UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 9, 2015
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
|
| | | | |
Federally chartered instrumentality of the United States | | 001-14951 | | 52-1578738 |
(State or Other Jurisdiction of Incorporation) | | (Commission File Number) | | (IRS Employer Identification No.) |
| | | | |
1999 K Street, N.W., 4th Floor, Washington D.C. | | 20006 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code (202) 872-7700
No change
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On November 9, 2015, the Federal Agricultural Mortgage Corporation (“Farmer Mac”) issued a press release to announce (1) its financial results for the fiscal quarter ended September 30, 2015 and (2) a conference call to discuss those results and Farmer Mac’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2015. A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference. All references to www.farmermac.com and www.farmermac2.com in Exhibit 99.1 are inactive textual references only and the information contained on those websites are not incorporated by reference into this Current Report on Form 8-K.
The information furnished in this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor will any of such information or Exhibit be deemed incorporated by reference into any filing under the Exchange Act or the Securities Act of 1933, as amended (the "Securities Act"), except as shall be expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure.
On November 9, 2015, Farmer Mac posted an investor slide presentation for its equity investors to its website at www.farmermac.com under the tab “Investors — Events and Presentations.” Farmer Mac expects to use the slide presentation in connection with future investor presentations to analysts and investors. The slide presentation is attached to this Current Report on Form 8-K as Exhibit 99.2 and in incorporated herein by reference. All references to www.farmermac.com in Exhibit 99.2 are inactive textual references only and the information contained on Farmer Mac's website is not incorporated by reference into this Current Report on Form 8-K.
The information furnished in this Item 7.01, including Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that Section, nor will any of such information or Exhibit be deemed incorporated by reference into any filing under the Exchange Act or the Securities Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Press Release, dated November 9, 2015
99.2 Equity investor slide presentation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By: /s/ Stephen P. Mullery
Name: Stephen P. Mullery
Title: Senior Vice President – General Counsel
Dated: November 9, 2015
Farmer Mac Reports Third Quarter Financial Results
$15.6 Billion in Outstanding Business Volume; Core Earnings of $13.2 Million
WASHINGTON, D.C., November 9, 2015 — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A) today announced its results for the quarter ended September 30, 2015, which included $498 million in net new business volume growth that brought total outstanding business volume to $15.6 billion. Farmer Mac's third quarter 2015 core earnings, a non-GAAP measure, were $13.2 million ($1.17 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) in second quarter 2015 and $9.3 million ($0.82 per diluted common share) in third quarter 2014.
“Farmer Mac’s third quarter results demonstrate the company’s success at helping to solve customers' needs by deploying the solutions Farmer Mac can offer, " said President and Chief Executive Officer Tim Buzby. "Our results were strong, as outstanding business volume grew nearly $500 million, core earnings increased to $13.2 million, and our credit quality remained very favorable. Our strong volume growth this quarter came from over $875 million in new business with our rural utilities partner, National Rural Utilities Cooperative Finance Corporation. During the quarter, we also implemented a share repurchase program, which authorized Farmer Mac to repurchase up to $25 million dollars of class C common stock over the next two years. We believe the share repurchase program provides us with the opportunity to return capital to stockholders and enhance earnings per share for our remaining stockholders, while still maintaining a strong capital position. Heading into the fourth quarter, the overall business environment for Farmer Mac is positive as we continue to develop innovative solutions that will meet the evolving needs of our expanding customer base.”
Earnings
Farmer Mac's net income attributable to common stockholders for third quarter 2015 was $8.4 million ($0.74 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) for third quarter 2014. The decrease compared to the previous year's quarter was primarily attributable to the effects of unrealized fair value changes on financial derivatives and hedged assets, which was a $4.5 million after-tax loss in third quarter 2015, compared to a $2.7 million after-tax gain in third quarter 2014. This year-over-year decline was partially offset by a decrease in preferred stock dividend expense of $3.5 million after-tax in third quarter 2015 compared to third quarter 2014, due to the redemption of all outstanding shares of Farmer Mac II LLC Preferred Stock on March 30, 2015.
Core earnings in third quarter 2015 were $13.2 million ($1.17 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) in second quarter 2015 and $9.3 million ($0.82 per diluted common share) in third quarter 2014. The increase in core earnings in third quarter 2015 compared to second quarter 2015 was driven primarily by a $1.0 million after-tax reduction in credit expenses and a $0.4 million dollar after-tax increase in net effective spread.
The year-over-year increase in core earnings was due in part to a $1.8 million after-tax increase in net effective spread excluding the impact of the loss of dividend income resulting from the redemption of $78.5 million of high yielding preferred stock in Farmer Mac's investment portfolio in fourth quarter 2014, which was partially offset by a $0.7 million after-tax increase in operating expenses and a $0.4 million after-tax increase in credit expenses. The increase in operating expenses was related to consulting fees associated with corporate strategic initiatives and higher compensation costs related to the consolidation of Farmer Mac’s appraisal subsidiary, Contour Valuation Services, LLC. Also contributing to the year-over-year increase in core earnings is the absence, as compared to third quarter 2014, of $3.5 million after-tax in preferred stock dividend expense resulting from the completion of the capital restructuring initiative and of $1.0 million after-tax in interest expense associated with the completion of the capital management and liquidity initiative.
See "Non-GAAP Earnings Measures" below for more information about core earnings and for a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings.
Business Volume Highlights
During third quarter 2015, Farmer Mac added $1.4 billion of new business volume, with Rural Utilities loans under LTSPCs and AgVantage securities driving the volume. Specifically, Farmer Mac:
| |
• | added $522.3 million Rural Utilities loans under LTSPCs; |
| |
• | added a $300.0 million revolving floating rate AgVantage facility; |
| |
• | purchased $206.6 million of AgVantage securities; |
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• | purchased $176.0 million of newly originated Farm & Ranch loans; |
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• | purchased $91.4 million of USDA Securities; |
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• | added $79.6 million of Farm & Ranch loans under LTSPCs; and |
| |
• | purchased $53.6 million of Rural Utilities loans. |
After $931.5 million of maturities and principal paydowns on existing business during the quarter, which included $609.5 million in scheduled maturities of AgVantage securities, Farmer Mac's outstanding business volume increased a net $497.9 million from June 30, 2015 to $15.6 billion as of September 30, 2015.
During the third quarter 2015, Farmer Mac added $522.3 million of Rural Utilities loans under LTSPCs, which represents the first time Farmer Mac has provided LTSPCs under the Rural Utilities line of business. Third quarter business volume also included the addition of a $300 million revolving floating rate AgVantage facility with National Rural Utilities Cooperative Finance Corporation ("CFC"), which had not been drawn upon as of September 30, 2015. Farmer Mac believes that these two developments reflect industry dynamics that can increase demand for the solutions that Farmer Mac provides. For the first nine months of 2015, Farmer Mac’s total business volume with CFC expanded to $3.9 billion, an increase of $1.2 billion since December 31, 2014. During the quarter, Farmer Mac also purchased $206.6 million of AgVantage securities, including $6.6 million of AgVantage securities that were purchased under Farm Equity AgVantage facilities. New business volume for loans within the Farm & Ranch line of business for the nine months ended September 30, 2015 was in line with the same period in 2014 and
demand seems stable. Additionally, prepayment rates remained low during third quarter 2015, which contributed to the continuation of favorable trends in net loan growth during the quarter.
Net Effective Spread
Farmer Mac's net effective spread was $30.4 million (88 basis points) in third quarter 2015, compared to $29.8 million (88 basis points) in second quarter 2015 and $29.8 million (97 basis points) in third quarter 2014. The increase in net effective spread in third quarter 2015 compared to second quarter 2015 was primarily due to growth in outstanding business volume. In percentage terms, net effective spread remained unchanged in sequential quarters due to stable new business pricing and the relatively low rate of prepayments on loan assets.
The increase in net effective spread in third quarter 2015 compared to third quarter 2014 was attributable to growth in outstanding business volume. In percentage terms, the year-over-year reduction was driven primarily by the loss of $2.1 million in preferred dividend income (7 basis points) from the October 2014 redemption of high-yielding preferred stock held in Farmer Mac's investment portfolio.
Credit Quality
Farmer Mac continues to maintain favorable credit metrics in its four lines of business. In the Farm & Ranch portfolio, 90-day delinquencies were $36.7 million (0.67 percent of the Farm & Ranch portfolio) as of September 30, 2015, compared to $31.9 million (0.58 percent) as of June 30, 2015, and $24.7 million (0.46 percent) as of September 30, 2014. The increase in the 90-day delinquencies in third quarter 2015 as compared to second quarter 2015 was related to the new delinquency of one borrower on two canola facility loans underlying an LTSPC that had been categorized as substandard assets in second quarter 2015 and became delinquent for 90 days or more during third quarter 2015. As of September 30, 2015, Farmer Mac had $13.5 million of exposure to this borrower. Farmer Mac expects that over time its 90-day delinquency rate will eventually revert closer to Farmer Mac's historical averages due to macroeconomic and other potential factors, but Farmer Mac has not yet seen an impact on its portfolio or
a rise in delinquencies related to these factors. Farmer Mac's average 90-day delinquency rate for the Farm & Ranch line of business over the last fifteen years is approximately one percent.
During third quarter 2015, Farmer Mac recorded releases to its allowance for loan losses of $1.2 million and provisions to its reserve for losses of $0.9 million, resulting in a net release of $0.3 million from Farmer Mac's total allowance for losses as compared to second quarter 2015. The releases to the allowance for loan losses were primarily related to a reduction in the specific allowance of a permanent planting loan based on the updated appraisal value of the collateral underlying the loan, while provisions recorded this quarter to the reserve for losses were attributable to an increase in the specific allowance for two impaired canola facility loans underlying an LTSPC. Farmer Mac recorded no charge-offs or recoveries to its total allowance for losses during third quarter 2015. During third quarter 2014, Farmer Mac recorded provisions to its allowance for loan losses of $0.5 million and releases to its reserve for losses of $1.3 million, primarily related to a decline in the balance of its ethanol-related agricultural storage and processing portfolio. Farmer Mac also recorded no charge-offs and recoveries of $45,000 to its total allowance for losses during third quarter 2014.
For Farmer Mac's other lines of business, there are currently no delinquent AgVantage securities or Rural Utilities loans, and USDA Securities are backed by the full faith and credit of the United States. As a result, across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.23 percent of total business volume as of September 30, 2015, compared to 0.21 percent as of June 30, 2015, and 0.18 percent as of September 30, 2014.
The western part of the United States, including California, continues to experience drought conditions, with the water level in many California reservoirs at historically low levels. The persistence of extreme drought conditions in the western states could have an adverse effect on Farmer Mac’s delinquency rates or loss experience in the future, but Farmer Mac has not observed any material effect on its portfolio from the drought to date. Farmer Mac continues to remain informed about the drought and its effects on the agricultural industries located in the western states and on Farmer Mac's Farm & Ranch
portfolio through regular discussions with its loan servicers that service loans in drought-stricken areas, as well as customers and other lenders in the industry.
