Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Q3 2018 Earnings Presentation
47 slides from Federal Agricultural Mortgage's earnings presentation, Nov 8, 2018
Slide 1: Third Quarter Equity Investor Presentation 2018
Third Quarter Equity Investor Presentation 2018
Slide 2: Forward-Looking Statements
FARMER MAC Forward-Looking Statements In addition to historical information, this presentation includes forward- NO OFFER OR SOLICITATION OF SECURITIES looking statements that reflect management’s current expectations for This presentation does not constitute an offer to sell or a solicitation of Fa
Slide 3: Use of Non-GAAP Financial Measures
FARMER MAC Use of Non-GAAP Financial Measures This presentation is for general informational purposes only, is current Core earnings and core earnings per share also differ from net income only as of September 30, 2018, and should be read in conjunction with attributable to common stockholders and e
Slide 4: Table of Contents
FARMER MAC Table of Contents 05 Executive Summary 13 Farmer Mac Overview 23 Appendix EQUITY INVESTOR PRESENTATION 04
Slide 5: Executive Summary
Executive Summary Financing Rural America
Slide 6: Farmer Mac Overview
FARMER MAC Farmer Mac Overview Farmer Mac initially chartered Farmer Mac was created in response to the 1987 by Congress as an instrumentality agricultural credit crisis of the 1980s of the United States • Increases the availability and affordability of credit for the benefit of American agricultura
Slide 7: Agricultural Real Estate Mortgage Market Structure
FARMER MAC Agricultural Real Estate Mortgage Market Structure (1) (2) AS OF DECEMBER 31, 2017 NON-FCS FARM CREDIT SYSTEM (GSE) AG LENDERS Cooperative Secondary Market W HOLESALE FINANCING COMPANIES INSURANCE $14.3 Billion $8B (3) $20B {9.0% Eligible Market Share} COBANK Nationwide LOAN SALES CREDIT
Slide 8: Agricultural Industry Dashboard
FARMER MAC Agricultural Industry Dashboard Farm Income (1) Commodity Index(2)(3) 140 10-year Average 400 120 $86 billion 300 100 80 200 60 INDEX $ IN BILLIONS $ IN 100 40 297 195 200 240 182 219 170 179 164 184 20 123.8 92.4 81.5 61.6 75.5 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Feed G
Slide 9: Farmer Mac Dashboard
FARMER MAC Farmer Mac Dashboard Core Earnings(1) (2) Net Effective Spread (1) (2) $70 92 $60 90 $50 88 $40 86 $30 84 BASIS POINTS BASIS $ IN MILLIONS $ IN $20 $10 82 $47.0 $53.5 $65.6 $63.6 85 84 91 90 $0 80 2015 2016 2017 3Q18 YTD 2015 2016 2017 3Q18 YTD Outstanding Business Volume 90-Day Delinquen
Slide 10: Global Outlook – Demand Pull
FARMER MAC Global Outlook – “Demand Pull” (1) (2) 12.0 0.50 0.43 0.45 ARABLE LAND PER CAPITA 10.0 0.40 (hectare use in perperson) 8.0 0.35 0.30 6.0 0.25 0.18 (in billions) (in 0.20 4.0 0.15 WORLD POPULATION WORLD 2.0 0.10 3.0 9.8 0.05 0.0 0.00 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Popula
Slide 11: Historical Dividend Growth
FARMER MAC Historical Dividend Growth $0.70 $0.60 $0.58 $0.50 Initiated New Dividend Policy: Target ~30% Payout Ratio of Core $0.40 Earnings Over Time $0.36 $0.30 $ PER SHARE $ PER $0.26 $0.20 $0.16 $0.14 $0.12 $0.10 $0.10 $0.05 $0.00 2011 2012 2013 2014 2015 2016 2017 2018 Quarterly Dividend per Co
Slide 12: Farmer Mac's Investment Highlights
FARMER MAC Farmer Mac’s Investment Highlights •Rigorous underwriting standards Quality Assets •Low delinquencies •Low cumulative historical credit losses •Finance assets through issuance of low-cost public debt Funding Advantage •Issue at narrow, GSE spreads to U.S. Treasuries •Robust worldwide dema
Slide 13: Farmer Mac Overview
Farmer Mac Overview Financing Rural America
Slide 14: Farmer Mac's Unique Market Position
