Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Investor Presentation (August 2014)
39 slides from Federal Agricultural Mortgage's investor presentation, Aug 11, 2014
Slide 1: Equity Investor Presentation June 30, 2014
Equity Investor Presentation June 30, 2014
Slide 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-looking statements include, without
Slide 3: Agenda
Overview and Highlights.................................4 Business and Products....................................11 Portfolio and Lines of Business......................14 Financial Performance...................................22 Funding and Risk Management.....................26 Appe
Slide 4: Overview and Highlights
Overview and Highlights FARMERMAC ncing Rural Arn
Slide 5: Farmer Mac overview and timeline
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 to lenders – Loan pur
Slide 6: Investment highlights
6 Finance asset purchases through issuance of low-cost debt Issue at narrow, GSE spreads to U.S. Treasuries Robust worldwide demand for agricultural products Strong profitability within agricultural sector Expected future increases in rural utilities capital investment Rigorous underwrit
Slide 7: Core earnings by quarter
7 $9.1 $11.7 $11.3 $11.0 $10.0 $12.9 $16.5 $23.2 $11.2 $13.4 $11.8 $12.6 $11.6 $15.3 $0 $10 $20 $30 $40 $50 $60 2011 2012 2013 2014 Mil lion s Q4 Q3 Q2 Q1 $42.9 $49.6 $54.9 $34.2
Slide 8: Outstanding business volume
8 $4.4 $4.8 $5.2 $4.9 $5.3 $5.1 $5.6 $6.0 $6.0 $6.1 $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 Q2 2013 Q2 2014 B il li o n s Rural Utilities USDA Guarantees Institutional Credit Farm & Ranch $13.6 $14.1 Note: Includes on- and off-balance sheet
Slide 9: 90-day delinquencies
9 $54.6 $47.0 $33.9 $25.9 1.27% 1.07% 0.69% 0.49% 0.45% 0.38% 0.25% 0.18% 0.00% 0.50% 1.00% 1.50% 2.00% $0 $20 $40 $60 $80 $100 Q2 2011 Q2 2012 Q2 2013 Q2 2014 M il li o n s 90-day Delinquencies (Left Axis) % of Farm & Ranch Only (Right Axis) % of Total Portfolio (Right Axis)
Slide 10: Core capital and excess statutory capital
As of Quarter-end $475 $519 $591 $564 $750 $127 $145 $192 $179 $318 $0 $50 $100 $150 $200 $250 $300 $350 $400 $0 $200 $400 $600 $800 2011 2012 2013 Q2 2013 Q2 2014 M illio n s M il li o n s Core Capital (Left Axis) Excess Statutory Capital (Right Axis) (1) (2) 10 (1) Core Capital defined as total eq
Slide 11: Business and Products
Business and Products ERMAC ‘Financing Rural America
Slide 12: Business structure: lenders, borrowers and Farmer Mac
12 Mortgage Lenders: • Community Banks • Farm Credit System • Mortgage Companies • Commercial Banks • Insurance Companies • Credit Unions Rural Utility Cooperative Lenders: • National Rural Utilities CFC • CoBank Farmers & Ranchers Rural Utility Cooperatives BORROWERS LOAN ORIGINATORS FARMER MAC Far
Slide 13: Products and lines of business
13 • Originator bank sells loans that are not good fit with its funding sources • Originator maintains field servicing • Frees capital for originator • Reduce capital risk weightings • Originator maintains borrower relationships Loan Purchases Loan Guarantees: • Standbys / AMBS Guarantees PRODUCT TY
Slide 14: Portfolio and Lines of Business
Portfolio and Lines of Business 14
Slide 15: Total business volume by line and product
$14.1 billion total business volume – Outstanding volume is up YTD by a net $122 million Lines of business ($ and annual growth) – Farm & Ranch – $5.3B; +8% – USDA – $1.7B; +3% – Rural Utilities – $1.0B; -4% – Institutional Credit – $6.1B; +1% Product types – Loan purchases » USDA Guaranteed p
Slide 16: Farm & Ranch by product type
Purchase or guarantee first mortgages on agricultural real estate – Loans (spread) » Purchase and retain eligible whole loans » Higher spreads; underwriting standards mitigate direct credit risk – Standbys / Guarantees (fees) » Issue purchase commitments (Standbys) for eligible loans » Guarantee s
Slide 17: Farm & Ranch by commodity and geography
17 Crops 53% Permanent Plantings 17% Livestock 24% Part-time Farm / Housing 3% AgStorage/ Processing 3% Northwest 10% Southwest 32% Mid-North 35% Mid-South 12% Northeast 4% Southeast 7% June 30, 2014 Commodity Type Geography
Slide 18: Rural Utilities
Work with rural utility cooperative lenders (two eligible) Rural utility 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 revenues Product types similar to Farm & Ranch
Slide 19: USDA Guarantees
U.S. Department of Agriculture guarantee on 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) 19 Note: OL = operating line, FO = farm ownership, CF = community fac
Slide 20: Institutional Credit: AgVantage securities
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 20 $0 $2 $4 $6 $8 Q2 2012 Q2 2013 Q2 2014 B ill io n s AgVantage Securities $5.3
