Farmer Mac 4Q14 Earnings Call Notes

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Business environment remained favorable

“Farmer Mac’s business environment remained favorable in 2014 and we are very pleased with our results for the year, even more exciting is that our outlook going forward is very positive with many new business prospects for 2015 and a healthy credit portfolio that is well positioned to withstand any pressures that may stress the agricultural economy.”

Credit quality still strong

“Credit quality continues to be very favorable as evidenced by 90-day delinquencies, covering the lowest end the Farmer Mac’s historic range and net releases to the allowance for losses of $3.2 million”

Stable demand but refinancings have abated

“We have experienced continuing stable demand for our loan products in the Farm & Ranch line of business, although growth rates have leveled off as the refinancing trend has abated. However, net growth in Farm & Ranch loans is expected to continue as prepayment rates have slowed more than new loan volume.”

Delinquencies only 0.35%

“As of December 31, only $19 million or 0.35% of our $5.4 billion Farm & Ranch portfolio was 90 days delinquent, that’s down from $28 million or 0.55% year ago and it’s hovering at record low levels.”

Drought in California could have a material impact

“As we highlighted last quarter, the western part of the United States including California continues to experience drought conditions with the water level in many California reservoirs at historically low levels, although to-date Farmer Mac has not observed any material effect on its portfolio from drought conditions, persistence of extreme drought in the western states could have an adverse effect on Farmer Mac’s delinquency rates or loss experience. This is particularly true in the permanent planting sector and the dairy sector.”

Permanent plantings and dairy may be hard hit

“For permanent plantings, the value of the related collateral is closely tied to the production value and capability of the permanent plantings. The dairy sector may experience increased feed costs as water is diverted away from hay acreage commonly relied upon by dairy producers and toward land”

47m in earnings

“For the full year core earnings excluding these indicated items were $47.9 million for 2014 compared to $54.9 million in 2013.’

766m in capital

“Turning to capital, Farmer Mac’s $766 million of core capital as of yearend exceeded the statutory minimum capital requirement of $420 million by $345 million or 82%.”

Row crops are better credit risk than permanent plantings

“Row crops in general, corn and soybeans being the primary two, again as we’ve seen our portfolio shift towards the Upper Midwest compared to many years ago, when we were skewed toward the Southwest in particular California, the commodity mix has changed somewhat because of the different crops that are grown in those two areas. But, yeah, from a commodity standpoint, row crops is probably the most significant. I think, overall from a credit risk standpoint, that’s in our view, a safer crop compared to those that might be permanent plantings where you can see long-term damage and problems from a bad year compare that to a row crops where you often see farmers switching from one crop to another depending on where they expect yields to be and future prices.”