Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Q2 2018 Earnings Presentation
45 slides from Federal Agricultural Mortgage's earnings presentation, Aug 9, 2018
Slide 1: Second Quarter Equity Investor Presentation 2018
Second Quarter Equity Investor Presentation 2018
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, 2018, and should be read in conjunction with attributable to common stockholders and earnin
Slide 4: Table of Contents
FARMER MAC Table of Contents 05 Executive Summary 13 Farmer Mac Overview 22 Appendix EQUITY INVESTOR PRESENTATION 04
Slide 5: Executive Summary
Executive Summary Financing Rural America
Slide 6: Farmer Mac Overview
FARMER MAC Farmer Mac Overview Farmer Mac initially chartered Farmer Mac was created in response to the 1987 by Congress as an instrumentality agricultural credit crisis of the 1980s of the United States • Increases access to and reduces the cost of capital for the benefit of American agricultural a
Slide 7: Agricultural Real Estate Mortgage Market Structure
FARMER MAC Agricultural Real Estate Mortgage Market Structure (1) (2) AS OF DECEMBER 31, 2017 NON-FCS FARM CREDIT SYSTEM (GSE) AG LENDERS Cooperative Secondary Market W HOLESALE FINANCING COMPANIES INSURANCE $14.3 Billion $8B (3) $20B {9.0% Eligible Market Share} COBANK Nationwide LOAN SALES CREDIT
Slide 8: Agricultural Industry Dashboard
FARMER MAC Agricultural Industry Dashboard Farm Income (1) Commodity Index(2)(3) $140 10-year Average 400 $120 $85 billion 300 $100 $80 200 $60 INDEX $ IN BILLIONS $ IN 100 $40 297 195 200 240 182 219 170 179 164 184 $20 $124 $92 $81 $61 $64 0 $0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017F Fe
Slide 9: Farmer Mac Dashboard
FARMER MAC Farmer Mac Dashboard Core Earnings(1) (2) Net Effective Spread (1) (2) $70 92 $60 90 $50 88 $40 86 $30 84 BASIS POINTS BASIS $ IN MILLIONS $ IN $20 $10 82 $47.0 $53.5 $65.6 $41.2 85 84 91 88 $0 80 2015 2016 2017 2Q18 YTD 2015 2016 2017 2Q18 YTD Outstanding Business Volume 90-Day Delinquen
Slide 10: Global Outlook – Demand Pull
FARMER MAC Global Outlook – “Demand Pull” (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 2030 2040 2050 Popula
Slide 11: Historical Dividend Growth
FARMER MAC Historical Dividend Growth $0.70 $0.60 $0.58 $0.50 Initiated New Dividend Policy: Target ~30% Payout Ratio of Core $0.40 Earnings Over Time $0.36 $0.30 $ PER SHARE $ PER $0.26 $0.20 $0.16 $0.14 $0.12 $0.10 $0.10 $0.05 $0.00 2011 2012 2013 2014 2015 2016 2017 2018 Quarterly Dividend per Sh
Slide 12: Farmer Mac's Investment Highlights
FARMER MAC Farmer Mac’s Investment Highlights •Rigorous underwriting standards Quality Assets •Low delinquencies •Low cumulative historical credit losses •Finance assets through issuance of low-cost public debt Funding Advantage •Issue at narrow, GSE spreads to U.S. Treasuries •Robust worldwide dema
Slide 13: Farmer Mac Overview
Farmer Mac Overview Financing Rural America
Slide 14: Farmer Mac's Unique Market Position
FARMER MAC Farmer Mac’s Unique Market Position Farmer Mac enjoys a unique position, sharing in upside opportunity in strong markets and benefiting from downside protection and increased relative demand in weak markets Strong Market – Farmer Mac can participate in the upside • Situation: Credit is he
Slide 15: Farmer Mac's Downside Protection
