Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Non-Deal Roadshow (November 2014)
40 slides from Federal Agricultural Mortgage's roadshow presentation, Nov 18, 2014
Slide 1: Equity Investor Presentation, September 30, 2014
September 30, 2014 Equity Investor Presentation
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements Forward-Looking Statements In addition to historical information, this presentation includes forward-looking statements that reflect management’s current expectations for Farmer Mac’s future financial results, business prospects, and business developments. Forward-lookin
Slide 3: Non-GAAP Financial Measures
3 Non-GAAP Financial Measures This presentation is for general informational purposes only, is current only as of September 30, 2014, and should be read in conjunction with Farmer Mac’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Farmer Mac uses core earnings, a non-GAAP financial
Slide 4: Table of Contents
4 Table of Contents • Overview and Highlights.............................5 • Business and Products...............................12 • Portfolio and Lines of Business..................15 • Financial Performance................................23 • Funding and Risk Management..................27 • App
Slide 5: Overview and Highlights
Overview and Highlights
Slide 6: Farmer Mac Overview
6 Farmer Mac Overview • Created in the 1980s to help prevent future agricultural credit crises – Provide a secondary market for agricultural and rural utilities loans – Broaden access and drive more efficient loan pricing – Reduce agricultural credit market volatility • Provide diverse product suite
Slide 7: Investment Highlights
7 • Rigorous underwriting standards • Modest delinquencies • Low cumulative historical credit losses Quality Assets • Finance asset purchases through issuance of low-cost debt • Issue at narrow, GSE spreads to U.S. Treasuries Funding Advantage • Robust worldwide demand for agricultural products • St
Slide 8: Key Company Metrics – Core Earnings
8 $9.1 $11.7 $11.3 $11.0 $10.0 $12.9 $16.5 $23.2 $11.2 $13.4 $11.8 $9.3 $12.6 $11.6 $15.3 $0 $10 $20 $30 $40 $50 $60 2011 2012 2013 2014 Mil lion s Q4 Q3 Q2 Q1 Key Company Metrics – Core Earnings $42.9 $49.6 $54.9 $43.5 Core earnings for 2014 include the effects of the cash management and liquidity
Slide 9: Key Company Metrics – Outstanding Volume
9 Key Company Metrics – Outstanding Volume $4.4 $4.8 $5.2 $5.0 $5.3 $5.1 $5.6 $6.0 $6.1 $6.0 $1.5 $1.6 $1.7 $1.7 $1.7 $0.9 $1.0 $1.1 $1.0 $1.0 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 2011 2012 2013 Q3 2013 Q3 2014 B il li o n s Rural Utilities USDA Guarantees Institutional Credit Farm & Ranch $13.8 $14.0
Slide 10: Key Company Metrics – 90-Day Delinquencies
10 Key Company Metrics – 90-Day Delinquencies $44.8 $40.8 $33.0 $24.7 1.02% 0.93% 0.66% 0.46% 0.38% 0.33% 0.24% 0.18% 0.00% 0.50% 1.00% 1.50% $0 $20 $40 $60 $80 Q3 2011 Q3 2012 Q3 2013 Q3 2014 M il li o n s 90-day Delinquencies (Left Axis) % of Farm & Ranch Only (Right Axis) % of Total Portfolio (Ri
Slide 11: Key Company Metrics – Capital
11 As of Quarter-end $475 $519 $591 $578 $761 $127 $145 $192 $189 $333 $0 $50 $100 $150 $200 $250 $300 $350 $400 $0 $200 $400 $600 $800 2011 2012 2013 Q3 2013 Q3 2014 M illio n s M il li o n s Core Capital (Left Axis) Excess Statutory Capital (Right Axis) Key Company Metrics – Capital Core capital d
Slide 12: Business and Products
Business and Products
Slide 13: Business Overview
13 Business Overview BORROWERS LOAN ORIGINATORS FARMER MAC Mortgage Lenders: • Community Banks • Farm Credit System • Mortgage Companies • Commercial Banks • Insurance Companies • Credit Unions Rural Utilities Cooperative Lenders: • National Rural Utilities CFC • CoBank Farmers & Ranchers Rural Util
Slide 14: Products and Features