FARMER MAC Farmer Mac’s Unique Market Position Farmer Mac enjoys a unique position, sharing in upside opportunity in strong markets and benefiting from downside protection and increased relative demand in weak markets Strong Market – Farmer Mac can participate in the upside • Situation: Credit is he
Slide 15: Farmer Mac's Downside Protection
FARMER MAC Farmer Mac’s Downside Protection Conservative underwriting with significant focus on repayment strength and low LTVs • Total Debt Coverage (TDC) ratio of at least 1.25x • Generally maximum LTVs of 60% to 70%, but in practice average 40% to 45% on mortgages purchased • Require minimum borr
Slide 16: Lines of Business and Products
FARMER MAC Lines of Business and Products AS OF SEPTEMBER 30, 2018 Product Type Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks F & R USDA RU IC Total • FCS Institutions $4.4 $2.5 $0.9 -- $7.8 • Insurance Companies 23% 12% 5% 40% • Rural Utilities C
Slide 17: Credit-Risk Adjusted Returns
FARMER MAC Credit-Risk Adjusted Returns THIRD QUARTER 2018 Lines of Business $ IN MILLIONS Farm & Ranch (1) Rural Utilities Institutional USDA Total Loan Credit Loan Credit Credit Purchase Protection Purchase Protection Assets $2,937 $4,135 $2,471 $963 $669 $8,365 $19,541 % of Total Outstanding Busi
Slide 18: Farm & Ranch Loan Portfolio Diversification
FARMER MAC Farm & Ranch Loan Portfolio Diversification(1) AS OF SEPTEMBER 30, 2018 By Commodity Type By Geographic Region Ag. Storage and Southeast Processing 8% 1% Northeast Part-time 5% Farm Northwest 7% 12% Livestock Mid- 19% South 12% Crops 53% Southwest 31% Permanent Mid- Plantings North 20% 32
Slide 19: Core Earnings – Direct Function of Three Factors
FARMER MAC Core Earnings(1) – Direct Function of Three Factors Factors Things to Consider BUSINESS VOLUME • Macro supply/demand for ag credit • Farmer Mac business development success • Impact of potential credit quality shocks • Impact of potential rate shocks NET EFFECTIVE SPREAD (1) • Macro suppl
Slide 20: Farmer Mac Outstanding Business Volume
FARMER MAC Farmer Mac Outstanding Business Volume $25 11.2% CAGR (2000 to 2017) $19.5 $20 $15 $ IN BILLIONS $ IN $10 $5 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 3Q18 FARMER MAC OVERVIEW 20
Slide 21: Farmer Mac Credit vs. Industry
FARMER MAC Farmer Mac Credit vs. Industry 90-Day Delinquencies 2.50% 2.37% 2.00% 2.09% 2.00% 1.63% 1.59% Farmer Mac Historical 1.63% Average 1.00% 1.50% 1.16% 1.35% 1.13% 1.23% 1.14% 1.08% 1.05% 1.25%1.21% 1.00% 0.75% 0.95% 0.90% 0.71% 0.60% 0.55% 0.93% 0.52% 0.80% 0.70% 0.50% 0.60% 0.55% 0.58% 0.55
Slide 22: Farmer Mac – Historical Credit Losses
FARMER MAC Farmer Mac – Historical Credit Losses Ag Storage & Processing Crops Permanent Plantings Livestock Part-Time Farm / Rural Housing $12 $10 $8 $6 $ IN MILLIONS $ IN NET LOSS / (GAIN) / LOSS NET $4 $2 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 23: Appendix
Appendix
Slide 24: Key Company Metrics
FARMER MAC Key Company Metrics ($ in thousands, except per share amounts) 3Q18 YTD 2017 2016 2015 Core Earnings(1) $63,588 $65,631 $53,481 $47,035 Core Earnings per Diluted Share(1) $5.92 $6.08 $4.98 $4.16 Net Effective Spread ($)(1) (2) $112,340 $141,303 $123,072 $117,428 Net Effective Spread (%)(1
Slide 25: Business Development
FARMER MAC Business Development Product Type Marketing Channel Target Customers AG LOAN PURCHASES • Regional relationship managers • Over 3,100 commercial banks with agricultural AND CREDIT loans on-balance sheet (nearly 700 are approved • Geographically dispersed nationwide (1) PROTECTION Farmer Ma
Slide 26: Core Earnings (Non-GAAP Measure)
