AGM 8-K
Federal Agricultural Mortgage Corp (AGM)
8-K
2020-02-25
For: 2020-02-25
View Original
Added on
April 04, 2026
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): February 25, 2020
(Exact name of registrant as specified in its charter)
Federally chartered instrumentality of the United States | ||||||||||||||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
| (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):
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On February 25, 2020, the Federal Agricultural Mortgage Corporation (“Farmer Mac”) issued a press release to announce (1) its financial results for the fiscal quarter and year ended December 31, 2019 and (2) a conference call to discuss those results and Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. A copy of the press release is attached as Exhibit 99.1 and is incorporated by reference into this report. All references to www.farmermac.com in Exhibit 99.1 are inactive textual references only, and the information contained on that website is not incorporated by reference into this report.
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 February 25, 2020, Farmer Mac posted an investor slide presentation for 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 as Exhibit 99.2 and is incorporated by reference into this report. All references to www.farmermac.com in Exhibit 99.2 are inactive textual references only, and the information contained on that website is not incorporated by reference into this report.
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 8.01 Other Events
On February 25, 2020, Farmer Mac issued a press release to announce that its Board of Directors (the "Board") had declared a quarterly dividend on each of Farmer Mac's three classes of stock – Class A Voting Common Stock, Class B Voting Common Stock, and Class C Non-Voting Common Stock. The quarterly dividend of $0.80 per share of common stock will be payable on March 31, 2020 to holders of record of Farmer Mac’s common stock as of March 16, 2020.
The Board also declared a dividend on each of Farmer Mac’s three classes of preferred stock – 5.875% Non-Cumulative Preferred Stock, Series A (the “Series A Preferred Stock”), 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the “Series C Preferred Stock”), and 5.700% Non-Cumulative Preferred Stock, Series D (the “Series D Preferred Stock”). The quarterly dividend of $0.3672 per share of Series A Preferred Stock, $0.375 per share of Series C Preferred Stock, and $0.35625 per share of Series D Preferred Stock is for the period from but not including January 17, 2020 to and including April 17, 2020 and will be payable on April 17, 2020 to holders of record of the Series A Preferred Stock, the Series C Preferred Stock, and the Series D Preferred Stock, respectively, as of April 1, 2020. Each share of Series A Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock has a par value and liquidation preference of $25.00 per share.
A copy of the press release is attached to this report as Exhibit 99.1, and the portion of this press release included under the heading "Dividends" is incorporated by reference into this report. All references to www.farmermac.com in Exhibit 99.1 are inactive textual references only and the information contained on Farmer Mac’s website is not incorporated by reference into this report.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
104 Cover Page Inline Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document included as Exhibit 101
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: Executive Vice President – General Counsel
Dated: February 25, 2020
Farmer Mac Reports 2019 Results
- Grew Outstanding Business Volume to $21.1 Billion -
- - Announces 14% Dividend Increase -
WASHINGTON, February 25, 2020 — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A), the nation's secondary market provider that increases the availability and affordability of credit for the benefit of rural America, today announced its results for the fiscal quarter and fiscal year ended December 31, 2019.
Fourth Quarter 2019 Highlights
•Sequential net business volume growth of $185.6 million to total outstanding business volume of $21.1 billion, primarily driven by the Farm & Ranch line of business
•Net income attributable to common stockholders grew 49% year-over-year to $29.1 million, or $2.70 per diluted common share
•Core earnings, a non-GAAP measure, grew 20% year-over-year to $24.5 million, or $2.27 per diluted common share
•Net interest income grew 17% year-over-year to $49.4 million
•Net effective spread, a non-GAAP measure, increased 18% from the prior-year period to $46.0 million
•90-day delinquencies were 0.78% of the $7.8 billion Farm & Ranch portfolio and 0.29% of total outstanding business volume as of December 31, 2019
Full Year 2019 Highlights
•Net business volume growth year-over-year of $1.4 billion to total outstanding business volume of $21.1 billion, primarily driven by the Rural Utilities and Farm & Ranch lines of business
•Net income attributable to common stockholders of $93.7 million, or $8.69 per diluted common share
•Core earnings grew 12% year-over-year to $93.7 million, or $8.70 per diluted common share
•Net interest income of $173.1 million, compared to $174.4 million for the prior year
•Net effective spread increased 12% from the prior year to $168.6 million
Subsequent to December 31, 2019
•On February 24, 2020, Farmer Mac's board of directors declared a quarterly dividend of $0.80 per common share for first quarter 2020
◦Reflects an increase of $0.10 per common share, or 14%, over the quarterly dividend payout in 2019
"We had an excellent fourth quarter 2019 from both a volume growth and core earnings standpoint, capping off a strong 2019 for Farmer Mac," said President and Chief Executive Officer Brad Nordholm. "Our growth and strong financial performance in 2019 can largely be attributed to closely aligning our
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business development efforts with our multi-year strategic plan. Entering 2020, Farmer Mac continues to be in excellent financial condition as we strategically focus on the execution of our mission to increase access of financing to rural America by more opportunistically expanding our business volume and market share through utilizing new, innovative solutions to acquire and retain customers. By executing upon our strategic plan with an increased emphasis on customer value and volume growth, we believe we will be well-positioned to further expand our bottom line, and successfully continue to execute upon our mission while delivering value for our shareholders."