FARMER MAC Farmer Mac’s Downside Protection Conservative underwriting with significant focus on repayment strength and low LTVs • Total Debt Coverage (TDC) ratio of at least 1.25x • Generally maximum LTVs of 60% to 70%, but in practice average 40% to 45% on mortgages purchased • Require minimum borr
Slide 16: Lines of Business and Products
FARMER MAC Lines of Business and Products AS OF JUNE 30, 2018 Product Type Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks F & R USDA RU IC Total • FCS Institutions $4.4 $2.4 $1.0 -- $7.8 • Insurance Companies 22% 12% 5% 40% • Rural Utilities Cooper
Slide 17: Farm & Ranch Loan Portfolio Diversification
FARMER MAC Farm & Ranch Loan Portfolio Diversification(1) AS OF JUNE 30, 2018 By Commodity Type By Geographic Region Ag. Storage Southeast and Processing 8% Northwest 1% 12% Northeast Part-time 4% Farm 7% Mid- Livestock 19% South 13% Crops Southwest 53% Mid- 31% North Permanent Plantings 32% 20% FAR
Slide 18: Core Earnings – Direct Function of Three Factors
FARMER MAC Core Earnings(1) – Direct Function of Three Factors Factors Things to Consider BUSINESS VOLUME • Macro supply/demand for ag credit • Farmer Mac business development success • Impact of potential credit quality shocks • Impact of potential rate shocks NET EFFECTIVE SPREAD (1) • Macro suppl
Slide 19: Farmer Mac Outstanding Business Volume
FARMER MAC Farmer Mac Outstanding Business Volume $25 11.2% CAGR (2000 to 2017) $19.5 $20 $15 $ IN BILLIONS $ IN $10 $5 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2Q18 FARMER MAC OVERVIEW 19
Slide 20: Farmer Mac Credit vs. Industry 90-Day Delinquencies
FARMER MAC Farmer Mac Credit vs. Industry 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% 0.61% 0.55% 0.58
Slide 21: Farmer Mac – Historical Credit Losses
FARMER MAC 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 $0 1995 & 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20
Slide 22: Appendix
Appendix
Slide 23: Key Company Metrics
FARMER MAC Key Company Metrics ($ in thousands, except per share amounts) 2Q18 YTD 2017 2016 2015 Core Earnings(1) $41,207 $65,631 $53,481 $47,035 Core Earnings per Diluted Share(1) $3.84 $6.08 $4.98 $4.16 Net Effective Spread ($)(1) (2) $73,263 $141,303 $123,072 $117,428 Net Effective Spread (%)(1)
Slide 24: Business Development
FARMER MAC Business Development Product Type Marketing Channel Target Customers AG LOAN PURCHASES • Regional relationship managers • Over 3,100 commercial banks with agricultural AND CREDIT loans on-balance sheet (nearly 700 are approved • Geographically dispersed nationwide (1) PROTECTION Farmer Ma
Slide 25: Core Earnings (Non-GAAP Measure)
FARMER MAC Core Earnings (Non-GAAP Measure)(1) (2) $70.0 $65.6 $60.0 $53.5 $17.9 $50.0 $47.0 $13.2 $41.2 $40.0 $13.1 $16.7 $14.6 $30.0 $19.4 $ IN MILLIONS $ IN $13.2 $16.0 $20.0 $13.1 $11.4 $10.0 $21.8 $15.0 $9.3 $12.6 $0.0 2015 2016 2017 2018 1Q 2Q 3Q 4Q Total APPENDIX (1) Core earnings is a non-GA
Slide 26: Business Volume
FARMER MAC Business Volume(1) (2) AS OF YEAR-END AS OF QUARTER-END $22.0 $19.0 $19.5 $18.3 $17.4 $1.9 $1.7 $1.9 $17.0 $15.9 $2.4 $1.9 $2.3 $1.5 $2.3 $2.1 $1.9 $12.0 $8.4 $7.9 $7.7 $6.7 $7.3 $ IN BILLIONS $ IN $7.0 $5.8 $6.1 $6.9 $6.4 $7.0 $2.0 2015 2016 2017 2Q17 2Q18 -$3.0 Farm & Ranch Institutiona
