Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Investor Day (May 2024)
58 slides from Federal Agricultural Mortgage's investor day presentation, May 16, 2024
Slide 1: Farmer Mac Investor Day
FARMER MAC Accelerating Rural Opportunities Investor Day May 16, 2024
Slide 2: Forward-Looking Statements
Forward-Looking Statements 2 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, witho
Slide 3: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures 3 This presentation is for general informational purposes only, is current only as of March 31, 2024 and should be read in conjunction with Farmer Mac’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2024. In the accompanying analysis of its financial i
Slide 4: Agenda and Executive Management
Summary Financial Roadmap & Funding Bradford T. Nordholm President and Chief Executive Officer 43 Farmer Mac: Who We Are & What We Do 2 65 4 Public Charter & Legislative Overview Business & Credit Q&A Zachary N. Carpenter Executive Vice President – Chief Business Officer Marc J. Crady Senior Vice Pr
Slide 5: Bradford T. Nordholm, President & Chief Executive Officer
Bradford T. Nordholm President & Chief Executive Officer 5
Slide 6: Mission and corporate culture
6 Strengthen Rural America Lower Financing Costs Increase Access to Credit Our Corporate Culture is Rooted in Our Values • Farmer Mac is a publicly traded company driven by our mission to increase the accessibility of credit for American agriculture and rural infrastructure. • NYSE: AGM & AGM.A • Fa
Slide 7: Farmer Mac history and expansions of authority
7 Listed on NYSE (Ticker: AGM) First expansion of authority: USDA guaranteed securities Farmer Mac initially chartered as an instrumentality of the United States Second expansion of authority: direct loan purchases Third expansion of authority: rural utilities loans With outstanding business volume
Slide 8: Operating model
8 Operating model excludes issued agricultural mortgage-backed securities and long-term standby purchase commitment credit protection components of our business.
Slide 9: Farm sector assets and debt
9 Investments, $118,005 Inventories, $190,135 Real Estate $3,419,531 Machinery & Vehicles, $362,280 $4,089,951 Real Estate, $355,041 Nonreal Estate, $165,588 $520,628 $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 $5,000,000 Farm Sector Assets 202
Slide 10: Agricultural mortgage market structure
10 Farm Credit System (FCS) (GSE Organized as Cooperatives) • Four FCS Banks • 56 Associations Agricultural Mortgage Market (Farmers & Ranchers) (FCS Secondary Market GSE) Agricultural Finance Line of Business (Farm & Ranch and Corporate AgFinance) Non-FCS Ag Lenders • Insurance Companies • Ag Banks
Slide 11: Indexed revenue performance
Over the past 10 years, Farmer Mac’s revenue has consistently grown through a variety of different economic cycles, with revenue growth being driven by: • Strong underlying fundamentals and resilient business model • Low-cost access to debt capital markets and disciplined asset-liability management
Slide 12: Farm & Ranch and Corporate AgFinance
12 Farm & Ranch Competitive pricing, efficient processes, and a higher interest rate environment is driving demand for Farm & Ranch loan purchase products and wholesale finance opportunities Corporate AgFinance Expanding relationships with primary and secondary food & agribusiness financing institut
Slide 13: Rural Utilities and Renewable Energy
13 Rural Utilities Competitive pricing, efficient processes, broadband investment opportunities, and increased demand for rural electricity Renewable Energy Strong demand for renewable electric power generation and storage
Slide 14: Growth opportunities by line of business
14Farm & Ranch Corporate AgFinance Core Farm & Ranch business provides consistent growth opportunities throughout market cycles. Rural Utilities Well positioned to benefit from the growing demand for renewable power and generation Agricultural Finance Rural Infrastructure Finance Renewable Energy Re
Slide 15: Uniquely positioned, focused on growth, value creation
15 Uniquely Positioned Focused on Growth Value Creation Consistent performance with a dedication to strategic initiatives and organizational alignment Well-positioned to benefit from the growing agricultural mortgage market, strong demand for renewable energy projects, and agricultural mortgage-back
Slide 16: Chief Business Officer and Chief Credit Officer
Zachary N. Carpenter Executive Vice President – Chief Business Officer Marc J. Crady Senior Vice President – Chief Credit Officer 16
Slide 17: Agricultural Finance Line of Business
AGRICULTURAL FINANCE LINE OF BUSINESS
Slide 18: Farm & Ranch focus and drivers
18 Focus • Enable financial institutions the ability to offer innovative financing solutions to U.S. farmers and ranchers through Farmer Mac's efficient secondary market. Customers • A network of financial institutions providing farmers and ranchers with agriculture real estate financing solutions.
