Federal Agricultural Mortgage (AGM) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Core earnings for Q1 2022 were $25.8 million, or $2.37 per diluted common share, compared to $30 million, or $2.75 per diluted common share in Q4 2021, and $25.9 million, or $2.39 per diluted common share for the same period last year [14] - Net effective spread for Q1 2022 was $57.8 million, an approximate 7% increase compared to Q4 2021 and the same period last year [15] - Operating expenses increased by 13% in Q1 2022 compared to Q1 2021, primarily due to increased headcount and technology investments [19] Business Line Data and Key Metrics Changes - The Agricultural Finance line of business grew approximately $500 million this quarter, or roughly 3%, primarily due to AgVantage securities and Farm & Ranch loan purchase programs [6] - The Rural Infrastructure Finance line of business grew nearly $150 million this quarter, or 2%, primarily due to loan purchase products and a $35 million commitment to a large solar project [9] - The securitization program faced challenges in Q1 2022 due to market volatility, but the company remains committed to building a robust securitization program [10][18] Market Data and Key Metrics Changes - The agricultural sector is experiencing rising farm expenses across nearly all categories, driven by higher grain, fertilizer, energy, and labor prices [7] - The USDA forecasts record net cash incomes for 2022, despite anticipated increases in production expenses and decreases in government payments [8] - Commodity prices are at historically high levels, with corn approaching $8 per bushel and wheat over $10 per bushel, which may offset rising input costs [27] Company Strategy and Development Direction - The company is focused on enhancing its technology infrastructure and has set meaningful market share goals in its strategic plan [11] - A rebranding initiative is underway to better connect with a larger audience and stakeholders [12] - The company plans to continue investments in headcount and technology to support growth and mitigate risks [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the overall condition of American agriculture, despite current volatility and rising input costs [26] - The company is well-positioned to navigate the current economic environment and is excited about future opportunities [23] - Credit quality remains strong, with expectations of continued high-quality credit performance in the portfolio [31] Other Important Information - The total allowance for losses was $16.3 million as of March 31, 2022, a modest decrease from year-end 2021 [21] - Farmer Mac's core capital as of March 31, 2022, was $1.2 billion, exceeding statutory requirements by $489 million [22] Q&A Session Summary Question: Impact of current political and economic situation on grain prices and credit quality - Management acknowledged the volatility in the environment but maintained a generally positive outlook for American agriculture in 2022, with anticipated record earnings [26][27] Question: Opportunities for market share gains given access to capital - Management identified opportunities in various portfolio segments, particularly in AgVantage activity and long-term fixed-rate mortgages [33][34][35] Question: Adjustments to hedges due to market shifts - Management confirmed that their disciplined asset liability management mitigated the need for adjustments to hedges despite market volatility [38] Question: Funding costs and available spreads for new investment - Management noted widening funding costs but emphasized their competitive positioning relative to other issuers [42][43] Question: Impact of servicing business on net interest margin - Management indicated that the servicing business would likely have a neutral to positive impact on net interest margin over time [45] Question: Plans to achieve below 30% efficiency ratio - Management expressed optimism about managing the efficiency ratio below 30% on an annualized basis, despite current elevated levels [49][48]