Slide 27: Net Effective Spread (Non-GAAP Measure)
FARMER MAC Net Effective Spread (Non-GAAP Measure)(1) (2) AS OF YEAR-END $160.0 0.95% $140.0 0.88% 0.90% 0.91% 0.91% $120.0 0.85% 0.85% $100.0 0.84% 0.80% $80.0 0.75% $ IN MILLIONS $ IN $60.0 0.70% $40.0 $20.0 0.65% $117.4 $123.1 $141.3 $67.9 $73.3 $0.0 0.60% 2015 2016 2017 2Q17 YTD 2Q18 YTD Net Eff
Slide 28: Farmer Mac Net Effective Spread
FARMER MAC Farmer Mac Net Effective Spread (1) 120 3.5% 3.0% 2.8% 3.0% 100 2.5% MOODY’S CORPORATE 80 SPREAD SPREAD INDEX 2.0% 1.7% 60 1.6% 1.6% 1.4% 1.3% 1.4% 1.5% 1.2% BASIS POINTS BASIS 1.1% 1.1% 1.0% 40 0.9% NET EFFECTIVE SPREAD EFFECTIVE NET 1.0% 20 0.5% 69 78 106 97 106 106 104 96 90 85 84 91 8
Slide 29: Credit Metrics
FARMER MAC Credit Metrics Total Allowance for Losses $12.0 0.3% $10.0 $8.0 0.2% $6.0 0.19% % $4.0 0.1% $ IN MILLIONS $ IN 0.12% 0.13% 0.13% $2.0 $10.6 $7.1 $8.1 $9.0 $0.0 0.0% 2Q15 2Q16 2Q17 2Q18 Total Allowance for Losses % of Farm & Ranch Portfolio 90-Day Delinquencies Substandard Assets Historica
Slide 30: Capital
FARMER MAC Capital AS OF YEAR-END AS OF QUARTER-END $800 30.0% $693 $657 $639 25.0% $610 $600 $564 $150 $137 $134 $143 20.0% $102 $400 12.7% 12.6% 13.0% 13.0% 15.0% 10.5% $ IN MILLIONS $ IN CORE CAPITAL CORE 10.0% TIER 1 CAPITAL RATIO (%) RATIO 1 CAPITAL TIER $200 5.0% $462 $467 $520 $504 $543 $0 0.
Slide 31: Liquidity – Investment Portfolio
FARMER MAC Liquidity – Investment Portfolio AS OF JUNE 30, 2018 Farmer Mac maintains an investment portfolio to Liquidity Portfolio provide back-up source of liquidity in excess of Asset-Backed regulatory requirements Securities • Minimum of 90 days of liquidity required by regulation 1% $2.8 billio
Slide 32: Interest Rate Risk
FARMER MAC Interest Rate Risk Match fund asset purchases with liabilities that have similar interest rate characteristics • Duration and convexity matching • Coupon type • Reset frequency Manage pre-payment risk on mortgages • Issue a portfolio of callable and bullet debt across spectrum of maturiti
Slide 33: Funding
FARMER MAC Funding Finance asset purchases with proceeds of debt issuances • 20+ dealers • Match-funding provides for stable net effective spread and immaterial interest rate risk Farmer Mac’s debt securities carry privileges for certain holders • 20% capital risk weighting • Eligible collateral for
Slide 34: Equity Capital Structure
FARMER MAC Equity Capital Structure NYSE Dividend Shares Ticker Yield Outstanding CLASS A VOTING COMMON STOCK AGM.A 2.86%(1) 1.0 million • Ownership restricted to non-Farm Credit System financial institutions STOCK CLASS B VOTING COMMON STOCK -- -- 0.5 million • Ownership restricted to Farm Credit S
Slide 35: Farmer Mac's Net Effective Spread History
FARMER MAC Farmer Mac’s Net Effective Spread History(1) (2) Net Effective Spread by Business Segment Farm & Ranch USDA Guarantees Rural Utilities Institutional Credit Corporate Net Effective Spread ($ in thousands) Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield F
Slide 36: Reconciliation of Core Earnings to Net Income
FARMER MAC Reconciliation of Core Earnings to Net Income ($ in thousands) Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Net income attributable to common stockholders $ 26,340 $ 22,524 $ 16,710 $ 18,487 $ 17,488 $ 18,615 $ 25,465 $ 16,364 $ 12,006 Reconciling items: Gains/(losses) o