Slide 19: Farm & Ranch case study
The Borrower Farmer operating 1,900 acres in South Dakota focused on alfalfa production and custom hay grinding and sales The Seller Local community bank The Need Farmer Mac’s Value Proposition The Solution $5.3 million 30-year amortizing real estate mortgage loan Mission focus: Financing solution h
Slide 20: Corporate AgFinance focus and drivers
20 Focus • Provide financial institutions with efficient secondary market capital supporting agribusinesses and the food supply chain. Customers • Financial institutions and the Farm Credit System arranging multi-lender loan transactions. Loan Characteristics • Secured, cash flow lending. • Typicall
Slide 21: Corporate AgFinance case study
The Borrower 170-year-old leading bakery, supplying grain-based products to restaurant chains, foodservice businesses, and grocery stores The Seller Large commercial bank The Need Farmer Mac’s Value Proposition The Solution $910 million first-lien term loan Mission focus: Supporting the food supply
Slide 22: Wholesale financing focus and drivers
22 Focus • Provide wholesale financing solutions to financial institutions secured by pools of qualified loans. Customers • Financial institutions, funds, and real estate lenders. Loan Characteristics • Secured by diversified pools of loans that meet Farmer Mac’s underwriting standards. • Fixed or f
Slide 23: Wholesale facility case study
The Borrower A large, publicly-traded, highly- rated insurance company The Collateral Diverse portfolio of performing, high quality production agricultural mortgage loans The Need Farmer Mac’s Value Proposition The Solution $750 million wholesale facility provided by Farmer Mac Mission focus: Wholes
Slide 24: Rural Infrastructure Finance Line of Business
RURAL INFRASTRUCTURE FINANCE LINE OF BUSINESS
Slide 25: Rural Utilities focus and drivers
25 Focus • Enable financial institutions to offer financing solutions to rural electric generation, transmission, and distribution cooperatives through Farmer Mac's efficient secondary market. Borrowers • Typically, investment-grade rural generation, transmission, and distribution cooperatives. Loan
Slide 26: Rural electric cooperative case study
The Borrower 88-year-old electric distribution cooperative serving rural Georgia The Seller Large financial institution organized as a cooperative The Need Farmer Mac’s Value Proposition The Solution Mission focus: Financing directly supports infrastructure providing stable electricity access to rur
Slide 27: Rural broadband focus and drivers
27 Focus • Enable financial institutions to offer financing solutions to broadband, fiber, wireless and telecommunication companies serving rural America through Farmer Mac's efficient secondary market. Customers • Financial institutions arranging multi-lender loan transactions. Loan Characteristics
Slide 28: Rural telecommunications case study
The Borrower 70-year-old telecommunications company providing voice and broadband services in rural North Carolina, South Carolina, and Virginia The Seller Large financial institution organized as a cooperative The Need Farmer Mac’s Value Proposition The Solution Mission focus: Financing directly su
Slide 29: Renewable energy focus and drivers
29 Focus • Enable financial institutions to offer financing solutions to construct, develop, and operate renewable energy generation projects through Farmer Mac's efficient secondary market. Customers • Financial institutions arranging transactions for sponsors of renewable energy projects. Loan Cha
Slide 30: Solar project financing case study
The Borrower Special purpose entity created to build and operate a 125- megawatt solar project in rural Georgia The Seller Mid-tier regional commercial bank The Need Farmer Mac’s Value Proposition The Solution Mission focus: Financing directly supports renewable power generation and rural community
Slide 31: Farmer Mac video
FARMER MAC VIDEO
Slide 32: Minute break
5 MINUTE BREAK
Slide 33: Todd Batta, VP Government Affairs
Todd Batta VP – Government Affairs 33
Slide 34: Publicly traded government-sponsored enterprise
A Publicly-Traded, Government-Sponsored Enterprise • Created by an act of Congress in 1988, Farmer Mac creates a secondary market that increases the accessibility of financing for American agriculture and rural infrastructure. A Farm Credit System Institution • Farmer Mac is an institution of the Fa
Slide 35: What is the Farm Bill?