Fourth Quarter 2019 Results
Business Volume
During fourth quarter 2019, Farmer Mac added $185.6 million net business volume growth. This increase was driven by net growth of $383.2 million in Farm & Ranch, $52.4 million in USDA Guarantees, and $48.0 million in Rural Utilities. The net growth in these lines of business were partially offset by a net business volume decline in the Institutional Credit line of business of $298.0 million.
The Farm & Ranch line of business experienced net growth of $383.2 million during fourth quarter 2019 attributable to $602.8 million of new loans purchased (including the purchase of a pool of 34 dairy loans in the aggregate amount of $98.1 million) and $65.6 million of new LTSPCs, offset in part by loan repayments of $163.2 million and LTSPC repayments of $122.0 million.
Net growth in Farm & Ranch loan purchases of $439.6 million increased 162% from fourth quarter 2018 primarily due to customer retention initiatives and an increased focus on product innovation, structure, and competitiveness.
Our USDA Guarantees line of business experienced net growth of $52.4 million during fourth quarter 2019, as $143.6 million of new business volume was offset in part by $91.2 million of maturities and repayments.
Outstanding business volume in our Rural Utilities line of business increased by $48.0 million during fourth quarter 2019, primarily due to $58.5 million of new loans purchased, including a $10.0 million participation interest in a solar project financing. This increase was offset by a $10.5 million net decrease in LTSPCs.
Our Institutional Credit line of business decreased by $298.0 million during fourth quarter 2019, due to the termination of a $300.0 million revolving floating rate AgVantage facility.
Spreads
Net interest income for fourth quarter 2019 was $49.4 million, compared to $42.2 million in the prior year period. The increase was primarily driven by net growth in outstanding business volume. Net interest yield was 0.95% for fourth quarter 2019, as compared to 0.93% in fourth quarter 2018.
Net effective spread, a non-GAAP measure, for fourth quarter 2019 was $46.0 million, a $7.1 million increase from $38.9 million in the prior year period. This increase was primarily attributable to growth in outstanding business volume, which increased net effective spread by approximately $4.5 million. In
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percentage terms, net effective spread was 0.95% for fourth quarter 2019 and 0.93% for fourth quarter 2018.
Earnings
Farmer Mac's net income attributable to common stockholders for fourth quarter 2019 were $29.1 million ($2.70 per diluted common share), a 49% increase from $19.6 million ($1.82 per diluted common share) in fourth quarter 2018. The $9.5 million increase was driven by a $5.7 million after-tax increase in net interest income and a $5.6 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates. These were partially offset by a $2.1 million after-tax increase in the provision for loan losses.
Farmer Mac's non-GAAP core earnings for fourth quarter 2019 was $24.5 million ($2.27 per diluted common share), a 20% increase from $20.5 million ($1.90 per diluted common share) in fourth quarter 2018. The $4.0 million year-over-year increase in core earnings was primarily due to a $5.6 million after-tax increase in net effective spread primarily resulting from an increase in outstanding business volume. The increase to core earnings was partially offset by a $2.1 million after-tax increase in the provision for loan losses.
Fiscal Year 2019 Results
Business Volume
Outstanding business volume was $21.1 billion as of December 31, 2019, which represents an increase of $1.4 billion from December 31, 2018 after taking into account all new business, maturities, and paydowns on existing assets. This increase was driven by net growth of $688.5 million in Rural Utilities, $543.0 million in Farm & Ranch, $104.6 million in USDA Guarantees, and $57.4 million in Institutional Credit.
The $688.5 million net growth in our Rural Utilities line of business during 2019 was primarily due to the purchase of a portfolio of participations in seasoned Rural Utilities loans in February of 2019 in the amount of $546.2 million.