Slide 37: Reconciliation of Core Earnings to Net Income
FARMER MAC Reconciliation of Core Earnings to Net Income Net income attributable to common stockholders $ 48,864 $ 71,300 $ 64,152 $ 47,371 Less reconciling items: Gains on financial derivatives and hedging activities due to fair value changes 8,681 9,499 13,628 10,924 Unrealized gains/(losses) on t
Slide 38: Reconciliation of Core Earnings per Share to Earnings per Common Share
FARMER MAC Reconciliation of Core Earnings per Share to Earnings per Common Share For the Three Months Ended For the Year Ended Jun-18 Jun-17 Dec-17 Dec-16 Dec-15 GAAP - Diluted EPS $ 2.45 $ 1.62 $ 6.60 $ 5.97 $ 4.19 Less reconciling items: Gains on financial derivatives and hedging activities due t
Slide 39: Reconciliation of Net Effective Spread to Net Interest Income
FARMER MAC Reconciliation of Net Effective Spread to Net Interest Income Net Effective Spread by Period Ended (in thousands) 2Q18 YTD 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net interest yield 0.97% 0.94% 0.90% 0.88% 0.51% 0.89% 1.14% 1.30% 1.30% 1.68% 1.62% 0.85% 0.85% Net effec
Slide 40: Ag Real Estate Mortgage Market and Farmer Mac
FARMER MAC Ag Real Estate Mortgage Market and Farmer Mac Agricultural Real Estate Mortgage Market $180 12.0% $160 9.3% 9.6% 9.5% 9.3% 8.8% 9.2% 8.9% 8.8% 9.0% 10.0% $140 8.2% 8.6% 8.3% 8.6% 7.8% 7.3% $120 6.8% 6.8% 8.0% $100 6.0% $80 $ IN BILLIONS $ IN $60 4.0% $40 2.0% $20 $61 $71 $70 $75 $78 $81 $
Slide 41: Rural Utilities Cooperative Mortgage Market
FARMER MAC Rural Utilities (RU) Cooperative Mortgage Market (1) (2) FARM CREDIT SYSTEM (GSE) NON-GSE RU LENDERS (3) Secondary Market W HOLESALE FINANCING NATIONAL RURAL UTILITIES RURAL NATIONAL COOPERATIVE FINANCE FINANCE COOPERATIVE $4.7 Billion (“CFC”) CORPORATION {13.4% Market Share}(4) LOAN SALE
Slide 42: Farm Income and Related Trends
FARMER MAC Farm Income and Related Trends $140 350 $120 300 269 $100 250 INDEX $80 200 184 $ IN BILLIONS $ IN $60 164 150 $40 100 $20 $48 $51 $55 $39 $61 $87 $79 $57 $70 $78 $62 $77 $114 $96 $124 $92 $81 $61 $64 $0 50 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20
Slide 43: Ag Land Value and Leverage Trends
FARMER MAC Ag Land Value and Leverage Trends Ag Land Values $3.5 $124 $140 $114 $3.0 $120 $96 $2.5 $87 $100 IN $ BILLIONS $79 $78 $81 $70 $2.0 $61 $62 $92 $61 $64 $80 $55 $1.5 $48 $51 $77 $60 $39 $1.0 $57 $40 AVERAGE LAND VALUE LAND AVERAGE $ IN THOUSANDS/ACRE $ IN $0.5 $20 $1.0 $1.1 $1.2 $1.2 $1.3
Slide 44: Agricultural Risk Management Tools
FARMER MAC Agricultural Risk Management Tools Farmers today use a broad array of risk management tools, many of which were not available or not accepted during the ag credit crisis of the 1980s • Many now view costs of hedging simply as a cost of doing business • Have learned from their parents’ exp
Slide 45: USDA – Key 2018 Forecasts
FARMER MAC USDA – Key 2018 Forecasts (1) (2) (3) (4) Demand for U.S. agricultural products to increase • Demographic trends and a growing global economy contributing to growth • Lower commodity prices stimulating quantity demanded • USDA predicts total U.S. export values to remain high at $142.5 bil
Federal Agricultural Mortgage — Q2 2018 Earnings Presentation on 6ix