Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Investor Presentation (September 2013)
38 slides from Federal Agricultural Mortgage's investor presentation, Sep 19, 2013
Slide 1: Equity Investor Presentation June 30, 2013
Equity Investor Presentation June 30, 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 ARMERM\AC ae
Slide 5: Created in the 1980s to help prevent future agricultural credit crises
Created in the 1980s to help prevent future agricultural credit crises – Provide a secondary market for agricultural, rural housing and rural utilities loans – Broaden access and drive more efficient loan pricing – Reduce agricultural credit market volatility Provides a diverse product suite to
Slide 6: Investment highlights: funding advantage, growth, quality assets, consistent returns
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 $5.4 $9.1 $11.7 $11.3 $5.3 $10.0 $12.9 $16.5 $7.9 $11.2 $13.4 $6.8 $12.6 $11.6 $0 $10 $20 $30 $40 $50 $60 2010 2011 2012 2013 M il li o n s Q4 Q3 Q2 Q1 $25.4 $42.9 $49.6 $27.8
Slide 8: Outstanding business volume
8 $8.2 $8.1 $9.1 $8.5 $9.3 $1.4 $1.5 $1.6 $1.6 $1.7 $2.6 $2.3 $2.3 $2.2 $2.6 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 2010 2011 2012 Q2 2012 Q2 2013 B il li o n s Rural Utilities USDA Guarantees Farm and Ranch $12.3 $13.6 Note: Includes on- and off-balance sheet outstanding business volume As of Year-end
Slide 9: 90-day delinquencies
9 $56.0 $54.6 $47.0 $33.9 1.30% 1.27% 1.07% 0.69% 0.52% 0.45% 0.38% 0.25% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% $0 $10 $20 $30 $40 $50 $60 Q2 2010 Q2 2011 Q2 2012 Q2 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 $492 $564 $160 $127 $145 $136 $179 $0 $50 $100 $150 $200 $250 $0 $100 $200 $300 $400 $500 $600 2010 2011 2012 Q2 2012 Q2 2013 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 equity less accumulated o
Slide 11: Business and Products
Business and Products FARMERVAC ae ing Rural America
Slide 12: Borrowers, loan originators and Farmer Mac lines of business
12 Mortgage Lenders: • Community Banks • Farm Credit System • Mortgage Companies • Commercial Banks • Insurance Companies • Credit Unions Rural Utility Cooperative Lenders: • National Rural Utilities Cooperative Finance Corp. • CoBank Farmers & Ranchers Rural Utility Cooperatives BORROWERS LOAN ORIG
Slide 13: Product types and features
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: Business volume by line of business and product type
15 $8.5 $8.5 $9.3 $1.4 $1.6 $1.7 $2.3 $2.2 $2.6 $0 $2 $4 $6 $8 $10 $12 $14 $16 Q2 2011 Q2 2012 Q2 2013 B ill io n s Farm & Ranch USDA Guarantees Rural Utilities $2.8 $2.5 $2.9 $5.6 $5.3 $6.0 $2.4 $2.9 $3.0 $1.4 $1.6 $1.7 $0 $2 $4 $6 $8 $10 $12 $14 $16 Q2 2011 Q2 2012 Q2 2013 Bill io n s Loans AgVant
Slide 16: Farm & Ranch by product type
Purchase or guarantee loans secured by first lien 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 eligib
Slide 17: Farm & Ranch by commodity type and geography
17 Crops 49% Permanent Plantings 18% Livestock 25% Part-time Farm / Housing 4% AgStorage/ Processing 4% Northwest 10% Southwest 36% Mid-North 31% Mid-South 12% Northeast 5% Southeast 6% June 30, 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 and future revenues Product types similar to Farm & Ran
Slide 19: USDA Guarantees by loan type
U.S. Department of Agriculture guarantee on portions of private sector loans – USDA guarantee backed by 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
Slide 20: Credit losses by 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 credit losses of 0.17%, or approximately 1bp/year – Cumulative credit losses of $30 million – On $18.1 billion of cumulative originations 20 -$2 $0 $2
Slide 21: Financial Performance
Financial Performance FARMERVAC 25-