Lines of Business
Farmer Mac's operations consist of four reportable lines of business – Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. The Institutional Credit business segment is comprised of all of Farmer Mac's wholesale funding products for agricultural and rural utilities counterparties, and currently includes all of its AgVantage securities. Net effective spread by business segment for third quarter 2015 was $9.6 million (180 basis points) for Farm & Ranch, $4.6 million (99 basis points) for USDA Guarantees, $2.9 million (118 basis points) for Rural Utilities, and $11.3 million (81 basis points) for Institutional Credit.
Liquidity and Capital
Farmer Mac's core capital totaled $558.2 million as of September 30, 2015, exceeding the statutory minimum capital requirement by $115.4 million, or 26 percent, compared to $766.3 million as of December 31, 2014, which was $345.0 million, or 82 percent, above the statutory minimum capital requirement. The decrease in core capital was a direct result of the redemption of $250.0 million of Farmer Mac II LLC Preferred Stock on March 30, 2015. Farmer Mac issued an aggregate of $150.0 million of non-cumulative preferred stock during the first half of 2014 and used the proceeds of these preferred stock offerings and cash on hand to cause Farmer Mac II LLC to redeem all of the outstanding shares of Farmer Mac II LLC Preferred Stock. The preferred stock issued in 2014 qualifies as Tier 1 capital for Farmer Mac whereas the Farmer Mac II LLC Preferred Stock that was redeemed did not qualify as Tier 1 capital.
As of September 30, 2015, Farmer Mac's total stockholders' equity was $540.4 million, compared to $545.8 million as of December 31, 2014. The decrease in total stockholders' equity was primarily attributable to a decrease in accumulated other comprehensive income due to decreases in fair value of
available-for-sale securities, offset in part by an increase in retained earnings. These decreases in the fair value of available-for-sale securities were driven primarily by less favorable funding spreads to LIBOR.
On September 8, 2015, Farmer Mac's board of directors approved a share repurchase program, which authorized Farmer Mac to repurchase up to $25 million of its outstanding Class C Non-Voting Common Stock over the next two years. As of September 30, 2015, Farmer Mac had repurchased approximately 104,000 shares at a cost of approximately $2.8 million.
As prescribed by FCA regulations, Farmer Mac is required to maintain a minimum of 90 days of liquidity. In accordance with the methodology prescribed by those regulations, Farmer Mac maintained an average of 159 days of liquidity during third quarter 2015 and had 124 days of liquidity as of September 30, 2015.
Non-GAAP Earnings Measure
Farmer Mac uses core earnings to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. Core earnings principally differs from net income attributable to common stockholders by excluding the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is generally expected. Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business.
This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of this non-GAAP measure is intended to be supplemental in nature, and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.
A reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings is presented in the following table along with a breakdown of the composition of core earnings:
|
| | | | | | | | | | | |
Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings |
| For the Three Months Ended |
| September 30, 2015 | | June 30, 2015 | | September 30, 2014 |
| (in thousands, except per share amounts) |
Net income attributable to common stockholders | $ | 8,359 |
| | $ | 22,162 |
| | $ | 11,586 |
|
Less the after-tax effects of: | | | | | |
|
Unrealized (losses)/gains on financial derivatives and hedging activities | (4,489 | ) | | 10,388 |
| | 2,685 |
|
Unrealized (losses)/gains on trading assets(1) | (5 | ) | | 110 |
| | (21 | ) |
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | (76 | ) | | (81 | ) | | (440 | ) |
Net effects of settlements on agency forward contracts | (253 | ) | | 128 |
| | 73 |
|
Sub-total | (4,823 | ) | | 10,545 |
| | 2,297 |
|
Core earnings | $ | 13,182 |
| | $ | 11,617 |
| | $ | 9,289 |
|
| | | | | |
Composition of Core Earnings: | | | | | |
Revenues: | | | | | |
Net effective spread | $ | 30,387 |
| | $ | 29,787 |
| | $ | 29,766 |
|
Guarantee and commitment fees | 4,328 |
| | 4,085 |
| | 4,152 |
|
Other(2) | (93 | ) | | (24 | ) | | (2,001 | ) |
Total revenues | 34,622 |
| | 33,848 |
| | 31,917 |
|
| | | | | |
Credit related (income)/expense: | | | | | |
Release of/(provision for) losses | (303 | ) | | 1,256 |
| | (804 | ) |
REO operating expenses | 48 |
| | — |
| | 1 |
|
Gains on sale of REO | — |
| | — |
| | — |
|
Total credit related (income)/expense | (255 | ) | | 1,256 |
| | (803 | ) |
| | | | | |
Operating expenses: | | | | | |
Compensation and employee benefits | 5,236 |
| | 5,733 |
| | 4,693 |
|
General and administrative | 3,676 |
| | 3,374 |
| | 3,123 |
|
Regulatory fees | 600 |
| | 600 |
| | 593 |
|
Total operating expenses | 9,512 |
| | 9,707 |
| | 8,409 |
|
| | | | | |
Net earnings | 25,365 |
| | 22,885 |
| | 24,311 |
|
Income tax expense | 8,924 |
| | 8,091 |
| | 6,327 |
|
Net (loss)/income attributable to non-controlling interest | (36 | ) | | (119 | ) | | 5,412 |
|
Preferred stock dividends | 3,295 |
| | 3,296 |
| | 3,283 |
|
Core earnings | $ | 13,182 |
| | $ | 11,617 |
| | $ | 9,289 |
|
| | | | | |
Core earnings per share: | | | | | |
Basic | $ | 1.20 |
| | $ | 1.06 |
| | $ | 0.85 |
|
Diluted | 1.17 |
| | 1.02 |
| | 0.82 |
|
| |
(1) | Excludes unrealized gains related to securities sold, not yet purchased of $16.4 million during the three months ended September 30, 2014. |
| |
(2) | Includes $17.9 million of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased and $16.4 million of unrealized gains on securities sold, not yet purchased during the three months ended September 30, 2014. |
|
| | | | | | | |
Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings |
| For the Nine Months Ended |
| September 30, 2015 | | September 30, 2014 |
| (in thousands, except per share amounts) |
Net income attributable to common stockholders | $ | 32,339 |
| | $ | 32,604 |
|
Less the after-tax effects of: | | | |
|
Unrealized gains/(losses) on financial derivatives and hedging activities | 5,317 |
| | (2,763 | ) |
Unrealized gains on trading assets (1) | 341 |
| | 359 |
|
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value(2) | (686 | ) | | (8,646 | ) |
Net effects of settlements on agency forward contracts | (289 | ) | | 133 |
|
Loss on retirement of Farmer Mac II LLC Preferred Stock(3) | (6,246 | ) | | — |
|
Sub-total | (1,563 | ) | | (10,917 | ) |
Core earnings | $ | 33,902 |
| | $ | 43,521 |
|
| | | |
Composition of Core Earnings: | | | |
Revenues: | | | |
Net effective spread | $ | 89,431 |
| | $ | 85,251 |
|
Guarantee and commitment fees | 12,425 |
| | 12,683 |
|
Other(4) | (522 | ) | | (2,931 | ) |
Total revenues | 101,334 |
| | 95,003 |
|
| | | |
Credit related expense/(income): | | | |
Provision for/(release of) losses | 257 |
| | (2,687 | ) |
REO operating expenses | 47 |
| | 62 |
|
Losses/(gains) on sale of REO | 1 |
| | (165 | ) |
Total credit related expense/(income) | 305 |
| | (2,790 | ) |
| | | |
Operating expenses: | | | |
Compensation and employee benefits | 16,662 |
| | 14,038 |
|
General and administrative | 9,873 |
| | 9,205 |
|
Regulatory fees | 1,800 |
| | 1,781 |
|
Total operating expenses | 28,335 |
| | 25,024 |
|
| | | |
Net earnings | 72,694 |
| | 72,769 |
|
Income tax expense(5) | 23,707 |
| | 5,927 |
|
Net income attributable to non-controlling interest | 5,199 |
| | 16,778 |
|
Preferred stock dividends | 9,886 |
| | 6,543 |
|
Core earnings | $ | 33,902 |
| | $ | 43,521 |
|
| | | |
Core earnings per share: | | | |
Basic | $ | 3.08 |
| | $ | 3.99 |
|
Diluted | 2.99 |
| | 3.83 |
|
| |
(1) | Excludes unrealized gains related to securities sold, not yet purchased of $24.2 million during the nine months ended September 30, 2014. |
| |
(2) | Includes $7.5 million related to the acceleration of premium amortization in first quarter 2014 due to significant refinancing activity in the Rural Utilities line of business. |
| |
(3) | Relates to the write-off of deferred issuance costs as a result of the retirement of Farmer Mac II LLC Preferred Stock. |
| |
(4) | Includes $25.7 million of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased and $24.2 million of unrealized gains on securities sold, not yet purchased during the nine months ended September 30, 2014. |
| |
(5) | Includes the reduction of $11.6 million tax valuation allowance against capital loss carryforwards related to expected capital gains on securities sold, not yet purchased and a reduction in tax valuation allowance of $0.9 million associated with certain gains on investment portfolio assets during the nine months ended September 30, 2014. |
More complete information about Farmer Mac's performance for third quarter 2015 is set forth in Farmer Mac's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 filed today with the U.S. Securities and Exchange Commission ("SEC").
Forward-Looking Statements
Management's expectations for Farmer Mac's future necessarily involve a number of assumptions and estimates and the evaluation of risks and uncertainties. Various factors or events, both known and unknown, could cause Farmer Mac's actual results to differ materially from the expectations as expressed or implied by the forward-looking statements herein, including uncertainties regarding:
| |
• | the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms; |
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• | legislative or regulatory developments that could affect Farmer Mac or its sources of business; |
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• | fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries; |
| |
• | the rate and direction of development of the secondary market for agricultural mortgage and rural utilities loans, including lender interest in Farmer Mac credit products and the secondary market provided by Farmer Mac; |
| |
• | the general rate of growth in agricultural mortgage and rural utilities indebtedness; |
| |
• | the impact of economic conditions, including the effects of drought and other weather-related conditions and fluctuations in agricultural real estate values, on agricultural mortgage lending and borrower repayment capacity; |
| |
• | developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac; |
| |
• | changes in the level and direction of interest rates, which could, among other things, affect the value of collateral securing Farmer Mac's agricultural mortgage loan assets; and |
| |
• | volatility in commodity prices relative to costs of production and/or export demand for U.S. agricultural products. |
Other risk factors are discussed in "Risk Factors" in Part I, Item 1A of in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 16, 2015. In light of these potential risks and uncertainties, no undue reliance should be placed on any forward-looking
statements expressed in this release. The forward-looking statements contained in this release represent management's expectations as of the date of this release. Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements included in this release to reflect new information or any future events or circumstances, except as otherwise mandated by the SEC. The information contained in this release is not necessarily indicative of future results.