35 What is the Farm Bill? • Omnibus legislation passed by Congress approximately every five years to: • Govern an array of agricultural and food programs. • Support our country’s production of food, fiber, and fuel. • Bolster food security nationwide. • Respond to evolving credit needs of rural prod
Slide 36: Aparna Ramesh, Chief Financial Officer & Treasurer
Aparna Ramesh Chief Financial Officer & Treasurer 36
Slide 37: Net Effective Spread & Core Earnings
$169 $197 $221 $256 $327$94 $101 $114 $124 $171 $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 $180.0 $200.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 2019 2020 2021 2022 2023 C O R E E A R N IN G S $ IN M IL L IO N S N E T E F F E C T IV E S P R E A D $ I N M IL L IO N S Net Ef
Slide 38: Operating segments and returns
Each operating segment is comprised of both spread-based and fee-income products • Loan purchases (spread) • Wholesale Funding (spread) • Purchase Commitments (fee) • Loans Serviced for Others (fee) Net effective spread and fees determined by a variety of factors, including: • Funding execution • Cr
Slide 39: Credit quality: delinquencies and charge-offs
39 0.58% 0.31% 0.12%0.00% 1.00% 2.00% 3.00% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 90-Day Delinquencies Industry 90-Day Delinquencies Farmer Mac 90-Day Delinquencies (Agricultural Finance Mortgage Loans Portfolio Only) Farme
Slide 40: Business volume growth
Diversified product suite enables mission and more effectively deploys capital Liquidity Investment Portfolio available as a buffer for the balance sheet against macro economic headwinds A disciplined approach to asset liability management designed to reduce earnings volatility in all rate cycles 40
Slide 41: Net effective spread growth
Assets are market-priced based on risk & return Funding and investment portfolio also contribute to the overall net effective spread 41 NES 7% - 8% CAGR Rural Infrastructure Finance Agricultural Finance
Slide 42: Treasury, liquidity and investment portfolio
Includes the financial results of the company’s funding, liquidity, and capital allocation strategies and operations Liquidity & Investment Portfolio • Maintain investment portfolio to provide back-up source of liquidity in excess of regulatory requirements • $5.9 billion as of December 31, 2023 • I
Slide 43: Asset-liability management strategy
Farmer Mac has historically employed a conservative ALM strategy aiming to generate stable top line revenue across a variety of interest rate environments. • Minimizes (hedges) exposure to nominal rate changes, while at the same time accepting certain level of repricing (i.e., spread) risk that is a
Slide 44: Securitization Opportunity: FARM Program
SECURITIZATION OPPORTUNITY FARM Program
Slide 45: FARM securitization program
FARM securitization program exemplifies Farmer Mac’s core mission to lower costs for the end borrower and improve credit availability in rural America, while transforming the agricultural mortgage market industry with new efficiencies Building upon the existing FARM Securitization Program by creatin
Slide 46: FARM securitization issuances
As Farmer Mac grows its business, securitization is available as a tool to achieve capital relief • Securitization is expected to stimulate growth by increasing Farmer Mac’s brand awareness in the capital markets Securitization provides an alternative option to funding longer-term loans, while reduc
Slide 47: FARM guaranteed classes and investor base
Introduced new A-1 and A-2 classes to meet growing investor demand for FARM securities • A, A-1, and A-2 classes are guaranteed by Farmer Mac • Three guaranteed classes provide for differing principal repayment cashflows • Provided more investment options and drove new investor demand Large, diverse
Slide 48: Key Takeaways
KEY TAKEAWAYS
Slide 49: Capital base and preferred stock issuance
Consistent, strong earnings growth has supported capital base and allowed for consistent returns to shareholders Opportunistically issued Preferred Stock during low-rate environment, further bolstering capital • $100M Preferred Series D in May 2019 @ 5.700% • $79.5M Preferred Series E in May 2020 @
Slide 50: Dividend growth and stock performance
50 Dividend Yield 13 Yr. Dividend CAGR Farmer Mac 3.1% 29.2% S&P 500 1.4% 8.0% $0.05 $0.10 $0.12 $0.14 $0.16 $0.26 $0.36 $0.58 $0.70 $0.80 $0.88 $0.95 $1.10 $1.40 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 $ P E R S H A
Slide 51: Operating efficiency and return on common equity
51 26% 27% 29% 29% 27% 23% 24% 25% 26% 27% 28% 29% 30% 31% 2019 2020 2021 2022 2023 Operating Efficiency Maintain Efficiency Ratio Below 30% 17% 16% 16% 16% 19% 0% 5% 10% 15% 20% 25% 2019 2020 2021 2022 2023 Return on Common Equity Return on Common Equity greater than 14% • 185 employees managing ov
Slide 52: Uniquely positioned, focused on growth, value creation
52 Uniquely Positioned Focused on Growth Value Creation Consistent performance with a dedication to strategic initiatives and organizational alignment Well-positioned to benefit from the growing agricultural mortgage market, strong demand for renewable energy projects, and agricultural mortgage-back
Slide 53: Bradford T. Nordholm, President & Chief Executive Officer
Bradford T. Nordholm President & Chief Executive Officer
Slide 54: Q&A
Q&A
Slide 55: Farmer Mac
FARMER MAC
Slide 56: Appendix
APPENDIX
Slide 57: Core earnings reconciliation
57 Issuance costs on retirement of preferred stock relates to the write-off of deferred issuance costs as a result of the retirement of Series A Preferred Stock and Series B Preferred Stock. (in thousands) 2023 2022 2021 2020 2019 Net income attributable to common stockholders 172,838$ 150,979$ 111,
Slide 58: Net effective spread reconciliation
58 $ in thousands Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Net interest income/yield 327,547$ 1.15% 270,940$ 1.04% 221,951$ 0.94% 195,848$ 0.87% 173,135$ 0.87% Net effects of consolidated trusts (4,171) 0.02% (4,239) 0.02% (4,864) 0.02% (6,601) 0.02% (7,669) 0.03% Expens
Federal Agricultural Mortgage — Investor Day (May 2024) on 6ix