Federal Agricultural Mortgage Corporation · NYSE:AGM
Federal Agricultural Mortgage — Q4 2017 Earnings Presentation
47 slides from Federal Agricultural Mortgage's earnings presentation, Mar 8, 2018
Slide 1: 2017 Equity Investor Presentation Fourth Quarter
2017 Equity Investor Presentation Fourth Quarter
Slide 2: Forward-Looking Statements
FARMER MAC 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 incl
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 only as of December 31, 2017, and should be read in conjunction with Farmer Mac’s Annual Report on Form 10-K filed with the SEC on March 8, 2018. In the accompanying analysis of its
Slide 4: Table of Contents
FARMER MAC Table of Contents 05 Executive Summary 13 Farmer Mac Overview 26 Farmer Mac Financial Performance 33 Appendix – Farmer Mac 44 Appendix – Agricultural Industry EQUITY INVESTOR PRESENTATION 04
Slide 5: Executive Summary
Executive Summary
Slide 6: Farmer Mac Overview
FARMER MAC Farmer Mac Overview Farmer Mac was created in response to the agricultural credit crisis of the 1980s • Increases access to and reduces the cost of capital for the benefit of American agricultural and rural communities • Provides financial solutions to a broad spectrum of the agricultural
Slide 7: Agricultural Real Estate Mortgage Market Structure
FARMER MAC $12.9 Billion {8.8% Eligible Market Share} Agricultural Real Estate Mortgage Market Structure EXECUTIVE SUMMARY 07 FINANCIAL INVESTORS (Developing Market) | various institutional investors investing in agricultural assets (and seeking leverage) FARM CREDIT SYSTEM (GSE) NON-FCS AG LENDERS
Slide 8: Rural Utilities Cooperative Mortgage Market
FARMER MAC Rural Utilities (RU) Cooperative Mortgage Market EXECUTIVE SUMMARY 08 FARM CREDIT SYSTEM (GSE) NON-GSE RU LENDERS $ 1 3 B il li o n $2 3 B illio n C O B A N K (2) (3) $4.5 Billion {12.5% Market Share} Secondary Market CREDIT PROTECTION W HOLESALE FINANCING LOAN SALES Rural Utilities Coope
Slide 9: Farmer Mac Business Volume
FARMER MAC Farmer Mac Business Volume $ IN BILLIONS Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Agricultural Outstanding Business Volume $3.1 $4.2 $5.5 $5.8 $5.5 $5.3 $7.2 $8.5 $9.0 $8.6 $9.6 $9.6 $10.7 $11.4 $11.9 $12.0 $12.9 $14.3 Total Outstandin
Slide 10: Agricultural Industry Dashboard
FARMER MAC $2,730 $2,950 $3,020 $3,010 $3,080 $2,300 $2,400 $2,500 $2,600 $2,700 $2,800 $2,900 $3,000 $3,100 $3,200 2013 2014 2015 2016 2017 $ P E R A C R E Land Value (2)(4) Agricultural Industry Dashboard $124 $92 $81 $61 $64 $0 $20 $40 $60 $80 $100 $120 $140 2013 2014 2015 2016 2017F $ I N B IL L
Slide 11: Farmer Mac Dashboard
FARMER MAC Farmer Mac Dashboard $53.0 $47.0 $53.5 $65.6 $0 $10 $20 $30 $40 $50 $60 $70 2014 2015 2016 2017 $ I N M IL L IO N S Core Earnings EXECUTIVE SUMMARY 11 90 85 84 91 80 82 84 86 88 90 92 2014 2015 2016 2017 B A S IS P O IN T S Net Effective Spread $14.6 $15.9 $17.4 $19.0 $0 $5 $10 $15 $20 FY
Slide 12: Farmer Mac's Investment Highlights
FARMER MAC Farmer Mac’s Investment Highlights •Rigorous underwriting standards •Low delinquencies •Low cumulative historical credit losses Quality Assets •Finance assets through issuance of low-cost public debt •Issue at narrow, GSE spreads to U.S. Treasuries Funding Advantage •Robust worldwide dema
Slide 13: Farmer Mac Overview
Farmer Mac Overview
Slide 14: Global Outlook – Demand Pull
FARMER MAC World population is expected to grow to 9.8 billion by 2050, while arable land per person is expected to decline over 40% from 2005 to 2050 USDA projects a 75% increase in total production and consumption of major field crops in the same period • 43% increase in world population • Higher
Slide 15: 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 16: 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 17: 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 18: Lines of Business and Products
FARMER MAC Lines of Business and Products Product Type Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks • FCS Institutions • Insurance Companies • Rural Utilities Cooperatives F & R USDA RU IC Total $4.2 22% $2.3 12% $1.1 6% -- $7.6 40% WHOLESALE FIN