Earnings Conference Call Information
The conference call to discuss Farmer Mac's third quarter 2015 financial results and Form 10-Q will be held beginning at 11:00 a.m. eastern time on Monday, November 9, 2015 and can be accessed by telephone or live webcast as follows:
Telephone (Domestic): (888) 346-2616
Telephone (International): (412) 902-4254
Webcast: https://www.farmermac.com/investors/events-presentations/
If you are dialing in to the call, please ask for the conference chairman Tim Buzby. You will receive additional instructions when you join the call. The call can be heard live and will also be available for replay on Farmer Mac’s website at the link provided above for two weeks following the conclusion of the call.
About Farmer Mac
Farmer Mac is the stockholder-owned company created to deliver capital and increase lender competition for the benefit of American agriculture and rural communities. Additional information about Farmer Mac (including the Annual Report on Form 10-K and Quarterly Report on Form 10-Q referenced above) is available on Farmer Mac's website at www.farmermac.com. Farmer Mac II LLC is a subsidiary of Farmer Mac that operates the USDA Guarantees line of business of purchasing and holding USDA-guaranteed loans. Information about Farmer Mac II LLC is available on its website at www.farmermac2.com.
CONTACT: Jalpa Nazareth, Investor Relations
Megan Murray-Pelaez, Media Inquiries
(202) 872-7700
* * * *
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
|
| | | | | | | |
| As of |
| September 30, 2015 | | December 31, 2014 |
| (in thousands) |
Assets: | | | |
Cash and cash equivalents | $ | 1,516,536 |
| | $ | 1,363,387 |
|
Investment securities: | |
| | |
|
Available-for-sale, at fair value | 2,031,629 |
| | 1,938,499 |
|
Trading, at fair value | 550 |
| | 689 |
|
Total investment securities | 2,032,179 |
| | 1,939,188 |
|
Farmer Mac Guaranteed Securities: | |
| | |
|
Available-for-sale, at fair value | 4,156,670 |
| | 3,659,281 |
|
Held-to-maturity, at amortized cost | 1,276,153 |
| | 1,794,620 |
|
Total Farmer Mac Guaranteed Securities | 5,432,823 |
| | 5,453,901 |
|
USDA Securities: | |
| | |
|
Available-for-sale, at fair value | 1,854,422 |
| | 1,731,222 |
|
Trading, at fair value | 31,936 |
| | 40,310 |
|
Total USDA Securities | 1,886,358 |
| | 1,771,532 |
|
Loans: | |
| | |
|
Loans held for investment, at amortized cost | 3,148,742 |
| | 2,833,461 |
|
Loans held for investment in consolidated trusts, at amortized cost | 612,567 |
| | 692,478 |
|
Allowance for loan losses | (4,775 | ) | | (5,864 | ) |
Total loans, net of allowance | 3,756,534 |
| | 3,520,075 |
|
Real estate owned, at lower of cost or fair value | 1,402 |
| | 421 |
|
Financial derivatives, at fair value | 7,027 |
| | 4,177 |
|
Interest receivable (includes $4,626 and $9,509, respectively, related to consolidated trusts) | 73,963 |
| | 106,874 |
|
Guarantee and commitment fees receivable | 40,160 |
| | 39,462 |
|
Deferred tax asset, net | 48,409 |
| | 33,391 |
|
Prepaid expenses and other assets | 58,454 |
| | 55,413 |
|
Total Assets | $ | 14,853,845 |
| | $ | 14,287,821 |
|
| | | |
Liabilities and Equity: | |
| | |
|
Liabilities: | |
| | |
|
Notes payable: | |
| | |
|
Due within one year | $ | 8,280,087 |
| | $ | 7,353,953 |
|
Due after one year | 5,217,307 |
| | 5,471,186 |
|
Total notes payable | 13,497,394 |
| | 12,825,139 |
|
Debt securities of consolidated trusts held by third parties | 612,994 |
| | 424,214 |
|
Financial derivatives, at fair value | 94,880 |
| | 84,844 |
|
Accrued interest payable (includes $3,750 and $5,145, respectively, related to consolidated trusts) | 37,830 |
| | 48,355 |
|
Guarantee and commitment obligation | 38,253 |
| | 37,925 |
|
Accounts payable and accrued expenses | 26,450 |
| | 81,252 |
|
Reserve for losses | 5,498 |
| | 4,263 |
|
Total Liabilities | 14,313,299 |
| | 13,505,992 |
|
Commitments and Contingencies (Note 6) | | | |
Equity: | |
| | |
|
Preferred stock: | |
| | |
|
Series A, par value $25 per share, 2,400,000 shares authorized, issued and outstanding | 58,333 |
| | 58,333 |
|
Series B, par value $25 per share, 3,000,000 shares authorized, issued and outstanding | 73,044 |
| | 73,044 |
|
Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding | 73,382 |
| | 73,382 |
|
Common stock: | |
| | |
|
Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding | 1,031 |
| | 1,031 |
|
Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding | 500 |
| | 500 |
|
Class C Non-Voting, $1 par value, no maximum authorization, 9,412,379 shares and 9,406,267 shares outstanding, respectively | 9,412 |
| | 9,406 |
|
Additional paid-in capital | 117,077 |
| | 113,559 |
|
Accumulated other comprehensive (loss)/income, net of tax | (17,814 | ) | | 15,533 |
|
Retained earnings | 225,386 |
| | 201,013 |
|
Total Stockholders' Equity | 540,351 |
| | 545,801 |
|
Non-controlling interest | 195 |
| | 236,028 |
|
Total Equity | 540,546 |
| | 781,829 |
|
Total Liabilities and Equity | $ | 14,853,845 |
| | $ | 14,287,821 |
|
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
| (in thousands, except per share amounts) |
Interest income: | | | | | | | |
Investments and cash equivalents | $ | 3,185 |
| | $ | 4,507 |
| | $ | 9,144 |
| | $ | 14,845 |
|
Farmer Mac Guaranteed Securities and USDA Securities | 34,002 |
| | 32,532 |
| | 101,608 |
| | 98,335 |
|
Loans | 29,731 |
| | 26,371 |
| | 86,509 |
| | 67,157 |
|
Total interest income | 66,918 |
| | 63,410 |
| | 197,261 |
| | 180,337 |
|
Total interest expense | 34,735 |
| | 48,886 |
| | 102,425 |
| | 126,114 |
|
Net interest income | 32,183 |
| | 14,524 |
| | 94,836 |
| | 54,223 |
|
Release of/(provision for) allowance for loan losses | 1,164 |
| | (511 | ) | | 978 |
| | 499 |
|
Net interest income after release of/(provision for) allowance for loan losses | 33,347 |
| | 14,013 |
| | 95,814 |
| | 54,722 |
|
Non-interest income: | | | | | | | |
Guarantee and commitment fees | 3,532 |
| | 3,644 |
| | 10,297 |
| | 11,131 |
|
(Losses)/gains on financial derivatives and hedging activities | (9,568 | ) | | 808 |
| | 939 |
| | (12,468 | ) |
(Losses)/gains on trading securities | (8 | ) | | 16,369 |
| | 524 |
| | 24,772 |
|
Gains/(losses) on sale of available-for-sale investment securities | 3 |
| | (396 | ) | | 9 |
| | (238 | ) |
(Losses)/gains on sale of real estate owned | — |
| | — |
| | (1 | ) | | 165 |
|
Other income | 1,060 |
| | 502 |
| | 1,933 |
| | 794 |
|
Non-interest (loss)/income | (4,981 | ) | | 20,927 |
| | 13,701 |
| | 24,156 |
|
Non-interest expense: | | | | | | | |
Compensation and employee benefits | 5,236 |
| | 4,693 |
| | 16,662 |
| | 14,038 |
|
General and administrative | 3,676 |
| | 3,123 |
| | 9,873 |
| | 9,205 |
|
Regulatory fees | 600 |
| | 593 |
| | 1,800 |
| | 1,781 |
|
Real estate owned operating costs, net | 48 |
| | 1 |
| | 47 |
| | 62 |
|
Provision for/(release of) reserve for losses | 861 |
| | (1,315 | ) | | 1,235 |
| | (2,188 | ) |
Non-interest expense | 10,421 |
| | 7,095 |
| | 29,617 |
| | 22,898 |
|
Income before income taxes | 17,945 |
| | 27,845 |
| | 79,898 |
| | 55,980 |
|
Income tax expense | 6,327 |
| | 7,564 |
| | 24,327 |
| | 55 |
|
Net income | 11,618 |
| | 20,281 |
| | 55,571 |
| | 55,925 |
|
Less: Net loss/(income) attributable to non-controlling interest | 36 |
| | (5,412 | ) | | (5,199 | ) | | (16,778 | ) |
Net income attributable to Farmer Mac | 11,654 |
| | 14,869 |
| | 50,372 |
| | 39,147 |
|
Preferred stock dividends | (3,295 | ) | | (3,283 | ) | | (9,886 | ) | | (6,543 | ) |
Loss on retirement of preferred stock | — |
| | — |
| | (8,147 | ) | | — |
|
Net income attributable to common stockholders | $ | 8,359 |
| | $ | 11,586 |
| | $ | 32,339 |
| | $ | 32,604 |
|
| | | | | | | |
Earnings per common share and dividends: | | | | | | | |
Basic earnings per common share | $ | 0.76 |
| | $ | 1.06 |
| | $ | 2.94 |
| | $ | 2.99 |
|
Diluted earnings per common share | $ | 0.74 |
| | $ | 1.02 |
| | $ | 2.85 |
| | $ | 2.87 |
|
Common stock dividends per common share | $ | 0.16 |
| | $ | 0.14 |
| | $ | 0.48 |
| | $ | 0.42 |
|
The following table sets forth information regarding outstanding volume in each of Farmer Mac's four lines of business as of the dates indicated:
|
| | | | | | | |
Lines of Business - Outstanding Business Volume |
| As of September 30, 2015 | | As of December 31, 2014 |
| (in thousands) |
On-balance sheet: | | | |
Farm & Ranch: | | | |
Loans | $ | 2,166,125 |
| | $ | 2,118,867 |
|
Loans held in trusts: | | | |
Beneficial interests owned by third party investors | 612,567 |
| | 421,355 |
|
USDA Guarantees: | | | |
USDA Securities | 1,856,695 |
| | 1,756,224 |
|
Farmer Mac Guaranteed USDA Securities | 31,218 |
| | 27,832 |
|
Rural Utilities: | | | |
Loans(1) | 982,078 |
| | 718,213 |
|
Loans held in trusts: | | | |
Beneficial interests owned by Farmer Mac(1) | — |
| | 267,396 |
|
Institutional Credit: | | | |
AgVantage Securities | 5,438,488 |
| | 5,410,413 |
|
Total on-balance sheet | $ | 11,087,171 |
| | $ | 10,720,300 |
|
Off-balance sheet: | | | |
Farm & Ranch: | | | |
LTSPCs | $ | 2,171,869 |
| | $ | 2,240,866 |
|
Guaranteed Securities | 553,469 |
| | 636,086 |
|
USDA Guarantees: | | | |
Farmer Mac Guaranteed USDA Securities | 10,712 |
| | 13,978 |
|
Rural Utilities: | | | |
LTSPC | 518,229 |
| | — |
|
Institutional Credit: | | | |
AgVantage Securities | 986,529 |
| | 986,528 |
|
Revolving floating rate AgVantage facility(2) | 300,000 |
| | — |
|
Total off-balance sheet | $ | 4,540,808 |
| | $ | 3,877,458 |
|
Total | $ | 15,627,979 |
| | $ | 14,597,758 |
|
| |
(1) | Reflects the unwinding of certain consolidated trusts with the effect that loans previously consolidated on the balance sheet as "Loans held in trusts" currently are included within "Loans." |
| |
(2) | As of September 30, 2015, this facility had not been utilized. Farmer Mac receives a fixed fee based on the full dollar amount of the facility. If CFC draws on the facility, the amounts drawn will be presented as on-balance sheet AgVantage securities, and Farmer Mac will earn a spread on the drawn balance. |
The following table presents the quarterly net effective spread by segment:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Effective Spread by Line of Business | | |
| Farm & Ranch | | USDA Guarantees | | Rural Utilities | | Institutional Credit(1) | | Corporate | | Net Effective Spread |
| Dollars | | Yield | | Dollars | | Yield | | Dollars | | Yield | | Dollars | | Yield | | Dollars | | Yield | | Dollars | | Yield |
| (dollars in thousands) |
For the quarter ended: | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2015 | $ | 9,628 |
