Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Investor Presentation (March 2014)
38 slides from Federal Agricultural Mortgage's investor presentation, Mar 13, 2014
Slide 1: Equity Investor Presentation December 31, 2013
Equity Investor Presentation December 31, 2013
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...................................21 Funding and Risk Management.....................25 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 2010-2013
7 $5.4 $9.1 $11.7 $11.3 $5.3 $10.0 $12.9 $16.5 $7.9 $11.2 $13.4 $11.8 $6.8 $12.6 $11.6 $15.3 $0 $10 $20 $30 $40 $50 $60 2010 2011 2012 2013 Mil lion s Q4 Q3 Q2 Q1 $25.4 $42.9 $49.6 $54.9
Slide 8: Outstanding business volume
8 $8.2 $8.1 $9.1 $9.7 $1.4 $1.5 $1.6 $1.7 $2.6 $2.3 $2.3 $2.6 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 2010 2011 2012 2013 B il li o n s Rural Utilities USDA Guarantees Farm & Ranch $13.0 $14.0 Note: Includes on- and off-balance sheet outstanding business volume $12.2 $11.9
Slide 9: 90-day delinquencies
9 $70.2 $40.6 $33.3 $28.3 1.63% 0.93% 0.70% 0.55% 0.58% 0.34% 0.26% 0.20% 0.00% 0.50% 1.00% 1.50% 2.00% $0 $20 $40 $60 $80 $100 2010 2011 2012 2013 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
$461 $475 $519 $591 $160 $127 $145 $192 $0 $50 $100 $150 $200 $250 $0 $100 $200 $300 $400 $500 $600 2010 2011 2012 2013 Mil lion 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 equity less accumulated other comprehensive inc
Slide 11: Business and Products
Business and Products ERMAC ‘Financing Rural America
Slide 12: Business structure: borrowers, originators 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: Product types 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 and lines of business
$14.0 billion total business volume – 8% annual growth Lines of business ($ and annual growth) – Farm & Ranch – $9.7B; +7% – USDA – $1.7B; +6% – Rural Utilities – $2.6B; +13% Product types – Loan purchases » USDA Guaranteed portions of loans are a distinct line of business – Loan financing » A
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 type and geography
17 Crops 52% Permanent Plantings 18% Livestock 24% Part-time Farm / Housing 3% AgStorage/ Processing 3% Northwest 10% Southwest 34% Mid-North 33% Mid-South 12% Northeast 4% Southeast 7% December 31, 2013 Commodity Type Geography
Slide 18: Rural Utilities by product type
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 by loan type
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: Credit losses by loan origination year
Rural Utilities has not had any delinquencies, nor any credit losses USDA Guarantees has not had any credit losses Farm & Ranch has cumulative losses of 0.16%, or approximately 1bp/year – Cumulative losses of $31 million – On $18.8 billion of cumulative originations 20 -$2 $0 $2 $4 $6 $8 $10 $
Slide 21: Financial Performance
Financial Performance ERMAC ‘Financing Rural America
Slide 22: 2013 financial highlights
Core earnings of $54.9 million ($4.90 per diluted common share) – Strong credit performance and continued portfolio growth – Stabilization of spreads in second half of 2013 Total new business volume of $3.1 billion – Purchases of $1.3 billion of AgVantage securities – Purchases of $825 million o
Slide 23: Balance sheet summary
December 31, 2013 December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 (in millions) Cash and cash equivalents $ 749.3 $ 785.6 $ 817.0 $ 729.9 $ 654.8 Investment securities 2,484.1 2,499.6 2,184.5 1,763.3 1,131.9 Farmer Mac guaranteed securities 5,091.6 4,766.3 4,289.3 2,907.3 3,3
Slide 24: Core earnings and net effective spread
24 2013 2012 2011 2010 Net effective spread: (in millions) Interest income $ 255.8 $ 274.9 $ 281.4 $ 243.3 Interest expense 150.5 168.3 192.0 176.8 Net effective spread 105.3 106.6 89.4 66.5 Non-interest income: Guarantee and commitment fees 27.9 26.6 28.1 28.7 Other income 3.4 1.4 1.2 2.0 Non-inter
Slide 25: Funding and Risk Management
Funding and Risk Management 25
Slide 26: Funding and debt spreads to Treasuries
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 February 28, 2014 Farmer Mac’s debt securities carry privileges for certain holders – 20% capi
Slide 27: 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 28: Liquidity portfolio
Farmer Mac maintains an investment portfolio to provide a back-up source of liquidity in excess of regulatory requirements – A minimum of 60 days of liquidity required by regulation $3.2 billion investment portfolio at quarter-end – Cash and highly-rated investment securities – Conservative port
Slide 29: Appendix
Appendix FARMERMAC ncing Rural Arn
Slide 30: Key financial metrics 2010-2013
30 2013 2012 2011 2010 (dollars in thousands, except per share amounts) Core Earnings $54,892 $49,642 $42,907 $25,365 Core Earnings per Diluted Share $4.90 $4.51 $3.97 $2.39 Net Effective Spread ($) $105,251 $106,557 $89,419 $66,478 Net Effective Spread (%) 0.86% 0.95% 0.96% 1.06% Guarantee & Commit
Slide 31: Core earnings to GAAP net income reconciliation
31 2013 2012 2011 2010 Core earnings $54,892 $49,642 $42,907 $25,365 Reconciling items (after-tax effects): Unrealized gains/(losses) on financial derivatives and hedging activities 29,368 4,325 (30,930) 13,046 Unrealized (losses)/gains on trading assets (533) 200 2,246 3,426 Amortization of premium
Slide 32: Quarterly net effective spread by line
32 Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield For the quarter ended: December 31, 2013 18,080$ 1.34% 2,708$ 0.65% 2,047$ 0.32% 4,309$ 0.56% 27,144$ 0.85% September 30, 2013 16,174 1.23% 2,831 0.68% 2,985 0.46% 3,791 0.52% 25,781 0.83% June 30, 2013 16,325 1.30% 2,738 0.68%
Slide 33: Quarterly core earnings statements
33 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Revenues: Net effective spread 27,144$ 25,781$ 26,063$ 26,263$ 26,460$ 27,256$ 27,209$ 25,632$ 26,022$ Guarantee and commitment fees 7,130 7,047 6,954 6,792 6,764 6,591 6,607 6,660 6,740 Other 427 (466) 3,274 187 393 384 (294) 18 55 T
Slide 34: Quarterly core earnings reconciliation
34 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Core earnings $15,282 $11,767 $16,545 $11,298 $11,603 $13,385 $12,901 $11,753 $12,576 Reconciling items (after-tax effects): Unrealized gains/(losses) on financial derivatives and hedging activities 8,003 4,632 11,021 5,712 4,719 3,45
Slide 35: 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 36: 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 37: Agricultural land values
Source: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446 Agricultural Land Values 37 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 A v er a g e V a lu e P er Ac re Cropland Values All Farm Real Est
Slide 38: Farm sector 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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