Slide 19: Business Development
FARMER MAC Business Development Product Type Marketing Channel Target Customers AG LOAN PURCHASES AND CREDIT PROTECTION • Marketing department with 5 relationship managers • Geographically dispersed nationwide • Cover ag banks and non-bank originators • Seek to add new ag lenders as eligible loan se
Slide 20: Farm & Ranch Loan Portfolio Diversification
FARMER MAC [CATEGOR Y NAME] [VALUE] [CATEGOR Y NAME] [PERCE NTAGE] [CATEGOR Y NAME] [VALUE] [CATEGOR Y NAME] [PERCE NTAGE] [CATEGOR Y NAME] [PERCE NTAGE] [CATEGOR Y NAME] [PERCEN TAGE] By Geographic Region [CATEGOR Y NAME] [VALUE] [CATEGOR Y NAME] [VALUE] [CATEGOR Y NAME] [VALUE] [CATEGOR Y NAME] [V
Slide 21: Core Earnings Drivers
FARMER MAC Core earnings are primarily a direct function of three key factors: Core Earnings Drivers FARMER MAC OVERVIEW 21 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
Slide 22: Farmer Mac Outstanding Business Volume
FARMER MAC Farmer Mac Outstanding Business Volume $19.0 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $ I N B IL L IO N S FARMER MAC OVERVIEW 22 11.2% CAGR (2000 to 2017)
Slide 23: Farmer Mac Net Effective Spread
FARMER MAC Farmer Mac Net Effective Spread FARMER MAC OVERVIEW 23 69 78 106 97 106 106 104 96 90 85 84 91 0.9% 1.2% 3.0% 2.8% 1.6% 1.6% 1.7% 1.3% 1.1% 1.4% 1.4% 1.1% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 M OO D Y ’S
Slide 24: Farmer Mac Credit vs. Industry
FARMER MAC (1) Source: FDIC Call Report Data & Farm Credit Funding Corp Annual Information Statements – Non-accrual real estate loans and accruing loans that are 90 days or more past due made by commercial and Farm Credit System banks (as of March 2018). (2) Delinquencies include loans held and loan
Slide 25: Farmer Mac – Historical Credit Losses
FARMER MAC Farmer Mac – Historical Credit Losses Farm & Ranch line of business has historical cumulative losses of 0.14%, or less than 1bp per year • Cumulative losses of $33 million on $23 billion of cumulative historical business volume Farmer Mac’s Rural Utilities, USDA Guarantees, and Institutio
Slide 26: Farmer Mac Financial Performance
Farmer Mac Financial Performance
Slide 27: Core Earnings (Non-GAAP Measure)
FARMER MAC $11.1 $9.3 $12.6 $15.0 $23.4 $11.4 $13.1 $16.0 $9.3 $13.2 $14.6 $16.7 $9.5 $13.1 $13.2 $17.9 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 2014 2015 2016 2017 $ I N M IL L IO N S 1Q 2Q 3Q 4Q $53.3 $47.0 Core Earnings (Non-GAAP Measure) FARMER MAC FINANCIAL PERFORMANCE 27 (1) Core earning
Slide 28: Business Volume
FARMER MAC Business Volume FARMER MAC FINANCIAL PERFORMANCE 28 $5.4 $5.8 $6.1 $6.9 $6.4 $6.7 $7.3 $7.9 $1.8 $1.9 $2.1 $2.3 $1.0 $1.5 $1.9 $1.9 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 $20.0 2014 2015 2016 2017 $ I N B IL L IO N S Farm & Ranch Institutional Credit USDA Guarantees Rural
Slide 29: Net Effective Spread (Non-GAAP Measure)
FARMER MAC Net Effective Spread (Non-GAAP Measure) $111.8 $117.4 $123.1 $141.3 0.90% 0.85% 0.84% 0.91% 0.60% 0.65% 0.70% 0.75% 0.80% 0.85% 0.90% 0.95% $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 2014 2015 2016 2017 $ I N M IL L IO N S Net Effective Spread (dollars) Net Effective Spread
Slide 30: Credit Metrics
FARMER MAC $18.9 $32.1 $21.0 $48.4 0.35% 0.56% 0.34% 0.71% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% $0.0 $20.0 $40.0 $60.0 4Q14 4Q15 4Q16 4Q17 % $ I N M IL L IO N S 90-Day Delinquencies 90-Day Delinquencies % of Farm & Ranch Portfolio Average Historical Average ~1.0% $132.6 $104.5 $165.2 $221.3 2.4
Slide 31: Capital
FARMER MAC $766 $564 $610 $657 $345 $102 $143 $137 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $0 $200 $400 $600 $800 2014 2015 2016 2017 C O R E C A P IT A L A M O U N T A B OV E S T A T U TO R Y M IN IM U M C A P IT A L $ IN M IL L IO N S C O R E C A P IT A L $ I N M IL L IO N S Core Capital Co
Slide 32: Historical Dividend Growth
FARMER MAC Historical Dividend Growth $0.05 $0.10 $0.12 $0.14 $0.16 $0.26 $0.36 $0.58 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 2011 2012 2013 2014 2015 2016 2017 2018 $ P E R S H A R E Quarterly Dividend per Share per Year FARMER MAC FINANCIAL PERFORMANCE 32 Initiated New Dividend Policy: Tar