| | 1.80 | % | | $ | 4,630 |
| | 0.99 | % | | $ | 2,907 |
| | 1.18 | % | | $ | 11,271 |
| | 0.81 | % | | $ | 1,951 |
| | 0.25 | % | | $ | 30,387 |
| | 0.88 | % |
June 30, 2015 | 9,681 |
| | 1.82 | % | | 4,466 |
| | 0.98 | % | | 2,838 |
| | 1.18 | % | | 10,860 |
| | 0.78 | % | | 1,942 |
| | 0.25 | % | | 29,787 |
| | 0.88 | % |
March 31, 2015(2) | 10,114 |
| | 1.97 | % | | 4,225 |
| | 0.95 | % | | 2,804 |
| | 1.15 | % | | 10,425 |
| | 0.77 | % | | 1,689 |
| | 0.20 | % | | 29,257 |
| | 0.86 | % |
December 31, 2014(3) | 8,682 |
| | 1.71 | % | | 5,250 |
| | 1.19 | % | | 2,908 |
| | 1.18 | % | | 9,871 |
| | 0.78 | % | | 1,732 |
| | 0.26 | % | | 28,443 |
| | 0.91 | % |
September 30, 2014 | 8,207 |
| | 1.68 | % | | 5,073 |
| | 1.18 | % | | 2,890 |
| | 1.16 | % | | 9,823 |
| | 0.78 | % | | 3,773 |
| | 0.59 | % | | 29,766 |
| | 0.97 | % |
June 30, 2014 | 7,820 |
| | 1.64 | % | | 4,159 |
| | 0.99 | % | | 2,953 |
| | 1.16 | % | | 9,957 |
| | 0.78 | % | | 4,160 |
| | 0.57 | % | | 29,049 |
| | 0.92 | % |
March 31, 2014(4) | 7,114 |
| | 1.53 | % | | 3,784 |
| | 0.91 | % | | 1,990 |
| | 0.73 | % | | 9,406 |
| | 0.74 | % | | 4,142 |
| | 0.56 | % | | 26,436 |
| | 0.84 | % |
December 31, 2013(4) | 10,113 |
| | 2.20 | % | | 4,022 |
| | 0.97 | % | | 2,379 |
| | 0.89 | % | | 9,088 |
| | 0.72 | % | | 4,420 |
| | 0.58 | % | | 30,022 |
| | 0.94 | % |
September 30, 2013 | 7,980 |
| | 1.86 | % | | 4,505 |
| | 1.09 | % | | 2,974 |
| | 1.12 | % | | 9,117 |
| | 0.72 | % | | 4,117 |
| | 0.57 | % | | 28,693 |
| | 0.93 | % |
| |
(1) | See Note 1(d) to the consolidated financial statements in Farmer Mac's Quarterly Report on Form 10-Q filed with the SEC on November 9, 2015 for more information about the reclassification of certain amounts in prior periods from guarantee and commitment fees to interest income related to on-balance sheet Farmer Mac Guaranteed Securities. |
| |
(2) | Beginning in first quarter 2015, Farmer Mac revised its methodology for interest expense allocation among the Farm & Ranch, USDA Guarantees, and Rural Utilities lines of business. As a result of this revision, a greater percentage of interest expense has been allocated to the longer-term assets included within the USDA Guarantees and Rural Utilities lines of business. Net effective spread for periods prior to the quarter ended March 31, 2015 does not reflect this revision. |
| |
(3) | On October 1, 2014, $78.5 million of preferred stock issued by CoBank was called, resulting in a loss of net effective spread of $2.1 million or 30 basis points in the corporate segment. The impact on consolidated net effective spread was 7 basis points. |
| |
(4) | First quarter 2014 includes the impact of spread compression in the Rural Utilities line of business from the early refinancing of loans (41 basis points). Fourth quarter 2013 includes the impact in net effective spread in the Farm & Ranch line of business of one-time adjustments for recovered buyout interest and yield maintenance (40 basis points in aggregate) and the impact of spread compression in the Rural Utilities line of business from the early refinancing of loans (26 basis points). |
The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Core Earnings by Quarter Ended |
| September 2015 | | June 2015 | | March 2015 | | December 2014 | | September 2014 | | June 2014 | | March 2014 | | December 2013 | | September 2013 |
| (in thousands) |
Revenues: | | | | | | | | | | | | | | | | | |
Net effective spread(1) | $ | 30,387 |
| | $ | 29,787 |
| | $ | 29,257 |
| | $ | 28,443 |
| | $ | 29,766 |
| | $ | 29,049 |
| | $ | 26,436 |
| | $ | 30,022 |
| | $ | 28,693 |
|
Guarantee and commitment fees | 4,328 |
| | 4,085 |
| | 4,012 |
| | 4,096 |
| | 4,152 |
| | 4,216 |
| | 4,315 |
| | 4,252 |
| | 4,134 |
|
Other(2) | (93 | ) | | (24 | ) | | (405 | ) | | (1,285 | ) | | (2,001 | ) | | (520 | ) | | (410 | ) | | 427 |
| | (466 | ) |
Total revenues | 34,622 |
| | 33,848 |
| | 32,864 |
| | 31,254 |
| | 31,917 |
| | 32,745 |
| | 30,341 |
| | 34,701 |
| | 32,361 |
|
| | | | | | | | | | | | | | | | | |
Credit related (income)/expense: | | | | | | | | | | | | | | | | | |
(Release of)/provision for losses | (303 | ) | | 1,256 |
| | (696 | ) | | (479 | ) | | (804 | ) | | (2,557 | ) | | 674 |
| | 12 |
| | (36 | ) |
REO operating expenses | 48 |
| | — |
| | (1 | ) | | 48 |
| | 1 |
| | 59 |
| | 2 |
| | 3 |
| | 35 |
|
Losses/(gains) on sale of REO | — |
| | — |
| | 1 |
| | 28 |
| | — |
| | (168 | ) | | 3 |
| | (26 | ) | | (39 | ) |
Total credit related (income)/expense | (255 | ) | | 1,256 |
| | (696 | ) | | (403 | ) | | (803 | ) | | (2,666 | ) | | 679 |
| | (11 | ) | | (40 | ) |
| | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | |
Compensation and employee benefits | 5,236 |
| | 5,733 |
| | 5,693 |
| | 4,971 |
| | 4,693 |
| | 4,889 |
| | 4,456 |
| | 4,025 |
| | 4,523 |
|
General and administrative | 3,676 |
| | 3,374 |
| | 2,823 |
| | 2,992 |
| | 3,123 |
| | 3,288 |
| | 2,794 |
| | 3,104 |
| | 2,827 |
|
Regulatory fees | 600 |
| | 600 |
| | 600 |
| | 600 |
| | 593 |
| | 594 |
| | 594 |
| | 594 |
| | 593 |
|
Total operating expenses | 9,512 |
| | 9,707 |
| | 9,116 |
| | 8,563 |
| | 8,409 |
| | 8,771 |
| | 7,844 |
| | 7,723 |
| | 7,943 |
|
| | | | | | | | | | | | | | | | | |
Net earnings | 25,365 |
| | 22,885 |
| | 24,444 |
| | 23,094 |
| | 24,311 |
| | 26,640 |
| | 21,818 |
| | 26,989 |
| | 24,458 |
|
Income tax expense/(benefit)(3) | 8,924 |
| | 8,091 |
| | 6,692 |
| | 4,858 |
| | 6,327 |
| | (4,734 | ) | | 4,334 |
| | 5,279 |
| | 6,263 |
|
Net (loss)/income attributable to non-controlling interest | (36 | ) | | (119 | ) | | 5,354 |
| | 5,414 |
| | 5,412 |
| | 5,819 |
| | 5,547 |
| | 5,546 |
| | 5,547 |
|
Preferred stock dividends | 3,295 |
| | 3,296 |
| | 3,295 |
| | 3,296 |
| | 3,283 |
| | 2,308 |
| | 952 |
| | 882 |
| | 881 |
|
Core earnings | $ | 13,182 |
| | $ | 11,617 |
| | $ | 9,103 |
| | $ | 9,526 |
| | $ | 9,289 |
| | $ | 23,247 |
| | $ | 10,985 |
| | $ | 15,282 |
| | $ | 11,767 |
|
| | | | | | | | | | | | | | | | | |
Reconciling items (after-tax effects): | | | | | | | | | | | | | | | | | |
Unrealized (losses)/gains on financial derivatives and hedging activities | (4,489 | ) | | 10,388 |
| | (582 | ) | | (3,717 | ) | | 2,685 |
| | (3,053 | ) | | (2,395 | ) | | 8,003 |
| | 4,632 |
|
Unrealized (losses)/gains on trading assets | (5 | ) | | 110 |
| | 236 |
| | 679 |
| | (21 | ) | | (46 | ) | | 426 |
| | (50 | ) | | (407 | ) |
Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | (76 | ) | | (81 | ) | | (529 | ) | | (811 | ) | | (440 | ) | | (179 | ) | | (8,027 | ) | | (10,864 | ) | | (421 | ) |
Net effects of settlements on agency forwards | (253 | ) | | 128 |
| | (164 | ) | | (30 | ) | | 73 |
| | 236 |
| | (176 | ) | | 114 |
| | (158 | ) |
Loss on retirement of Farmer Mac II LLC Preferred Stock | — |
| | — |
| | (6,246 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net income attributable to common stockholders | $ | 8,359 |
| | $ | 22,162 |
| | $ | 1,818 |
| | $ | 5,647 |
| | $ | 11,586 |
| | $ | 20,205 |
| | $ | 813 |
| | $ | 12,485 |
| | $ | 15,413 |
|
| |
(1) | The difference between first quarter 2014 and fourth quarter 2013 net effective spread was due to the impact of one-time adjustments for recovered buyout interest and yield maintenance of $1.8 million in fourth quarter 2013, $0.6 million associated with the early refinancing of AgVantage securities and the recasting of certain Rural Utilities loans, and a lower day count in first quarter 2014. |
| |
(2) | Fourth quarter 2014 and third quarter 2014 include $13.6 million and $17.9 million, respectively, of interest expense related to securities purchased under agreements to resell and securities sold, not yet purchased and $12.8 million and $16.4 million, respectively of gains on securities sold, not yet purchased. First quarter 2014 includes additional hedging costs of $0.6 million. Fourth quarter 2013 includes gains on the repurchase of debt of $1.5 million, partially offset by realized losses on the sale of available-for-sale securities of $0.9 million and additional hedging costs of $0.2 million. Second quarter 2013 includes $3.1 million of realized gains from the sale of an available-for-sale investment security. |
| |
(3) | Fourth quarter 2014 and second quarter 2014 reflect a reduction of $1.4 million and $11.6 million, respectively, in the tax valuation allowance against capital loss carryforwards related to capital gains on securities sold, not yet purchased. First quarter 2014 and fourth quarter 2013 reflect a reduction in tax valuation allowance of $0.8 million and $2.1 million, respectively, associated with certain gains on investment portfolio assets. Second quarter 2013 includes the reduction of $1.1 million of tax valuation allowance against capital loss carryforwards related to realized gains from the sale of an available-for-sale investment security. |
2015 Equity Investor Presentation Third Quarter
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 include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements. Management’s expectations for Farmer Mac’s future necessarily involve a number of assumptions and estimates and the evaluation of risks and uncertainties. Various factors or events could cause Farmer Mac’s actual results to differ materially from the expectations as expressed or implied by the forward-looking statements. Some of these factors are identified and discussed in Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2015, Quarterly Report on Form 10- Q for the quarter ended March 31, 2015, filed with the SEC on May 11, 2015, Quarterly Report on Form 10-Q for quarter ended June 30, 2015, filed with the SEC on August 10, 2015, and Quarterly Report on Form 10-Q for quarter ended September 30, 2015, filed with the SEC on November 9, 2015, which are also available on Farmer Mac’s website (www.farmermac.com). In light of these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this presentation. Any forward-looking statements made in this presentation are current only as of September 30, 2015, except as otherwise indicated. Farmer Mac undertakes no obligation to release publicly the results of revisions to any such forward-looking statements to reflect new information or any future events or circumstances, except as otherwise mandated by the SEC. The information contained in this presentation is not necessarily indicative of future results. NO OFFER OR SOLICITATION OF SECURITIES This presentation does not constitute an offer to sell or a solicitation of an offer to buy any Farmer Mac security. Farmer Mac securities are offered only in jurisdictions where permissible by offering documents available through qualified securities dealers. Any investor who is considering purchasing a Farmer Mac security should consult the applicable offering documents for the security and their own financial and legal advisors for information about and analysis of the security, the risks associated with the security, and the suitability of the investment for the investor’s particular circumstances. Copyright © 2015 by Farmer Mac. No part of this document may be duplicated, reproduced, distributed, or displayed in public in any manner or by any means without the written permission of Farmer Mac. EQUITY INVESTOR PRESENTATION 2015 02