Slide 22: Second quarter 2013 highlights
Core earnings of $16.5 million ($1.48 per diluted common share) – $3.6 million higher than second quarter 2012 – Strong credit performance and gain from sale of investment portfolio security Total new business volume of $647 million – Driven by Farm & Ranch loan purchases of $226 million – Net t
Slide 23: Summary balance sheet
23 June 30, 2013 December 31, 2012 December 31, 2011 December 31, 2010 December 31, 2009 (in millions) Cash and cash equivalents $ 650.7 $ 785.6 $ 817.0 $ 729.9 $ 654.8 Investment securities 2,456.9 2,499.6 2,184.5 1,763.3 1,131.9 Farmer Mac guaranteed securities 5,058.9 4,766.3 4,289.3 2,907.3 3,39
Slide 24: Core earnings summary
24 YTD Q2 2013 2012 2011 2010 Net effective spread: (in millions) Interest income $ 125.8 $ 274.9 $ 281.4 $ 243.3 Interest expense 73.5 168.3 192.0 176.8 Net effective spread 52.3 106.6 89.4 66.5 Non-interest income: Guarantee and commitment fees 13.8 26.6 28.1 28.7 Other income 3.5 1.4 1.2 2.0 Non-
Slide 25: Funding and Risk Management
Funding and Risk Management 25
Slide 26: Debt funding and 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 August 22, 2013 Farmer Mac’s debt securities carry privileges for certain holders – 20% capita
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 $3.1 billion investment portfolio at quarter-end – Cash and highly-rated investment securities – Conservative port
Slide 29: Appendix
Appendix 29
Slide 30: Selected financial highlights
30 YTD 2Q 2013 2012 2011 2010 (dollars in thousands, except per share amounts) Core Earnings $27,843 $49,642 $42,907 $25,365 Core Earnings per Diluted Share $2.49 $4.51 $3.97 $2.39 Net Effective Spread ($) $52,326 $106,557 $89,419 $66,478 Net Effective Spread (%) 0.88% 0.95% 0.96% 1.06% Guarantee &
Slide 31: Core earnings to GAAP net income reconciliation
31 2013 2Q YTD 2012 2011 2010 Core earnings $27,843 $49,642 $42,907 $25,365 Reconciling items (after-tax effects): Unrealized gains/(losses) on financial derivatives and hedging activities 16,733 4,325 (30,930) 13,046 Unrealized (losses)/gains on trading assets (76) 200 2,246 3,426 Amortization of p
Slide 32: Net effective spread by business segment
32 Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield For the quarter ended: June 30, 2013 16,325$ 1.30% 2,738$ 0.68% 3,033$ 0.46% 3,967$ 0.58% 26,063$ 0.87% March 31, 2013 16,049 1.32% 2,933 0.73% 3,014 0.51% 4,267 0.59% 26,263 0.90% December 31, 2012 16,133 1.36% 2,869 0.74% 3,1
Slide 33: Quarterly core earnings results
33 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Revenues: Net effective spread 26,063$ 26,263$ 26,460$ 27,256$ 27,209$ 25,632$ 26,022$ 22,765$ 20,989$ Guarantee and commitment fees 6,954 6,792 6,764 6,591 6,607 6,660 6,740 6,930 7,159 Other 3,274 187 393 384 (294) 18 55 (680) 46 To
Slide 34: Quarterly core earnings reconciliation
34 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Core earnings $16,545 $11,298 $11,603 $13,385 $12,901 $11,753 $12,576 $11,228 $10,041 Reconciling items (after-tax effects): Unrealized gains/(losses) on financial derivatives and hedging activities 11,021 5,712 4,719 3,456 (14,035) 1
Slide 35: Regulation and oversight
Regulated by the SEC 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
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 9.3 Million – NYSE traded “AGM”
Slide 37: Agricultural land values
34 Source: http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1446 Agricultural Land Values
Slide 38: Farm sector income and leverage
2013 Forecast as of 2/11/13 Source: USDA Farm Sector & Household Income 0 20 40 60 80 100 120 140 $ B ill io n s 30 yr average 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 c
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