Slide 33: Appendix – Farmer Mac
Appendix – Farmer Mac
Slide 34: Core earnings and net effective spread notes
FARMER MAC (1) Core earnings, core earnings per share, and net effective spread are non-GAAP measures. For a reconciliation of core earnings to GAAP net income attributable to common stockholders and core earnings per share to earnings per common share, and a reconciliation of net effective spread t
Slide 35: Farmer Mac's Net Effective Spread History
FARMER MAC Farmer Mac’s Net Effective Spread History APPENDIX – FARMER MAC 35 (1) (1) Net effective spread is a non-GAAP measure. For a reconciliation of GAAP net interest income to net effective spread, please refer to page 39 of the “Appendix – Farmer Mac.” ($ in thousands) Dollars Yield Dollars Y
Slide 36: Quarterly Reconciliation of Core Earnings
FARMER MAC ($ in thousands) Dec-17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Jun-16 Mar-16 Dec-15 Net income attributable to common stockholders 16,710$ 18,487$ 17,488$ 18,615$ 25,465$ 16,364$ 12,006$ 10,317$ 15,032$ Reconciling items: (Losses)/gains on f inancial derivatives and hedging activities due to
Slide 37: Reconciliation of Core Earnings to Net Income
FARMER MAC Reconciliation of Core Earnings to Net Income APPENDIX – FARMER MAC 37 (in thousands) 2017 2016 2015 2014 Net income attributable to common stockholders 71,300$ 64,152$ 47,371$ 38,251$ Less reconciling items: Gains/(losses) on financial derivatives and hedging activities due to fair value
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 APPENDIX – FARMER MAC 38 Dec-17 Dec-16 Dec-15 Dec-14 GAAP - Diluted EPS 6.60$ 5.97$ 4.19$ 3.37$ Less reconciling items: Gains/(losses) on financial derivatives and hedging activities due to fair value changes 0.87 1.26
Slide 39: Reconciliation of Net Effective Spread to Net Interest Income
FARMER MAC Reconciliation of Net Effective Spread to Net Interest Income APPENDIX – FARMER MAC 39 (in thousands) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Net interest yield 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 effect of consolidated trusts 0.
Slide 40: Liquidity – Investment Portfolio
FARMER MAC Liquidity – Investment Portfolio Farmer Mac maintains an investment portfolio to provide back-up source of liquidity in excess of regulatory requirements • Minimum of 90 days of liquidity required by regulation $2.6 billion investment portfolio at December 31 • Cash and highly-rated inves
Slide 41: 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 42: 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 43: Equity Capital Structure
FARMER MAC Equity Capital Structure APPENDIX – FARMER MAC 43 NYSE Ticker Dividend Yield Shares Outstanding CO M M O N S T OC K CLASS A VOTING COMMON STOCK • Ownership restricted to non-Farm Credit System financial institutions AGM.A 1.98% 1.0 million CLASS B VOTING COMMON STOCK • Ownership restricte
Slide 44: Appendix – Agricultural Industry
Appendix – Agricultural Industry
Slide 45: Farm Income and Related Trends
FARMER MAC $48 $51 $55 $39 $61 $87 $79 $57 $70 $78 $62 $77 $114 $96 $124 $92 $81 $61 $64 164 184 269 50 100 150 200 250 300 350 $0 $20 $40 $60 $80 $100 $120 $140 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 IN D E X $ I N B IL L IO N S Nominal Farm I
Slide 46: Ag Land Value and Leverage Trends
FARMER MAC Ag Land Value and Leverage Trends $1.0 $1.1 $1.2 $1.2 $1.3 $1.3 $1.6 $1.8 $2.0 $2.2 $2.1 $2.2 $2.3 $2.5 $2.7 $3.0 $3.0 $3.0 3.08 $48 $51 $55 $39 $61 $87 $79 $57 $70 $78 $62 $77 $114 $96 $124 $92 $81 $61 $64 $0 $20 $40 $60 $80 $100 $120 $140 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 1999 200
Slide 47: USDA – Key 2018 Forecasts
FARMER MAC USDA – Key 2018 Forecasts Demand for U.S. agricultural products to increase • Demographic trends and a growing global economy contributing to growth • Lower commodity prices stimulating quantity demanded • Total U.S. export values to remain high at $139.5 billion led by greater interest i
Federal Agricultural Mortgage — Q4 2017 Earnings Presentation on 6ix