Slide 21: Credit performance and losses
Rural Utilities has not had any delinquencies or credit losses USDA Guarantees or Institutional Credit has not had any credit losses Farm & Ranch has cumulative losses of 0.16%, or approximately 1bp/year – Cumulative losses of $31 million – On $19.4 billion of cumulative originations 21 -$2 $0
Slide 22: Financial Performance
Financial Performance ERMAC ‘Financing Rural America
Slide 23: Second quarter 2014 highlights
Core Earnings of $23.2 million ($2.05 per diluted common share) – Federal income tax benefit of $11.6 million related to Farmer Mac’s new cash management and liquidity initiative » Release of a valuation allowance as a result of the utilization of capital loss carryforwards » New liquidity initiat
Slide 24: Balance sheet summary
June 30, 2014 December 31, 2013 December 31, 2012 December 31, 2011 December 31, 2010 (in millions) Cash and cash equivalents $ 384.1 $ 749.3 $ 785.6 $ 817.0 $ 729.9 Securities purchased under agreements to resell 1,640.7 -- -- -- -- Investment securities 2,316.9 2,484.1 2,499.6 2,184.5 1,763.3 Farm
Slide 25: Core earnings summary
25 YTD Q2 2014 2013 2012 2011 Net effective spread: (in millions) Interest income $ 123.2 $ 255.8 $ 274.9 $ 281.4 Interest expense 73.1 150.5 168.3 192.0 Net effective spread 50.1 105.3 106.6 89.4 Non-interest income: Guarantee and commitment fees 14.0 27.9 26.6 28.1 Other (expense)/income (1.0 ) 3.
Slide 26: Funding and Risk Management
Funding and Risk Management 26
Slide 27: Funding and debt spreads
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 August 1, 2014 Farmer Mac’s debt securities carry privileges for certain holders – 20% capital
Slide 28: Interest rate risk management
Match funding 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 issuance across spectrum of maturities – Can adjust effective asset and
Slide 29: Liquidity 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) $2.7 billion investment portfolio at quarter-end – Cash and highly-rated investment sec
Slide 30: Appendix
Appendix FARMERMAC ncing Rural Arn
Slide 31: Key financial metrics
31 Q2 YTD 2014 2013 2012 2011 (dollars in thousands, except per share amounts) Core Earnings $34,232 $54,892 $49,642 $42,907 Core Earnings per Diluted Share $3.02 $4.90 $4.51 $3.97 Net Effective Spread ($) $50,051 $105,251 $106,557 $89,419 Net Effective Spread (%) 0.79% 0.86% 0.95% 0.96% Guarantee &
Slide 32: Core earnings reconciliation
Q2 YTD 2014 2013 2012 2011 Core earnings 34,232$ 54,892$ 49,642$ 42,907$ Reconciling items (after-tax effects): Unrealized (losses)/gains on financial derivatives and hedging activities (5,448) 29,368 4,325 (30,930) Unrealized gains/(losses) on trading assets 380 (533) 200 2,246 Amortization of prem
Slide 33: Net effective spread by line of business
33 Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield For the quarter ended: June 30, 2014 7,820$ 1.64% 4,159$ 0.99% 2,953$ 1.16% 7,257$ 0.57% 4,160$ 0.57% 26,349$ 0.84% March 31, 2014 (1) 7,114 1.53% 3,784 0.91% 1,990 0.73% 6,672 0.53% 4,142 0.56% 23,702 0.75% Decem
Slide 34: Quarterly core earnings detail
34 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Revenues: Net effective spread 26,349$ 23,702$ 27,144$ 25,781$ 26,063$ 26,263$ 26,460$ 27,256$ 27,209$ Guarantee and commitment fees 6,916 7,049 7,130 7,047 6,954 6,792 6,764 6,591 6,607 Other (520) (410) 427 (466) 3,274 187 393 384 (
Slide 35: Quarterly core earnings reconciliation
35 Jun-14 Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Core earnings 23,247$ 10,985$ 15,282$ 11,767$ 16,545$ 11,298$ 11,603$ 13,385$ 12,901$ Reconciling items (after-tax effects): Unrealized (losses)/gains on financial derivatives and hedging activities (3,053) (2,395) 8,003 4,632 11,021
Slide 36: Regulation and 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) Congressional oversight through Congre
Slide 37: Common stock classes
Class A Voting Common Stock 1.0 million – NYSE traded “AGM.A” – Ownership restricted to Financial Institutions Class B Voting Common Stock 0.5 million – Not publicly traded – Ownership restricted to Farm Credit System Institutions Class C Non-Voting Common Stock 9.4 million – NYSE traded “AGM”
Slide 38: Agricultural land values
Source: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446 Agricultural Land Values 38 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 Ac re Cropland Values All Farm Rea
Slide 39: Farm income and leverage
2014 Forecast as of 2/20/14 Source: USDA Farm Sector & Household Income Real Net Farm Income Debt-to-asset Ratio Agricultural sector using favorable conditions to reduce leverage Conditions have remained favorable due to high levels of net cash income over the past several years Real 2014 net
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