FARMER MAC Core Earnings (Non-GAAP Measure)(1) (2) $70.0 $65.6 $63.6 $60.0 $53.5 $17.9 $22.4 $50.0 $47.0 $13.2 $40.0 $13.1 $16.7 $14.6 $30.0 $19.4 $ IN MILLIONS $ IN $13.2 $16.0 $20.0 $13.1 $11.4 $10.0 $21.8 $15.0 $9.3 $12.6 $0.0 2015 2016 2017 2018 1Q 2Q 3Q 4Q Total APPENDIX (1) Core earnings is a
Slide 27: Business Volume
FARMER MAC Business Volume(1) (2) AS OF YEAR-END AS OF QUARTER-END $22.0 $19.5 $19.0 $18.6 $17.4 $1.6 $1.9 $1.9 $17.0 $15.9 $2.5 $1.9 $2.3 $1.5 $2.3 $2.1 $1.9 $12.0 $8.4 $7.9 $7.9 $6.7 $7.3 $ IN BILLIONS $ IN $7.0 $7.1 $5.8 $6.1 $6.9 $6.6 $2.0 2015 2016 2017 3Q17 3Q18 -$3.0 Farm & Ranch Institutiona
Slide 28: Net Effective Spread (Non-GAAP Measure)
FARMER MAC Net Effective Spread (Non-GAAP Measure)(1) (2) AS OF YEAR-END $160.0 0.92% 0.91% $140.0 0.90% 0.91% 0.90% $120.0 0.88% $100.0 $80.0 0.86% 0.85% $ IN MILLIONS $ IN $60.0 0.84% $40.0 0.84% 0.82% $20.0 $117.4 $123.1 $141.3 $103.8 $112.3 $0.0 0.80% 2015 2016 2017 3Q17 YTD 3Q18 YTD Net Effecti
Slide 29: Farmer Mac Net Effective Spread
FARMER MAC Farmer Mac Net Effective Spread (1) 120 3.5% 3.0% 2.8% 3.0% 100 2.5% MOODY’S CORPORATE 80 SPREAD SPREAD INDEX 2.0% 1.7% 60 1.6% 1.6% 1.4% 1.3% 1.4% 1.5% 1.2% BASIS POINTS BASIS 1.1% 1.1% 1.1% 40 0.9% NET EFFECTIVE SPREAD EFFECTIVE NET 1.0% 20 0.5% 69 78 106 97 106 106 104 96 90 85 84 91 9
Slide 30: Credit Metrics
FARMER MAC Credit Metrics Total Allowance for Losses $12.0 0.3% $10.0 $8.0 0.2% $6.0 0.19% % $4.0 0.1% $ IN MILLIONS $ IN 0.12% 0.13% 0.13% $2.0 $10.3 $6.9 $8.5 $9.0 $0.0 0.0% 3Q15 3Q16 3Q17 3Q18 Total Allowance for Losses % of Farm & Ranch Portfolio 90-Day Delinquencies Substandard Assets Historica
Slide 31: Capital
FARMER MAC Capital AS OF YEAR-END AS OF QUARTER-END $800 30.0% $714 $657 $653 25.0% $610 $174 $600 $564 $137 $138 $143 20.0% $102 13.3% $400 12.7% 12.6% 13.1% 15.0% 10.5% $ IN MILLIONS $ IN CORE CAPITAL CORE 10.0% TIER 1 CAPITAL RATIO (%) RATIO 1 CAPITAL TIER $200 5.0% $462 $467 $520 $516 $540 $0 0.
Slide 32: Liquidity – Investment Portfolio
FARMER MAC Liquidity – Investment Portfolio AS OF SEPTEMBER 30, 2018 Farmer Mac maintains an investment portfolio to Liquidity Portfolio provide back-up source of liquidity in excess of regulatory requirements Asset-Backed Securities • Minimum of 90 days of liquidity required by regulation 1% $2.7 b
Slide 33: Interest Rate Risk
FARMER MAC Interest Rate Risk Match fund asset purchases with liabilities that have similar interest rate characteristics • Duration and convexity matching • Coupon type • Reset frequency Manage pre-payment risk on mortgages • Issue a portfolio of callable and bullet debt across spectrum of maturiti
Slide 34: Funding
FARMER MAC Funding Finance asset purchases with proceeds of debt issuances • 20+ dealers • Match-funding provides for stable net effective spread and immaterial interest rate risk Farmer Mac’s debt securities carry privileges for certain holders • 20% capital risk weighting • Eligible collateral for
Slide 35: Equity Capital Structure
FARMER MAC Equity Capital Structure NYSE Dividend Shares Ticker Yield Outstanding CLASS A VOTING COMMON STOCK AGM.A 3.50%(1) 1.0 million • Ownership restricted to non-Farm Credit System financial institutions STOCK CLASS B VOTING COMMON STOCK -- -- 0.5 million • Ownership restricted to Farm Credit S
Slide 36: Farmer Mac's Net Effective Spread History
FARMER MAC Farmer Mac’s Net Effective Spread History(1) (2) Net Effective Spread by Business Segment Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Net Effective Spread ($ in thousands) Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield F
Slide 37: Reconciliation of Core Earnings to Net Income (Quarterly)
FARMER MAC Reconciliation of Core Earnings to Net Income Core Earnings by Quarter Ended ($ in thousands) Sep-18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Net income attributable to common stockholders $ 26,474 $ 26,340 $ 22,524 $ 16,710 $ 18,487 $ 17,488 $ 18,615 $ 25,465 $ 16,364 Reco