14 PRODUCT TYPE FEATURES LINES OF BUSINESS Loan Purchases • Originator bank sells loans that are not good fit with its funding sources • Originator maintains field servicing • Frees capital for originator F & R USDA RU IC Total $2.4B 17% $1.7B 13% $1.0B 7% -- $5.1B 37% Loan Financing: • AgVantage •
Slide 15: Portfolio and Lines of Business
Portfolio and Lines of Business
Slide 16: Outstanding Business Volume
16 $2.5 $3.0 $3.4 $5.5 $6.0 $6.0 $2.9 $3.1 $2.9 $1.6 $1.7 $1.7 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 Q3 2012 Q3 2013 Q3 2014 B ill io n s Loans AgVantage Standbys / Guar. USDA Guarantees (1) (2) Outstanding Business Volume • $14.0 billion total business volume – Outstanding volume is up YTD by a net $5
Slide 17: Line of Business Focus: Farm & Ranch
17 $1.5 $2.0 $2.4 $2.9 $3.0 $2.9 $0 $1 $2 $3 $4 $5 Q3 2012 Q3 2013 Q3 2014 B ill io n s Loans Standbys / Guarantees (1) (2) $4.4 $5.0 $5.3 Line of Business Focus: Farm & Ranch • Purchase or guarantee first lien mortgages on agricultural real estate – Loans (spread) • Purchase and retain eligible who
Slide 18: Line of Business Focus: Farm & Ranch
18 Line of Business Focus: Farm & Ranch Crops 54% Permanen t Plantings 17% Livestock 24% Part-time Farm / Housing 3% AgStorag e/Process ing 2% Northwes t 10% Southwes t 32% Mid- North 35% Mid- South 12% Northeast 4% Southeast 7% September 30, 2014 Commodity Type Geography
Slide 19: Line of Business Focus: Rural Utilities
19 Line of Business Focus: Rural Utilities • Work with rural utilities cooperative lenders (two eligible) • Rural utilities borrowers are local monopolies – Represent ~10% of U.S. electricity sales and retail customers – Have cost-plus pricing – Loans secured by a first lien on all assets, future re
Slide 20: Line of Business Focus: USDA Guarantees
20 Line of Business Focus: USDA Guarantees • U.S. Department of Agriculture guarantee on portions of private sector loans – Full faith and credit of U.S. government • Loan collateral – Farm real estate (FO) – Farm equipment (OL) – Rural business assets (BI) – Community facilities (CF) OL = operating
Slide 21: Line of Business Focus: Institutional Credit
21 Line of Business Focus: Institutional Credit • Finance lenders’ agricultural and rural utilities portfolios • Originator retains loans – AgVantage (spread and fees) • Buy general obligation securities issued by loan originators • Secured by pools of eligible loans $0 $2 $4 $6 $8 Q3 2012 Q3 2013 Q
Slide 22: Historical Credit Losses
22 Historical Credit Losses • Rural Utilities has not had any delinquencies or credit losses • USDA Guarantees and Institutional Credit have not had any credit losses • Farm & Ranch has cumulative losses of 0.16%, or approximately 1bp/year – Cumulative losses of $31 million – On $19.6 billion of cum
Slide 23: Financial Performance
Financial Performance
Slide 24: Q3 2014 Performance
24 Q3 2014 Performance • Net effective spread of 89 bps, an expansion of 5 basis points compared to the second quarter • Core earnings of $9.3 million ($0.82 per diluted common share) – Core earnings, excluding the effects of two short-term initiatives, of $12.5 million, or $1.10 per diluted share •
Slide 25: Farmer Mac's Core Earnings History
25 Farmer Mac’s Core Earnings History Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Revenues: Net effective spread 27,238$ 26,349$ 23,702$ 27,144$ 25,781$ 26,063$ 26,263$ 26,460$ 27,256$ Guarantee and commitment fees 6,680 6,916 7,049 7,130 7,047 6,954 6,792 6,764 6,591 Other (2,001
Slide 26: Summary Balance Sheets
26 Summary Balance Sheets September 30, 2014 December 31, 2013 December 31, 2012 December 31, 2011 December 31, 2010 (in millions) Cash and cash equivalents $ 627.7 $ 749.3 $ 785.6 $ 817.0 $ 729.9 Securities purchased under agreements to resell 1,630.4 -- -- -- -- Investment securities 1,985.8 2,484
Slide 27: Funding and Risk Management
Funding and Risk Management
Slide 28: Funding
28 Funding • Finance asset purchases with proceeds of debt issuances – 20+ dealers – Match funding effectively locks in net spread • Debt securities trade at narrow spreads to comparable maturity Treasuries * As of November 1, 2014 • Farmer Mac’s debt securities carry privileges for certain holders