FARMER MAC Non-GAAP Financial Measures This presentation is for general informational purposes only, is current only as of September 30, 2015, and should be read in conjunction with Farmer Mac’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2015. Farmer Mac uses core earnings, a non-GAAP financial measure, to measure corporate economic performance and develop financial plans because, in management's view, core earnings is a useful alternative measure in understanding Farmer Mac's economic performance, transaction economics, and business trends. Core earnings principally differs from net income attributable to common stockholders by excluding the effects of fair value fluctuations, which are not expected to have a cumulative net impact on financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is generally expected. Core earnings also differs from net income attributable to common stockholders by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of this non-GAAP measure is intended to be supplemental in nature, and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. EQUITY INVESTOR PRESENTATION 2015 03
FARMER MAC Table of Contents 05 Executive Summary 13 Agricultural Industry Highlights 22 Farmer Mac Overview 33 Farmer Mac Financial Performance 40 Appendix EQUITY INVESTOR PRESENTATION 2015 04
Executive Summary
FARMER MAC Farmer Mac Overview Created in the 1980s to help provide a deeper credit market for rural America • Provide wholesale financing, secondary market and credit enhancements for agricultural and rural utilities lenders • Increase access to credit and drive more efficient credit pricing for rural America • Reduce rural credit market volatility by increasing liquidity and lending capacity for rural lenders Lines of business – focused on customers • Farm & Ranch • USDA Guarantees • Rural Utilities • Institutional Credit Diverse product suite provided to customers • Loan purchases • Wholesale financing • Credit protection EXECUTIVE SUMMARY 06 1987 1996 1998 1999 2008 Farmer Mac initially chartered by Congress as an instrumentality of the United States First major charter revision and expansion of authority (direct loan purchases) Outstanding business volume reaches $1 billion First listed on NYSE (AGM & AGM.A) Second major charter revision and expansion of authority (Rural Utilities) Outstanding business volume reaches $10 billion
FARMER MAC $11.9 Billion {6.0% 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) Retail & Agribusiness NON-FCS AG LENDERS Secondary Market CREDIT PROTECTION CREDIT PROTECTION W HOLESALE FINANCING LOAN SALES Primary Agriculture Mortgage Market {Farmers & Ranchers} Mortgage Financing Mortgage Financing $199 Billion $ 8 9 B il li o n $11 0 B illio n F C S F U N D IN G C O R P O R A T IO N A G F IR S T S o u th e a s t $ 1 0 B A G R IB A N K M id w e s t $ 4 6 B F C B O F T X S o u th w e s t $ 1 0 B C O B A N K N a ti o n w id e $ 2 3 B IN S U R A N C E C O M P A N IE S $ 1 2 B A G B A N K S $ 7 4 B N O N -B A N K L E N D E R S $ 2 4 B 7 6 R E T A IL A C A s (1) Ag real estate mortgage market structure shown here includes only the outstanding unpaid principal balance of first lien ag mortgage assets as of December 31, 2014. (2) Source: USDA, Economic Research Service, nominal dollars for year-end 2014; (as of August 2015). (3) Source: Farm Credit Administration, Call Report Data for year-end 2014 (as of December 2014). (4) Sum of FCS, non-FCS, and Farmer Mac first lien ag real estate mortgage assets does not add up to the total due to the nature of Farmer Mac’s secondary market business model. (1) (2) (3) (2) (4) (4) AS OF DECEMBER 31, 2014 (1)
FARMER MAC Rural Utilities (RU) Cooperative Mortgage Market EXECUTIVE SUMMARY 08 FARM CREDIT SYSTEM (GSE) NON-GSE RU LENDERS $ 1 2 Bi ll io n $2 0 B illio n C O B A N K (2) (3) $2.7 Billion {8.2% Market Share} Secondary Market CREDIT PROTECTION W HOLESALE FINANCING LOAN SALES Rural Utilities Cooperative Mortgage Market {900+ Cooperatives in Util it ies Distribution, Generation and Transmission.} Mortgage Financing Mortgage Financing (3) $32 Billion (4) N A T IO N A L R U R A L U T IL IT IE S C O O P E R A T IV E F IN A N C E C O R P O R A T IO N Market Opportunity Kilowatt-hour sales growing nearly 3% annually (2013 and 2014), the first growth in several years • Generally leads to increased demand for credit Other industry dynamics leading to Farmer Mac growth opportunities • Push toward higher Tier 1 capital and more duration-matched funding • Trend toward retiring debt away from the RUS (USDA) funding source • Capital expenditures for greater use of natural gas-fired electricity production (1) RU cooperative mortgage market structure shown here includes only the outstanding unpaid principal balance of first lien RU cooperative real estate mortgage assets as of December 31, 2014. (2) Source: CoBank 2014 Financial Information, Energy Loan Portfolio nominal dollars as of December 31, 2014. (3) Source: NRUCFC 10-Q, nominal dollars as of November 30, 2014, Long-term Loans Table 6. (4) Nominal dollars for 2014; Sum of FCS, non-GSE and Farmer Mac first lien RU cooperative real estate mortgage assets does not add up to the total due to the nature of Farmer Mac’s secondary market business model. AS OF DECEMBER 31, 2014 (1) (1)
FARMER MAC Farmer Mac Business Volume $ IN BILLIONS Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3Q15 Agricultural Outstanding Business Volume $2.4 $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 $11.7 Total Outstanding Volume $2.4 $3.1 $4.2 $5.5 $5.8 $5.5 $5.3 $7.2 $8.5 $10.1 $10.7 $12.2 $11.9 $13.0 $14.0 $14.6 $15.6 Ag Real Estate Mortgage Market and Farmer Mac $87 $85 $89 $98 $97 $104 $114 $113 $132 $148 $146 $154 $167 $173 $184 $199 $209 2.7% 3.7% 4.7% 5.6% 6.0% 5.2% 4.6% 6.4% 6.5% 6.1% 5.9% 6.2% 5.7% 6.2% 6.2% 6.0% 5.6% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% $0 $50 $100 $150 $200 $250 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F $ I N B IL L IO N S Agricultural Real Estate Mortgage Market Ag Real Estate Mortgage Market AGM – Ag Real Estate Mortgage Market Share (1) Farmer Mac’s market share in 2015F reflects 3Q15 data. (2) Source: USDA, Economic Research Service, nominal dollars (as of August 2015). (3) Farmer Mac business volume includes total outstanding balance of loan purchases, guarantees, and Long-Term Standby Purchase Commitments (LTSPCs) in the Farm & Ranch line of business, USDA Guarantees, and AgVantage securities secured by collateral eligible for the Farm & Ranch line of business; excludes all loan purchases, guarantees, and LTSPCs in the Rural Utilities line of business and AgVantage securities secured by collateral eligible for Rural Utilities line of business. (2) (3) EXECUTIVE SUMMARY 09 (3) (1)
FARMER MAC $2,300 $2,520 $2,730 $2,950 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 2011 2012 2013 2014 $ P E R A C R E Land Value (2)(4) Agricultural Industry Dashboard $112 $91 $124 $91 $0 $20 $40 $60 $80 $100 $120 $140 2011 2012 2013 2014 $ I N B IL L IO N S Farm Income (1) 286 317 288 198 182 189 195 238 0 100 200 300 400 2011 2012 2013 2014 IN D E X Commodity Index Feed Grains Prices Received Index Livestock Prices Received Index (2)(3) 2.10% 1.67% 1.23% 0.96% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 2011 2012 2013 2014 90-Day Delinquencies (5) (1) Source: USDA, Economic Research Service, nominal dollars (as of August 2015). (2) Source: USDA, National Agricultural Statistics Service (as of August 2015). (3) Commodity prices indexed according to 1999 base year as 100. (4) Land values per acre include all farm and pasture land, irrigated and non-irrigated. (5) Source: Kansas City Federal Reserve, Ag Finance Databook & Farm Credit Funding Corp Annual Information Statements – Non-accrual real estate loans and accruing loans that are 90 days or more past due, include commercial and farm credit system banks (as of August 2015). EXECUTIVE SUMMARY 10 10-year Average $85 billion 10-year Average 1.53% 10-year Average $2,236
FARMER MAC Farmer Mac Dashboard $42.9 $49.6 $54.9 $53.0 $33.9 $0 $10 $20 $30 $40 $50 $60 2011 2012 2013 2014 3Q15 YTD $ I N M IL L IO N S Core Earnings EXECUTIVE SUMMARY 11 106 104 96 91 87 0 20 40 60 80 100 120 2011 2012 2013 2014 3Q15 YTD B A S IS P O IN T S Net Effective Spread $11.9 $13.0 $14.0 $14.6 $15.6 $0 $2 $4 $6 $8 $10 $12 $14 FY11 FY12 FY13 FY14 3Q15 $ I N B IL L IO N S Outstanding Business Volume 93 70 55 35 67 0 20 40 60 80 100 FY11 FY12 FY13 FY14 3Q15 B A S IS P O IN T S 90-Day Delinquencies (Farm & Ranch Line of Business Only) (1) Core earnings is a non-GAAP measure. For a reconciliation of GAAP net income attributable to common stockholders to core earnings, please refer to page 44 of the Appendix. (2) Delinquencies include loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. (2) (1)
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 demand for agricultural products • Increase market share through business development efforts • Significant wholesale financing opportunities Growth Prospects • Overhead / outstanding business volume ~ 25 bps • Outstanding business volume ~$200 million per employee Operational Efficiency • Core earnings growth • Annual core earnings return on equity ~ 15% to 25% • Steady growth in common dividends in recent years Consistent Returns EXECUTIVE SUMMARY 12
Agricultural Industry Highlights