Slide 38: Reconciliation of Core Earnings to Net Income (Period)
FARMER MAC Reconciliation of Core Earnings to Net Income Core Earnings by Period Ended (in thousands) 3Q18 YTD 2017 2016 2015 Net income attributable to common stockholders $ 75,338 $ 71,300 $ 64,152 $ 47,371 Less reconciling items: Gains on undesignated financial derivatives due to fair value chang
Slide 39: Reconciliation of Core Earnings per Share to Earnings per Common Share
FARMER MAC Reconciliation of Core Earnings per Share to Earnings per Common Share Core Earnings per Diluted Share by Period Ended 3Q18 YTD 2017 2016 2015 GAAP - Diluted EPS $ 7.01 $ 6.60 $ 5.97 $ 4.19 Less reconciling items: Gains on undesignated financial derivatives due to fair value changes 0.75
Slide 40: Reconciliation of Net Effective Spread to Net Interest Income
FARMER MAC Reconciliation of Net Effective Spread to Net Interest Income Net Effective Spread by Period Ended (in thousands) 3Q18 YTD 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net interest yield 0.98% 0.94% 0.90% 0.88% 0.51% 0.89% 1.14% 1.30% 1.30% 1.68% 1.62% 0.85% 0.85% Net effec
Slide 41: Core Earnings by Business Segment
FARMER MAC Core Earnings by Business Segment Core Earnings by Business Segment For Three Months Ended September 30, 2018 USDA Institutional Reconciling Consolidated Farm & Ranch Rural Utilities Corporate ($ in thousands) Guarantees Credit Adjustments Net Income Net interest income $ 16,425 $ 5,304 $
Slide 42: Ag Real Estate Mortgage Market and Farmer Mac
FARMER MAC Ag Real Estate Mortgage Market and Farmer Mac Agricultural Real Estate Mortgage Market $180 12.0% $160 9.3% 9.6% 9.5% 9.3% 8.8% 9.2% 8.9% 8.8% 9.0% 10.0% $140 8.2% 8.6% 8.3% 8.6% 7.8% 7.3% $120 6.8% 6.8% 8.0% $100 6.0% $80 $ IN BILLIONS $ IN $60 4.0% $40 2.0% $20 $61 $71 $70 $75 $78 $81 $
Slide 43: Rural Utilities Cooperative Mortgage Market
FARMER MAC Rural Utilities (RU) Cooperative Mortgage Market (1) (2) FARM CREDIT SYSTEM (GSE) NON-GSE RU LENDERS (3) Secondary Market W HOLESALE FINANCING NATIONAL RURAL UTILITIES RURAL NATIONAL COOPERATIVE FINANCE FINANCE COOPERATIVE $4.7 Billion (“CFC”) CORPORATION {13.4% Market Share}(4) LOAN SALE
Slide 44: Farm Income and Related Trends
FARMER MAC Farm Income and Related Trends $140 350 $120 300 269 $100 250 INDEX $80 200 184 $ IN BILLIONS $ IN $60 164 150 $40 100 $20 $48 $51 $55 $39 $61 $87 $79 $57 $70 $78 $62 $77 $114 $96 $124 $92 $81 $62 $75 $0 50 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20
Slide 45: Ag Land Value and Leverage Trends
FARMER MAC Ag Land Value and Leverage Trends Ag Land Values $3.5 $124 $140 $114 $3.0 $120 $96 $87 $92 IN $ BILLIONS $2.5 $81 $100 $79 $70 $78 $77 $75 $2.0 $61 $62 $62 $66 $80 $55 $1.5 $48 $51 $60 $39 $57 $1.0 $40 AVERAGE LAND VALUE LAND AVERAGE $ IN THOUSANDS/ACRE $ IN $0.5 $20 $1.0 $1.1 $1.2 $1.2 $
Slide 46: Agricultural Risk Management Tools
FARMER MAC Agricultural Risk Management Tools Farmers today use a broad array of risk management tools, many of which were not available or not accepted during the ag credit crisis of the 1980s • Many now view costs of hedging simply as a cost of doing business • Have learned from their parents’ exp
Slide 47: USDA – Key 2018 Forecasts
FARMER MAC USDA – Key 2018 Forecasts (1) (2) (3) (4) Demand for U.S. agricultural products to increase • Demographic trends and a growing global economy contributing to growth • Lower commodity prices stimulating quantity demanded • Despite trade uncertainty, USDA predicts total U.S. ag exports to r
Federal Agricultural Mortgage — Q3 2018 Earnings Presentation on 6ix