Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Q2 2019 Earnings Presentation
26 slides from Federal Agricultural Mortgage's earnings presentation, Aug 1, 2019
Slide 1: Second Quarter Equity Investor Presentation 2019
Second Quarter Equity Investor Presentation 2019
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 June 30, 2019, and should be read in conjunction with attributable to common stockholders and earnin
Slide 4: Investment Highlights
FARMER MAC Investment Highlights •90-Day delinquencies of only 0.38% Quality Assets •Cumulative lifetime losses of only 0.13% •Issue at narrow, GSE spreads to U.S. Treasuries Funding Advantage •E.g., 10-year U.S. Treasury +0.56% •Ag productivity must double to meet expected demand Growth Prospects •
Slide 5: A Mission-Driven, For-Profit Company
FARMER MAC A Mission-Driven, For-Profit Company Our Mission Farmer Mac initially chartered • Increase the availability and affordability of credit for 1987 by Congress as an instrumentality the benefit of American agricultural and rural of the United States communities Initial public offering Our St
Slide 6: Executive Leadership
FARMER MAC Executive Leadership Bradford T. Nordholm Zachary N. Carpenter John C. Covington President and Chief Executive Officer Executive Vice President – Chief Business Executive Vice President – Chief Credit Officer Officer • 13+ years of experience in agribusiness • 40+ years of experience in a
Slide 7: Central to a Large Addressable Ag Mortgage Market
not equal the total addressable agriculture mortgage market amount FARMER MAC Central to a Large Addressable Ag Mortgage Market (1) (2) (FCS Secondary Market GSE) $14.3 Billion (9.0% Eligible Market Share) (3) COMPANIES INSURANCE Loan Purchase $8B Wholesale Funding Credit Protection Farm Credit Syst
Slide 8: "Demand Pull" Provides Sustained Growth Opportunity
FARMER MAC “Demand Pull” Provides Sustained Growth Opportunity(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 2
Slide 9: Strategically Targeted Growth Opportunities
FARMER MAC Strategically Targeted Growth Opportunities Farmer Mac’s management and Board have set strategic 5-year and 15-year market share goals • Specifically identified growth opportunities in order to reach these objectives • Growth opportunities include new products and new customers Specific O
Slide 10: Lines of Business and Products
FARMER MAC Lines of Business and Products AS OF JUNE 30, 2019 Product Type Target Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks F & R USDA RU IC Total • FCS Institutions $4.8 $2.5 $1.5 -- $8.8 • Insurance Companies 23% 12% 7% 42% • Rural Utilities
Slide 11: Attractive Credit-Risk Adjusted Returns
FARMER MAC Attractive Credit-Risk Adjusted Returns Lines of Business FISCAL YEAR 2018 Farm & Ranch(1) Rural Utilities Institutional USDA Total Loan Credit Loan Credit Credit Purchase Protection Purchase Protection Assets ($ in billions) $3.1 $4.2 $2.5 $0.9 $0.7 $8.4 $19.7 YOY Growth (%) 10% 2% 7% (1
Slide 12: Creating Value Across Market Environments
FARMER MAC Creating Value Across Market Environments Uniquely positioned to share in upside opportunity in strong markets Benefit from loss protection and increased relative demand in weaker markets Strong Market Weak Market Credit is healthy; transaction volumes Declining farm income, land values,
Slide 13: Growing, Recurring, High-Quality Earnings
FARMER MAC Growing, Recurring, High-Quality Earnings Outstanding Business Volume $20.0 7.5% CAGR (2015-2018) $15.0 $10.0 $ IN BILLIONS $ IN $5.0 $15.9 $17.4 $19.0 $19.7 $20.7 $0.0 2015 2016 2017 2018 2Q19 Outstanding Business Volume Net Effective Spread & Core Earnings(1) $160.0 8.8% CAGR 21.4% CAGR