Slide 29: Interest Rate Risk
29 Interest Rate Risk • Match fund asset purchases with liabilities that have similar interest rate characteristics – Duration and convexity matching – Coupon type – Reset frequency • Manage prepayment risk on mortgages – Callable debt and bullet issuances across spectrum of maturities – Can adjust
Slide 30: Liquidity – Investment Portfolio
30 Liquidity – Investment Portfolio • Farmer Mac maintains an investment portfolio to provide a back-up source of liquidity in excess of regulatory requirements – A minimum of 90 days of liquidity required by regulation (effective April 30, 2014) • $2.6 billion investment portfolio at quarter-end –
Slide 31: Appendix
Appendix
Slide 32: Key Company Metrics
32 Key Company Metrics Q3 YTD 2014 2013 2012 2011 (dollars in thousands, except per share amounts) Core Earnings $43,521 $54,892 $49,642 $42,907 Core Earnings per Diluted Share $3.83 $4.90 $4.51 $3.97 Net Effective Spread ($) $77,289 $105,251 $106,557 $89,419 Net Effective Spread (%) 0.83% 0.86% 0.9
Slide 33: Core Earnings & Core Earnings Excluding Indicated Items
33 Core Earnings & Core Earnings Excluding Indicated Items (Non-GAAP Measure) YTD Q3 2014 2013 2012 2011 Net effective spread: (in millions) Interest income $ 184.5 $ 255.8 $ 274.9 $ 281.4 Interest expense 107.2 150.5 168.3 192.0 Net effective spread 77.3 105.3 106.6 89.4 Non-interest income: Guaran
Slide 34: Reconciliation of Net Income to Core Earnings (YTD)
34 Q3 YTD 2014 2013 2012 2011 Net income attributable to common stockholders 32,604$ 71,833$ 43,894$ 13,784$ Less the after-tax effects of: Unrealized (losses)/gains on financial derivatives and hedging activities (2,763) 29,368 4,325 (30,930) Unrealized gains/(losses) on trading assets 359 (533) 20
Slide 35: Reconciliation of Net Income to Core Earnings (Quarterly)
35 Reconciliation of Net Income to Core Earnings and Core Earnings Excluding Indicated Items Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Net income attributable to common stockholders 11,586$ 20,205$ 813$ 12,485$ 15,413$ 27,745$ 16,190$ 9,601$ 16,381$ Reconciling items (after-tax
Slide 36: Farmer Mac's Net Effective Spread History
36 Farmer Mac’s Net Effective Spread History Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield For the quarter ended: September 30, 2014 8,207$ 1.68% 5,073$ 1.18% 2,890$ 1.16% 7,295$ 0.58% 3,773$ 0.59% 27,238$ 0.89% June 30, 2014 7,820 1.64% 4,159 0.99% 2,953 1.16%
Slide 37: Regulatory/Congressional Oversight
37 Regulatory/Congressional Oversight • SEC regulation under federal securities laws since initial charter • Subject to NYSE rules and regulations since 1999 • Regulated by the Farm Credit Administration (FCA) through its Office of Secondary Market Oversight (see www.fca.gov for more information) •
Slide 38: Three Common Equity Share Classes
38 Number of Shares Class A Voting Common Stock • NYSE-traded “AGM.A” • Ownership restricted to Financial Institutions 1.0 million Class B Voting Common Stock • Not publicly traded • Ownership restricted to Farm Credit System institutions 0.5 million Class C Non-Voting Common Stock • NYSE-traded “AG
Slide 39: Agricultural Land Values
39 Source: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446 Agricultural Land Values Agricultural Land Values 0 500 1000 1500 2000 2500 3000 3500 4000 4500 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 A v er a g e V a lu e P er A cr e Cr
Slide 40: Agricultural Income and Leverage
40 5% 10% 15% 20% 25% 30 yr. average 2014 Forecast as of 2/20/14 Source: USDA Farm Sector & Household Income Real Net Farm Income Debt-to-Asset Ratio 0 20 40 60 80 100 120 140 $Bil lio n s 10 yr. average Agricultural Income and Leverage • Agricultural sector using favorable conditions to reduce leve
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