banks and insurance companies, we compare favorably.

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Operator [14]

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Your next question comes from Scott Valentin at Compass Point Research.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [15]

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Just with regard to the spread, I know it's usually typically high 80s, low 90s. It recovered a little bit this quarter. Given what's happened with interest rates, do you see any change? You mentioned competition. Do you see any change in that kind of high 80s, low 90s spread going forward?

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [16]

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I think that that's the best expectation that we can provide right now for you, Scott. Some of the factors at work. We're seeing, really associated with the phaseout of LIBOR, we're seeing some pressures in funding markets right now. We have a little bit of pressure on that spread. But at the same time, as Zack and I have discussed somewhat today, we have a very small market share. We view that we operate in markets that have pressure on credit spreads but that also our markets that offer some pretty inefficient pricing opportunity. And so as we get more adept at finding those in the market, we hope to maintain that over time, maybe even improve a little bit.

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Scott Jean Valentin, Compass Point Research & Trading, LLC, Research Division - MD & Research Analyst [17]

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Okay. And then just one last follow-up. In terms of the first quarter, I think you had a significant participation with the farm credit system, one of the farm credit banks. Just wondering, I think there was some thought there was opportunity to do more of that. Just wondering if that's still your thought.

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [18]

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It's not just a thought. It's actually what we're realizing. We've had a steady stream of new opportunities around Rural Utilities during the second quarter from CoBank and also from CFC, and we're managing those relationships, I think, very effectively, and we're seeing nice new business opportunities. So the expectation that we can use a new business arrangement, for example, with CoBank and build on it, I think is being realized. Since Zack came from CoBank, I'd like to turn to him to comment on what the potential maybe for agribusiness and other types of partnerships with CoBank as well?

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Zachary N. Carpenter, Federal Agricultural Mortgage Corporation - Executive VP & Chief Business Officer [19]

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Sure. Yes, thanks, Brad. So yes, the CoBank participation was significant, and it was in the rural utilities space. But as you're aware, CoBank and the farm credit system are much larger in the agricultural lending space, all the way up from rural real estate to agribusiness lines of credit that fall into our charter. So as we think about partnerships, expanding our relationship with not only CoBank but many of the other associations and banks in the farm credit system, it's something that we're already talking with them about, engaging with them about and see some very exciting opportunities in the near future.

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Operator [20]

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

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Bradford T. Nordholm, Federal Agricultural Mortgage Corporation - President & CEO [21]

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Terrific. Well, again, thank you all for being on today. We're proud of our results, and we also are very happy to continue our discussions with you one-on-one offline to the extent you have any further questions that we might be able to be helpful in answering.

With that, I wish you a good day, and we'll look forward to connecting again next quarter.