FARMER MAC Grain prices fell in 2014 due to record plantings/yields; livestock prices remain generally high • U.S. agricultural product use increased 6% in 2014; however, ending stocks also increased due to record grain production • Exports increased 8.2%, driven by strong overseas demand for U.S. grains and oilseeds Farm income declined 26% in 2014 as grain prices declined 35% • At $91.1 billion, 2014 farm income still above the 10-year average of $85 billion • Livestock profitability generally supported by high prices and stable/modestly decreasing costs (excluding Dairy) • Dairy prices are under pressure as a result of increased production and lower overseas demand Average inflation-adjusted U.S. agricultural real estate values increased 1% in 2014 • Corn belt farmland values down between 3% and 7% as falling grain prices reduced regional income • Rest of U.S. land values remain stable to modestly increasing, led by demand for pasture ground • Continued softening of land values in grain-heavy states in 2015 Land sales transactions have slowed with lower income and declining land values • However, demographic trend (average age of U.S. farmer >60 years) to support primary transaction volume California drought persists; however, it has not had a material impact on Farmer Mac’s credit quality • California farmers with access to water are earning record profits and quality land continues to increase in value State of Agriculture AGRICULTURAL INDUSTRY HIGHLIGHTS 14 (1) Source: USDA, National Agricultural Statistics Service (as of August 2015). (2) Source: USDA, Economic Research Service, Nominal (current dollars) (as of August 2015). (3) Source: Federal Reserve Bank of Chicago Seventh District, Ag Credit Conditions Survey AgLetter (as of May 2015). (1) (2) (3)
FARMER MAC Global Outlook Demand • 43% increase in global population projected between 2005 and 2050 • However, USDA’s Future Agricultural Resources Model (FARM) projects a 75% increase in total production and consumption of major field crops for the same period due to higher protein diets • Significant projected increase in demand for agricultural commodities and products due to greater incomes (higher protein diet) and a larger population • Thus significant “demand pull” for agricultural products Supply • Finite amount of arable farmland, which implies a relatively high rate of capacity utilization • According to USDA Ag Census, less than 10% of U.S. cropland is idle • As incomes in developing countries increase, food consumption shifts to diets richer in animal protein, which increases the demand for feed crops • In order to meet minimum demand projections, productivity would need to nearly double in key commodity groups by 2050 AGRICULTURAL INDUSTRY HIGHLIGHTS 15 (1) (1) Source: USDA, Economic Research Service Global Drivers of Agricultural Demand and Supply, September 2014. (2) Source: USDA, Census of Agriculture; 2012 (2)
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 healthy, transaction volumes are high, and capital is plentiful • Impacts on Farmer Mac: – Farmer Mac can benefit from the higher industry volumes and healthy credit – However, when farm income is high and capital is plentiful, the relative value of access to GSE capital may be marginally lower – Earnings can benefit from lower credit costs, but spreads may be tighter Weak Market – Farmer Mac can benefit from loss protection and increased demand due to tighter credit conditions • Situation: Declining farm income, land values and credit quality; less access to capital • Impacts on Farmer Mac: – Farmer Mac can benefit from loss protection given its unique diversified geographic/commodity portfolio and its conservative underwriting standards – Farmer Mac can also benefit from the greater relative value of GSE capital in tighter credit market conditions – However, in bear markets, no entity will be immune to declining credit quality, although spreads may be more favorable AGRICULTURAL INDUSTRY HIGHLIGHTS 16
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 borrower net equity of 50% across all agricultural assets • Significant scrutiny given to property access and access to water, among other items Farmer Mac credits less likely to default as compared to the broader industry • Farmer Mac is generally recognized as having the tightest credit requirements for ag mortgage loans • Primary focus on repayment capacity through stressed input assumptions during underwriting process • Farmer Mac is not a “lender of last resort”; Farm Credit Administration is a strong safety and soundness regulator Farmer Mac credits less likely to incur losses even when a default occurs • “Expected losses” of farm asset values range from 0% to 30% for various commodity types in Farmer Mac’s base case scenario • Farmer Mac’s “Stress scenario losses” of farm asset values range from 17% to 50% for various commodity types • Given Farmer Mac’s portfolio average LTV of 43% as of September 30, average farm asset value losses would need to be in excess of 57% to begin to generate the first dollar of loss to Farmer Mac – The 1980s agricultural credit crisis saw land values decline approximately 23% from peak to trough AGRICULTURAL INDUSTRY HIGHLIGHTS 17 (1) Source: USDA, National Agricultural Statistics Service (as of August 2015). (1)
FARMER MAC $48 $51 $55 $39 $61 $87 $79 $57 $70 $79 $57 $75 $112 $91 $124 $91 198 238 310 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 IN D E X $ I N B IL L IO N S Nominal Farm Income Grain Index Livestock Index Export Change Index (1) (2) (2) (1) Farm Income and Related Trends (1) Source: USDA, Economic Research Service, nominal dollars (as of August 2015). (2) Source: USDA, National Agricultural Statistics Service; Indexed to 1999 as 100. AGRICULTURAL INDUSTRY HIGHLIGHTS 18
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 $48 $51 $55 $39 $61 $87 $79 $57 $70 $79 $57 $75 $112 $91 $124 $91 $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 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ IN B IL L IO N S A V E R A GE L A N D V A L U E $ I N T H O U S A N D S /A C R E Ag Land Values Land Value Nominal Farm Income 11.8% Average 12.4% 9% 10% 11% 12% 13% 14% 15% 16% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 D E B T TO A S S E T R A T IO ( % ) Leverage Debt to Asset Ratio Average (1) Source: USDA, National Agricultural Statistics Service (as of August 2015); includes all farm and pasture land, irrigated and non-irrigated. (2) Source: USDA, Economic Research Service, nominal dollars (as of August 2015). (1) (2) (2) AGRICULTURAL INDUSTRY HIGHLIGHTS 19
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’ experiences in the 1980s • Risk management includes revenue and cost protection and more sophisticated asset liability management Revenue Hedging • Crop insurance – approximately 91% of planted acres carry some form of crop insurance • Crop insurance premiums still federally subsidized and losses shared by the federal government • Futures/forward sales – many producers use hedging instruments to sell grain crops forward at planting stage Cost Hedging • Feed costs hedged with futures/forwards • Fertilizer and fuel costs can be similarly hedged • Water availability can be provided via “water banks” and secondary sources of water, e.g. wells • Water costs can also be hedged with forward purchase agreements Debt service is better managed with lower absolute leverage levels and better ALM AGRICULTURAL INDUSTRY HIGHLIGHTS 20 (1) Source: USDA, 2013 Agricultural Resource Management Survey (ARMS) Farm Financial and Crop Production Practices Summary Report. (1)
FARMER MAC USDA – Key 2015 Forecasts Demand for U.S. agricultural products to increase 2.0% • Demographic trends and a stabilizing economy contributing to growth • Certain trends in key commodities, such as pork and poultry consumption, also contributing • Total U.S. exports to decrease 8.4% to $139.5 billion, driven by higher global ending stocks and a stronger U.S. dollar marginally reducing growth U.S. farm income to decline approximately 36% to $58 billion • Grain prices remain range-bound at lower levels and livestock prices down on higher global supplies • Input costs are stable to modestly declining – Labor, seed, and water costs are largely static, while fertilizer, fuel, and feed costs are declining modestly Average U.S. ag land values expected to stay relatively flat at 2014 levels • Midwest most impacted with estimates ranging from 5% to 15% declines as compared to 2014 levels • Rest of U.S. remains stable to modestly increasing – high non-grain commodity prices and high demand for pasture ground contributing to appreciation Total U.S. agricultural mortgage market to grow 5% to $209 billion AGRICULTURAL INDUSTRY HIGHLIGHTS 21 (1) Source: USDA, National Agricultural Statistics Service (as of August 2015). (2) Source: USDA, Economic Research Service, nominal dollars (as of August 2015). (3) Source: USDA, World Agricultural Supply and Demand Estimates Report (as of September 2015). (1) (2) (3)
Farmer Mac Overview
FARMER MAC Lines of Business and Products Product Type Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks • Insurance Companies • Rural Utilities Cooperatives F & R USDA RU IC Total $2.8 18% $1.9 12% $1.0 6% -- $5.7 36% WHOLESALE FINANCING • AgVantage • Farm Equity AgVantage • Ag Banks • Insurance Companies • Ag Investment Funds • Production and Agribusiness Companies • Rural Utilities Cooperatives -- -- -- $6.7 43% $6.7 43% CREDIT PROTECTION • Long-term Standby Purchase Commitments (LTSPCs)/ AMBS Guarantees • FCS Institutions • Ag Banks • Insurance Companies • Ag Investment Funds • Rural Utilities Cooperatives $2.7 18% -- $0.5 3% -- $3.2 21% Total $5.5 $1.9 $1.5 $6.7 $15.6 = Allowances and provisions recorded on these assets FARMER MAC OVERVIEW 23 AS OF SEPTEMBER 30, 2015
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 sellers for Farmer Mac • Seek to add LTSPCs • Over 3,200 commercial banks with agricultural loans on-balance sheet (approximately 800 are currently sellers) • Special focus on large-cap ag banks • Farm Credit System (FCS) • Insurance company ag lenders WHOLESALE FINANCING FOR RURAL LENDERS • Director of Institutional Business Development • C-suite outreach to target firms • Attend industry conferences • Insurance company ag lenders • Larger banks with ag mortgage portfolios • Rural utilities cooperative lenders WHOLESALE FINANCING FOR INVESTORS IN AG ASSETS • Same as Wholesale Financing for Rural Lenders • Paid deal sourcing relationships with industry contacts • Leverage capital markets relationships to identify ag funds and ag companies seeking low-cost wholesale financing • Public or private ag investment funds (all structures) • Agricultural companies – production ag and agribusiness (for profit and cooperative) RURAL UTILITIES LOAN PURCHASES AND CREDIT PROTECTION • C-suite relationships • Credit department contacts • Capital markets relationship contacts • National Rural Utilities Cooperative Finance Corporation (non-GSE) • CoBank (FCS GSE) FARMER MAC OVERVIEW 24 (1) (1) Source: FDIC Statistics on Depository Institutions datasets (https://www2.fdic.gov/sdi/index.asp).
