Federal Agricultural Mortgage Corporation · NYSE:AGM

Federal Agricultural Mortgage — Farmer Mac Webinar (July 2017)

14 slides from Federal Agricultural Mortgage's conference presentation, Jul 6, 2017

1. Slide 1: Positioning for Success in the Economic Reset

   POSITIONING FOR SUCCESS IN THE ECONOMIC RESET Dr. David M. Kohl Professor Emeritus, Agricultural and Applied Economics Virginia Tech, Blacksburg, VA (540) 961-2094 (Alicia Morris) | (540) 719-0752 (Angela Meadows) | sullylab@vt.edu Macro Clinic Video Blog: http://agstar.com/edge/ Road Warrior of Agr

2. Slide 2: Strategic Shifts in U.S. Agriculture - Commodities and Emerging Entrepreneurs

   Strategic Shifts in U.S. Agriculture - Commodities  massive consolidation  use of technology  drive towards efficiency  outside money  debt concentration  12%/65% rule  potential issues in portfolio  exit  growth vs. business acumen 3 Strategic Shifts in U.S. Agriculture- Emerging Entrepren

3. Slide 3: Strategic Shifts in U.S. Agriculture - Tweeners; State of Customers

   Strategic Shifts in U.S. Agriculture- Tweeners  too big to be small and too small to be big  10-15% exit with equity  10-15% partial or total liquidation  10- 15% negative cash flow, net worth  transitional customer / inter-generational  exit planning / wealth preservation 5 State of Customers

4. Slide 4: Producers' Decisions Misdirected; Agricultural Economic Cycle Spectrum

   Producers’ Decisions Misdirected  focus on production management to profitability  adverse commodities- somewhere else philosophy  balance sheet complacency  grow the operation out of problems  cut the wrong costs  drive-by financials at year end 7 Agricultural Economic Cycle Spectrum: Stages

5. Slide 5: Top 40% Proactive Producers; Bottom 30% of Producers

   Top 40% Proactive Producers  5 percent rule  10-25 percent marketing advantage  lower rent cost $20- $50 per acre  lower fertilizer cost $20- $50 per acre  modest living expenses  sound financial system  systems approach 9 Bottom 30% of Producers  marginal resources  demographics cycling ou

6. Slide 6: Recent Views of Ag Lenders: Negative Profits and Equity Loss

   Recent Views of Ag Lenders: Customers With Negative Profits 2016 Percentage Midwest Coast <10% 0% 40% 10-25% 41% 13% 26-50% 38% 33% >50% 22% 13% 11 Recent Views of Ag Lenders: Losing Equity on Balance Sheet Percentage Midwest Coast <10% 0% 33% 10-25% 16% 47% 26-50% 39% 20% >50% 44% 0% 12

7. Slide 7: Recent Views of Ag Lenders: Refinancing and Land Values

   Recent Views of Ag Lenders: Refinancing/Restructure Percentage Midwest Coast <10% 27% 33% 10-25% 41% 47% 26-50% 27% 20% >50% 5% 0% 13 Recent Views of Ag Lenders: Land Values Last 2 Years Change Midwest Coast Increasing 0% 33% Stable 16% 53% Decline 1-10% 62% 13% Decline >10% 22% 0% 14

8. Slide 8: Recent Views of Ag Lenders: Factors Creating Financial Stress

   Recent Views of Ag Lenders: Factors Creating Financial Stress to Portfolio Factors Midwest Ranking Coast Ranking Negative Profits 1 1 Growing/Expanding 6 4 Land Value Decline 3 6 High Family Living 2 3 Loss of Staff 5 2 Competition/Financing 4 5 Ranking Scale: 1= Highest Concern 6= Lowest Concern 15

9. Slide 9: Thoughts on Financial & Credit Analysis

   17 Thoughts on Financial & Credit Analysis  Schedule F (cash basis) will postpone issues two to three years  conducting an accrual analysis requires one to ask critical questions  the stress shows in the current section of the balance sheet first  96-4-50 rule of downcycle  drive-by financials

10. Slide 10: What the Schedule F Doesn't Tell You; The Burn Rate

    What the Schedule F Doesn’t Tell You  disguises potential problems forward at least two years  postpones crucial conservations concerning adjustments- i.e. payables, receivables, inventory  failure to recognize potential deferred tax obligations  producers in the tax minimization vs. tax managem

11. Slide 11: The Burn Rate – Debt Service Payments

    The Burn Rate – Debt Service Payments Offense Revenue $2,000,000 Current Assets $2,000,000 Expenses 1,800,000 Current Liabilities $1,000,000 Profit $200,000 Working Capital $1,000,000 Debt Service Payments = $200,000 Net Working Capital $1,000,000= 5.0 Years Debt Service Payments $200,000 Green >5.0

12. Slide 12: Burn Rate on Core Equity

    Burn Rate on Core Equity (Assume $500,000 Earnings Loss & 20% land value decline) Assets- Market Estimated Loan Collateral Remaining Equity Value Value Maximum Position Principal Excess Reserves 1. Long Term $6,000,000 X 70% = $4,200,000 - $2,200,000 = $2,000,000 (20% Decline on $4,800,000 X 70% = $

13. Slide 13: Agricultural Lending Crossroads

    Agricultural Lending Crossroads STRONG Collateral/Core Equity/Character Refinancing Acceptable • cyclical downturn • resilience • weather, disease, etc. • growth & agility • personal/business issue • business acumen with growth • growth/management issue • plan for improvement WEAK Repayment Ability/

14. Slide 14: Questions

    Questions CoN GER Q eae genehs GSC, Me, MES Asner ee aay e ent 27

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