Slide 14: Quality Earnings Drives Strong Dividends
FARMER MAC Quality Earnings Drives Strong Dividends Increased Target Payout Ratio of Core Earnings to ~35% $0.80 $0.70 $0.70 $0.60 $0.58 $0.50 Initiated New Dividend Policy: Target ~30% Payout Ratio of Core Earnings $0.40 $0.36 $ PER SHARE $ PER $0.30 $0.26 $0.20 $0.16 $0.14 $0.12 $0.10 $0.10 $0.05
Slide 15: Farmer Mac's Attractive Yield and Durable Dividend
FARMER MAC Farmer Mac’s Attractive Yield and Durable Dividend 100% 3.9% 10% 90% 3.9% 3.9% 80% 3.8% % COMMONDIVIDEND YIELD 70% 3.8% 65% 3.8% 60% 50% 3.7% 40% 3.7% 30% DIVIDEND PAYOUT VS. RETAINED EARNINGS RETAINED VS. PAYOUT DIVIDEND 3.6% – 20% 3.6% 10% EARNINGS EARNINGS 90% 35% 0% 3.5% REITs(1) Farm
Slide 16: Proven, Rigorous Underwriting
FARMER MAC Proven, Rigorous Underwriting Industry-leading Credits are less Losses less likely credit requirements likely to default even in default – Total debt coverage ratio – Focus on repayment – Average LTV of 45% as of at least 1.25x capacity through of June 30, 2019 stressed inputs – LTVs aver
Slide 17: Credit Consistently Outperforms
FARMER MAC Credit Consistently Outperforms 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 18: Industry-Leading Low Loss Rates
FARMER MAC Industry-Leading Low Loss Rates Agricultural Lender Charge-off Rates 0.60% Banks Average 0.19% All Commercial Banks (1) 0.50% Loans and Leases Farm Credit System Average 0.96% Average 0.11% 0.40% Farmer Mac Average 0.02% 0.30% 0.20% OFFS AS % OF ASSETS OF % AS OFFS - 0.10% CHARGE 0.00% 19
Slide 19: Historical Credit Losses
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 2013 2014 20
Slide 20: Strong and Growing Equity Capital Base
FARMER MAC Strong and Growing Equity Capital Base $787 $800 25.0% $728 $657 $192 $610 $183 20.0% $600 $564 $137 $143 $102 13.4% 13.6% 15.0% 12.7% 12.6% $400 10.5% $ IN MILLIONS $ IN CORE CAPITAL CORE 10.0% TIER 1 CAPITAL RATIO (%) RATIO 1 CAPITAL TIER $200 5.0% $462 $467 $520 $545 $595 $0 0.0% 2015
Slide 21: Appendix
Appendix
Slide 22: Key Company Metrics
FARMER MAC Key Company Metrics ($ in thousands, except per share amounts) 2Q19 YTD 2018 2017 2016 2015 Core Earnings(1) $45,863 $84,047 $65,631 $53,481 $47,035 Core Earnings per Diluted Share(1) $4.26 $7.82 $6.08 $4.98 $4.16 Net Effective Spread ($)(1) (2) $80,156 $151,195 $141,303 $123,072 $117,428
Slide 23: Equity Capital Structure
FARMER MAC Equity Capital Structure NYSE Dividend Shares Ticker Yield Outstanding CLASS A VOTING COMMON STOCK AGM.A 4.39%(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 24: Reconciliation of Net Income to Core Earnings
FARMER MAC Reconciliation of Net Income to Core Earnings Core Earnings by Period Ended (in thousands) 2Q19 YTD 2018 2017 2016 2015 Net income attributable to common stockholders $ 50,178 $ 94,898 $ 71,300 $ 64,152 $ 47,371 Less reconciling items: Gains on undesignated financial derivatives due to fa
Slide 25: Reconciliation of Net Interest Income to Net Effective Spread
FARMER MAC Reconciliation of Net Interest Income to Net Effective Spread For the Year Ended December 31, 2Q19 YTD 2018 2017 2016 2015 $ in thousands Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Net interest income/yield $ 83,653 0.87% $ 174,436 0.96% $ 157,647 0.94% $ 140,27
Slide 26: Core Earnings by Business Segment
FARMER MAC Core Earnings by Business Segment Core Earnings by Business Segment For Year Ended December 31, 2018 USDA Institutional Reconciling Consolidated Farm & Ranch Rural Utilities Corporate ($ in thousands) Guarantees Credit Adjustments Net Income Net interest income $ 62,951 $ 20,554 $ 12,505
Federal Agricultural Mortgage — Q2 2019 Earnings Presentation on 6ix