FARMER MAC Outstanding Volume - Portfolio Summary Farm & Ranch 36% USDA Guarantees 12% Rural Utilities 9% Institutiona l Credit 43% By Line of Business AgVantage 43% On-Balance Sheet Loans 24% LTSPCs 17% AMBS 4% USDA 12% By Product Type FARMER MAC OVERVIEW 25 AS OF SEPTEMBER 30, 2015
FARMER MAC Northwest 11% Southwest 31% Mid-North 35% Mid-South 12% Northeast 4% Southeast 7% By Geographic Region Crops 55% Permanent Plantings 17% Livestock 22% Part-time Farm 4% Ag. Storage and Processing 2% By Commodity Type Farm & Ranch Loans Portfolio Diversification FARMER MAC OVERVIEW 26 (1) Farm & Ranch portfolio includes on-balance sheet loans and LTSPCs. AS OF SEPTEMBER 30, 2015 (1)
FARMER MAC Core earnings are primarily a direct function of three key factors: Core Earnings Value Drivers FARMER MAC OVERVIEW 27 Value Drivers 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 •Macro supply/demand for ag credit •Absolute level of interest rates •Business mix •Delinquencies CREDIT QUALITY • Idiosyncratic borrower impacts: death in family, divorce, & disease •Commodity price volatility •Acts of Nature – droughts, disease, etc. (1) (1) Core earnings is a non-GAAP measure. For a reconciliation of GAAP net income attributable to common stockholders to core earnings, please refer to page 44 of the Appendix.
FARMER MAC Farmer Mac Outstanding Business Volumes $15.6 $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3Q15 $ I N B IL L IO N S FARMER MAC OVERVIEW 28 12% CAGR (1999 to 2014)
FARMER MAC Farmer Mac Net Effective Spread FARMER MAC OVERVIEW 29 69 78 106 97 106 106 104 96 91 87 0.9% 0.9% 1.8% 2.0% 1.1% 1.0% 1.3% 0.9% 0.7% 1.0% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 0 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 3Q15 YTD M OO D Y ’S C OR P OR A TE S P R E A D IN D E X N E T E FF E C T IV E S P R E A D B A S IS P O IN T S Farmer Mac Net Effective Spread Moody's Corporate Spread Index(2) (1) Beginning Jan. 1, 2015, Farmer Mac classified all of the income from Farmer Mac Guaranteed Securities that it holds in its portfolio as interest income. Periods prior to 2011 have not been restated. (2) Source: St. Louis Fed, Economic Database: Average Moody’s Baa – Average Moody’s Aaa band spreads. (1)
FARMER MAC (1) Source: Kansas City Federal Reserve, Ag Finance Databook & Farm Credit Funding Corp Annual Information Statements – Non-accrual real estate loans and accruing loans that are 90 days or more past due, include commercial and Farm Credit System banks; 3Q15 data not yet available. (2) Delinquencies include loans held and loans underlying off-balance sheet Farm & Ranch Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, or in bankruptcy, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Farmer Mac Credit vs. Industry 1.30% 1.20% 1.17% 0.75% 0.60% 0.52% 0.54% 0.95% 2.00% 2.40% 2.10% 1.67% 1.23% 0.96% 1.59% 1.21% 0.60% 0.55% 0.58% 0.41% 0.21% 1.35% 1.13% 1.63% 0.93% 0.70% 0.55% 0.35% 0.67% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 3Q15 90-Day Delinquencies Industry 90-Day Delinquencies Farmer Mac 90-Day Delinquencies (Farm & Ranch Portfolio Only) (1) FARMER MAC OVERVIEW 30 (2) Farmer Mac Historical Average 1.00%
FARMER MAC Farmer Mac – Historical Credit Losses Farmer Mac’s Rural Utilities, USDA Guarantees, and Institutional Credit lines of business have not had any credit losses to date Farm & Ranch line of business has historical cumulative losses of 0.15%, or less than 1bp per year • Cumulative losses of $31 million on $20 billion of cumulative historical business volume FARMER MAC OVERVIEW 31 -$2 $0 $2 $4 $6 $8 $10 $12 1995 & Prior 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 N E T L OS S / ( GA IN ) $ I N M IL L IO N S BY YEAR OF ORIGINATION Ag Storage & Processing Crops Permanent Plantings Livestock Part-Time Farm / Rural Housing
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 Fed advances • Legal investments for federally supervised financial institutions (banks, etc.) FARMER MAC OVERVIEW 32 Debt Securities Trade at Narrow Spreads to Comparable Maturity Treasuries MATURITY (YEARS) 1 3 5 10 SPREAD TO TREASURY (AS OF SEPTEMBER 30, 2015) 18 bps 19 bps 24 bps 60 bps
Farmer Mac Financial Performance
FARMER MAC Third Quarter 2015 Performance Net effective spread of $30.4 million (88 bps) compared to $29.8 million (88 bps) last quarter, and $29.8 million (97 bps) in third quarter 2014 • Dollar increase due to growth in outstanding business volume • % of net effective spread unchanged due to stable new business pricing and low rate of prepayments Core earnings of $13.2 million ($1.17 per diluted common share), compared to $11.6 million ($1.02 per diluted common share) last quarter, and $9.3 million ($0.82 per diluted common share) in third quarter 2014 • Increase driven primarily by a $1.0 million after-tax reduction in credit expenses • $0.4 million after-tax increase in net effective spread also contributed to the increase Total business volume of $15.6 billion, an increase of $498 million from June 30, 2015 and $1.6 billion from third quarter 2014 • Added $522 million Rural Utilities loans under LTSPCs • Added $300 million revolving floating rate AgVantage facility • Purchased $207 million of AgVantage securities • Purchased $176 million of Farm & Ranch loans • Purchased $91 million of USDA Securities • Added $80 million of Farm & Ranch loans under LTSPCs • Purchased $54 million of Rural Utilities loans Credit quality reflects the strength of the agricultural and rural utilities economies • 90-day delinquencies of $36.7 million (0.67% of Farm & Ranch loans), slight increase from $31.9 million (0.58% of Farm & Ranch loans) in second quarter 2015 34 FARMER MAC FINANCIAL PERFORMANCE (1) Core earnings is a non-GAAP measure. For a reconciliation of GAAP net income attributable to common stockholders to core earnings, please refer to page 44 of the Appendix. (1)
FARMER MAC $9.1 $11.7 $11.3 $11.0 $9.1 $10.0 $12.9 $16.5 $23.2 $11.6 $11.2 $13.4 $11.8 $9.3 $13.2 $12.6 $11.6 $15.3 $9.5 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 2011 2012 2013 2014 2015 $ I N M IL L IO N S 1Q 2Q 3Q 4Q $42.9 $49.6 $54.9 $53.0 $33.9 Core Earnings (Non-GAAP Measure) FARMER MAC FINANCIAL PERFORMANCE 35 (1) For a reconciliation of GAAP net income attributable to common stockholders to core earnings, a non-GAAP financial measure, please refer to page 44 of the Appendix. (2) Core earnings for 2014 include the effects of the cash management and liquidity initiative implemented in the second quarter 2014, and the capital structure initiative under which Farmer Mac issued $150 million of preferred stock in advance of the planned March 30, 2015 redemption of all outstanding Farmer Mac II Preferred Stock and related Farm Asset-Linked Capital Securities (FALConS). Each of these initiatives have been described in Farmer Mac’s prior SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 16, 2015. (2) (1)
FARMER MAC Business Volume FARMER MAC FINANCIAL PERFORMANCE 36 $4.8 $5.2 $5.4 $5.3 $5.5 $5.6 $6.0 $6.4 $6.0 $6.7 $1.6 $1.7 $1.8 $1.7 $1.9 $1.0 $1.1 $1.0 $1.0 $1.5 $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2012 2013 2014 3Q14 3Q15 $ I N B IL L IO N S Farm & Ranch Institutional Credit USDA Guarantees Rural Utilities $14.6 AS OF YEAR-END AS OF QUARTER-END (1) Includes on- and off-balance sheet outstanding business volume. $13.0 $14.0 $14.0 $15.6 (1)
FARMER MAC Net Effective Spread $98.8 $117.2 $116.6 $113.7 $89.4 1.06% 1.04% 0.96% 0.91% 0.87% 0.80% 0.85% 0.90% 0.95% 1.00% 1.05% 1.10% $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 2011 2012 2013 2014 3Q15 YTD $ I N M IL L IO N S Net Effective Spread (dollars) Net Effective Spread (percent) FARMER MAC FINANCIAL PERFORMANCE 37 AS OF YEAR-END
FARMER MAC Credit Quality – 90-Day Delinquencies FARMER MAC FINANCIAL PERFORMANCE 38 $40.8 $33.0 $24.7 $36.7 0.93% 0.66% 0.46% 0.67% 0.33% 0.24% 0.18% 0.23% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% 0.90% 1.00% $0.0 $20.0 $40.0 $60.0 3Q12 3Q13 3Q14 3Q15 $ I N M IL L IO N S 90-Day Delinquencies (dollars) % of Farm & Ranch Portfolio Only % of Total Portfolio
FARMER MAC $519 $591 $766 $761 $558 $145 $192 $345 $333 $115 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $0 $200 $400 $600 $800 2012 2013 2014 3Q14 3Q15 E X C E S S S T A T U TO R Y 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 Excess Statutory Capital AS OF YEAR-END AS OF QUARTER-END Capital FARMER MAC FINANCIAL PERFORMANCE 39 (1) Core capital defined as total stockholders’ equity less accumulated other comprehensive income. (2) Excess statutory capital defined as core capital less statutory minimum capital. (1) (2) $250m Redemption of Farmer Mac II Preferred Stock and related FALConS
Appendix
FARMER MAC Key Company Metrics APPENDIX 41 ($ in thousands, except per share amounts) 3Q15 YTD 2014 2013 2012 Core Earnings $33,902 $53,047 $54,892 $49,642 Core Earnings per Diluted Share $2.99 $4.67 $4.90 $4.51 Net Effective Spread ($) $89,431 $113,693 $116,582 $117,190 Net Effective Spread (%) 0.87% 0.91% 0.96% 1.04% Guarantee & Commitment Fees $12,425 $16,780 $16,591 $15,989 Excess Regulatory Capital $115,400 $345,000 $192,200 $145,000 Common Stock Dividends per Share $0.48 $0.56 $0.48 $0.40 Outstanding Business Volume $15,627,979 $14,597,758 $13,950,312 $13,015,188 90-Day Delinquencies – Farm & Ranch 0.67% 0.35% 0.55% 0.70% Charge-Offs $111 $86 $4,004 $2,501 Book Value per Share $32.30 $29.76 $26.68 $20.52 Core Earnings Return on Equity 13% 17% 22% 25% (1) Core earnings for 2014 include the effects of the cash management and liquidity initiative implemented in second quarter 2014 and the capital structure initiative under which Farmer Mac issued $150 million of preferred stock in advance of the planned March 30, 2015 redemption of all outstanding Farmer Mac II Preferred Stock and related FALConS. Each of these initiatives have been described in Farmer Mac’s prior SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 16, 2015. (2) Core earnings is a non-GAAP measure. For a reconciliation of GAAP net income attributable to common stockholders to core earnings, please refer to page 44 of the Appendix. (3) Book Value per Share excludes accumulated other comprehensive income. (1) (2) (3)
FARMER MAC ($ in thousands) Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Revenues: Net effective spread 30,387$ 29,787$ 29,257$ 28,443$ 29,766$ 29,049$ 26,436$ 30,022$ 28,693$ Guarantee and commitment fees 4,328 4,085 4,012 4,096 4,152 4,216 4,315 4,252 4,134 Other (93) (24) (405) (1,285) (2,001) (520) (410) 427 (466) Total revenues 34,622 33,848 32,864 31,254 31,917 32,745 30,341 34,701 32,361 Credit related (income)/expense: (Release of)/provisions for losses (303) 1,256 (696) (479) (804) (2,557) 674 12 (36) REO operating expenses 48 - (1) 48 1 59 2 3 35 Losses/(gains) on sale of REO - - 1 28 - (168) 3 (26) (39) Total credit related (income)/expense (255) 1,256 (696) (403) (803) (2,666) 679 (11) (40) Operating expenses: Compensation and employee benefits 5,236 5,733 5,693 4,971 4,693 4,889 4,456 4,025 4,523 General and administrative 3,676 3,374 2,823 2,992 3,123 3,288 2,794 3,104 2,827 Regulatory fees 600 600 600 600 593 594 594 594 593 Total operating expenses 9,512 9,707 9,116 8,563 8,409 8,771 7,844 7,723 7,943 Net earnings 25,365 22,885 24,444 23,094 24,311 26,640 21,818 26,989 24,458 Income tax expense/(benefit) 8,924 8,091 6,692 4,858 6,327 (4,734) 4,334 5,279 6,263 Non-controlling interest (36) (119) 5,354 5,414 5,412 5,819 5,547 5,546 5,547 Preferred stock dividends 3,295 3,296 3,295 3,296 3,283 2,308 952 882 881 Core earnings 13,182$ 11,617$ 9,103$ 9,526$ 9,289$ 23,247$ 10,985$ 15,282$ 11,767$ Core Earnings by Quarter Ended Farmer Mac’s Core Earnings History APPENDIX 42 (1) Core earnings is a non-GAAP measure. See page 43 of the Appendix for reconciliation of GAAP net income attributable to common stockholders to core earnings. (1)
FARMER MAC Reconciliation of Net Income to Core Earnings APPENDIX 43 ($ in thousands) Sep-15 Jun-15 Mar-15 Dec-14 Sep-14 Jun-14 Mar-14 Dec-13 Sep-13 Net income attributable to common stockholders 8,359$ 22,162$ 1,818$ 5,647$ 11,586$ 20,205$ 813$ 12,485$ 15,413$ Reconciling items (after-tax effects): Unrealized (losses)/gains on f inancial derivatives and hedging activities (4,489) 10,388 (582) (3,717) 2,685 (3,053) (2,395) 8,003 4,632 Unrealized (losses)/gains on trading assets (5) 110 236 679 (21) (46) 426 (50) (407) Amortization of premiums/discounts and deferred gains on assets consolidated at fair value (76) (81) (529) (811) (440) (179) (8,027) (10,864) (421) Net effects of settlements on agency forw ards (253) 128 (164) 30 73 236 (176) 114 (158) Loss on retirement of Farmer Mac II LLC Preferred Stock - - (6,246) - - - - - - Core earnings 13,182$ 11,617$ 9,103$ 9,526$ 9,289$ 23,247$ 10,985$ 15,282$ 11,767$ Core Earnings by Quarter Ended (1) (1) The loss from retirement of the Farmer Mac II LLC Preferred Stock in first quarter 2015 has been excluded from core earnings because it is not a frequently occurring transaction and not indicative of future operating results. This is also consistent with Farmer Mac’s previous treatment of these types of origination costs associated with securities underwriting that are capitalized and deferred during the life of the security.
FARMER MAC Reconciliation of Net Income to Core Earnings APPENDIX 44 (in thousands) 3Q15 YTD 2014 2013 2012 2011 Net income attributable to common stockholders 32,339$ 38,251$ 71,833$ 43,894$ 13,784$ Less the after-tax effects of: Unrealized gains/(losses) on financial derivatives and hedging activities 5,317 (6,480) 29,368 4,325 (30,930) Unrealized gains/(losses) on trading assets 341 1,038 (533) 200 2,246 Amortization of premiums/discounts and deferred gains on assets consolidated at fair value (686) (9,457) (12,467) (7,266) (3,692) Net effects of settlements on agency forwards (289) 103 573 856 (2,523) Lower of cost or fair value adjustments on loans held for sale - - - (3,863) 5,776 Loss on retirement of Farmer Mac II LLC Preferred Stock (6,246) Core earnings 33,902$ 53,047$ 54,892$ 49,642$ 42,907$ Core Earnings by Period-Ended (1) (1) The loss from retirement of the Farmer Mac II LLC Preferred Stock in first quarter 2015 has been excluded from core earnings because it is not a frequently occurring transaction and not indicative of future operating results. This is also consistent with Farmer Mac’s previous treatment of these types of origination costs associated with securities underwriting that are capitalized and deferred during the life of the security.
FARMER MAC Farmer Mac’s Net Effective Spread History APPENDIX 45 ($ in thousands) Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield For the quarter ended: September 30, 2015 9,628$ 1.80% 4,630$ 0.99% 2,907$ 1.18% 11,271$ 0.81% 1,951$ 0.25% 30,387$ 0.88% June 30, 2015 9,681 1.82% 4,466 0.98% 2,838 1.18% 10,860 0.78% 1,942 0.25% 29,787 0.88% March 31, 2015 (2) 10,114 1.97% 4,225 0.95% 2,804 1.15% 10,425 0.77% 1,689 0.20% 29,257 0.86% December 31,2014 (3) 8,682 1.71% 5,250 1.19% 2,908 1.18% 9,871 0.78% 1,732 0.26% 28,443 0.91% September 30, 2014 8,207 1.68% 5,073 1.18% 2,890 1.16% 9,823 0.78% 3,773 0.59% 29,766 0.97% June 30, 2014 7,820 1.64% 4,159 0.99% 2,953 1.16% 9,957 0.78% 4,160 0.57% 29,049 0.92% March 31, 2014 (4) 7,114 1.53% 3,784 0.91% 1,990 0.73% 9,406 0.74% 4,142 0.56% 26,436 0.84% December 31, 2013 (4) 10,113 2.20% 4,022 0.97% 2,379 0.89% 9,088 0.72% 4,420 0.58% 30,022 0.94% September 30, 2013 7,980 1.86% 4,505 1.09% 2,974 1.12% 9,117 0.72% 4,117 0.57% 28,693 0.93% (1) See Note 1(d) to the consolidated f inancial statements in Farmer Mac's Quarterly Report on Form 10-Q filed w ith the SEC on November 9, 2015 for more information about the reclassif ication of certain amounts in prior periods from guarantee and commitment fees to interest income related to on-balance sheet Farmer Mac Guaranteed Securities. (2) Beginning in f irst quarter 2015, Farmer Mac revised it's methodology for interest expense allocation among Farm & Ranch, USDA Guarantees, and Rural Utilities lines of business. As a result of this revision, a greater percentage of interest expense has been allocated to the longer term assets included w ithin the USDA Guarantees and Rural Utilities lines of business. Net effective spread for periods prior to the quarter ended March 31, 2015 does not reflect this revision. (3) On October 1, 2014, $78.5 million of preferred stock issued by CoBank w as called, resulting in a loss of net effective spread of $2.1 million or 30 basis points in the corporate segment. The impact on consolidated net effective spread on a quarterly basis is 7 basis points. (4) First quarter 2014 includes the impact of spread compression in Rural Utilities line of business from the early refinancing of loans (41 basis points). Fourth quarter 2013 includes the impact in net effective spread in the Farm & Ranch line of business of one-time adjustments for recovered buyout interest and yield maintenance (40 basis points in aggregate) and the impact of spread compression in the Rural Utilities line of business from the early refinancing of loans (26 basis points). Net Effective SpreadInstitutional Credit (1) Farm & Ranch USDA Guarantees Rural Utilities Corporate
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 $3.5 billion investment portfolio at September 30 • Cash and highly-rated investment securities • Conservative portfolio goals − Minimize exposure to market volatility − Preservation of capital − Ready access to cash • Provided 124 days of liquidity as of September 30, 2015 Farmer Mac also has $1.5 billion line of credit with U.S. Treasury • Supports Farmer Mac’s guarantee obligations • Farmer Mac has never used this line of credit Cash & Equiv. 43% Guar. by GSEs and U.S. Gov't Agencies 54% Corporate Debt Securities 1% Asset- Backed Securities 2% Liquidity Portfolio APPENDIX 46
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 maturities to obtain the appropriate match • Can adjust effective asset and debt coupon and duration characteristics through the use of interest rate swaps or other derivatives Perform regular stress testing and disclose a variety of sensitivity measures • Duration Gap • Market Value of Equity (MVE) Sensitivity • Net Interest Income (NII) Sensitivity • Measure these sensitivities’ impact on various capital metrics APPENDIX 47
FARMER MAC Three Classes of Common Stock Number of Shares CLASS A VOTING COMMON STOCK • NYSE: AGM.A • Ownership restricted to non-Farm Credit System financial institutions 1.0 million CLASS B VOTING COMMON STOCK • Not publicly traded • Ownership restricted to Farm Credit System institutions 0.5 million CLASS C NON-VOTING COMMON STOCK • NYSE: AGM • No ownership restrictions 9.4 million APPENDIX 48
FARMER MAC Three Classes of Preferred Stock Number of Shares SERIES A NON-CUMULATIVE PREFERRED STOCK • NYSE: AGM.PR.A • Dividend Yield: 5.875%** • Option to redeem at any time on or after January 17, 2018 • Redemption Value: $25 per share 2.4 million SERIES B NON-CUMULATIVE PREFERRED STOCK • NYSE: AGM.PR.B • Dividend Yield: 6.875%** • Option to redeem at any time on or after April 17, 2019 • Redemption Value: $25 per share 3.0 million SERIES C FIXED-TO-FLOATING NON-CUMULATIVE PREFERRED STOCK • NYSE: AGM.PR.C • Dividend Yield: 6.000%** • Option to redeem at any time on or after July 18, 2024 • Redemption Value: $25 per share 3.0 million APPENDIX 49 **Par value annual dividend yield
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