The $543.0 million net increase in our Farm & Ranch line of business was comprised of a $688.2 million net increase in outstanding loan purchase volume, partially offset by a $145.3 million net decrease in loans under LTSPCs. Net growth of 15.0% in Farm & Ranch loan purchases over the twelve months ended December 31, 2019 compared favorably to the 2.3% net growth of the overall agricultural mortgage loan market over the twelve months ended September 30, 2019 (based on an analysis of bank and Farm Credit System call report data).
Our USDA Guarantees line of business grew by $104.6 million in 2019. This net portfolio growth was primarily due to product structure adjustments in the second half of 2019 to more effectively meet customer demands in an increasingly competitive environment and increased loan limits mandated by the 2018 Farm Bill.
Our Institutional Credit line of business increased by $57.4 million in 2019. This increase was primarily driven by the purchase of a new $325.0 million AgVantage security in the rural utilities industry in first quarter 2019, offset by the termination of a $300.0 million revolving floating rate AgVantage facility in fourth quarter 2019.
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Spreads
Net interest income was $173.1 million for 2019, compared to $174.4 million for 2018. The overall net interest yield was 0.87% for 2019, compared to 0.96% for 2018. The $1.3 million decrease in net interest income in 2019 compared to 2018 was due to a $12.8 million decrease in net fair value changes from fair value hedge accounting relationships and a $5.2 million increase in funding and liquidity costs. These factors were partially offset by $15.1 million in net new business volume across all lines of business and the composition of existing Institutional Credit business volume and $1.6 million in various interest income fluctuations primarily related to prepayment activity. The 9 basis point decrease was primarily attributable to a 6 basis point decrease in net fair value changes from fair value hedge accounting relationships and a 5 basis point increase in funding and liquidity costs, partially offset by a 1 basis point increase from business volume.
Net effective spread, a non-GAAP measure, increased 12% to $168.6 million in 2019, compared to $151.2 million in 2018. This improvement was primarily due to a $14.2 million increase from net new business volume across all lines of business and the composition of existing Institutional Credit business volume, a $1.6 million increase in various interest income fluctuations primarily related to prepayment activity, and a $1.6 million decrease in non-GAAP funding costs. In percentage terms, net effective spread was 0.91% for both 2019 and 2018 primarily because the narrower spreads on our liquidity investment securities in 2019 were approximately matched by the effect in 2018 of the prepayment and full amortization of an interest-only strip from our liquidity investment portfolio.
Earnings
Net income attributable to common stockholders for 2019 was $93.7 million ($8.69 per diluted common share), compared to $94.9 million ($8.83 per diluted common share) for 2018. The difference was primarily due to a $2.5 million after-tax increase in the provision for loan losses, a $1.6 million after-tax increase in operating expenses, a $1.0 million after-tax decrease in net interest income, and a $0.8 million increase in preferred stock dividends. These factors were partially offset by a $7.1 million after-tax increase in the fair value of undesignated financial derivatives due to fluctuations in long-term interest rates.
Non-GAAP core earnings for 2019 were $93.7 million ($8.70 per diluted common share), a 12% increase from $84.0 million ($7.82 per diluted common share) in 2018. The year-over-year increase in core earnings was primarily due to a $13.8 million after-tax increase in net effective spread driven by higher business volume, partially offset by a $2.5 million after-tax increase in the provision for loan losses and a $1.6 million after-tax increase in operating expenses related to continued investments in technology and business infrastructure as well as increases in compensation and employee benefits expenses.
See "Use of Non-GAAP Measures" below for more information about core earnings, core earnings per share, and net effective spread and for reconciliations of the comparable GAAP measures to these non-GAAP measures.
Credit
As of December 31, 2019, Farmer Mac's allowance for losses was $12.6 million (0.16% of the Farm & Ranch portfolio), compared to $9.2 million (0.13% of the Farm & Ranch portfolio) as of December 31,
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2018. The increase was primarily due to a specific reserve on a single specialized poultry loan, a decrease in overall credit quality, and net portfolio growth.
As of December 31, 2019, Farmer Mac's substandard assets were $310.0 million (4.0% of the Farm & Ranch portfolio), compared to $232.7 million (3.2% of the Farm & Ranch portfolio) as of December 31, 2018. The increase of $77.3 million in substandard assets during 2019 reflected an overall deterioration in the credit quality of the portfolio with more loans migrating into the substandard classification than migrating or paying off from the substandard classification. The percentage of substandard assets within the portfolio was at the historical average as of December 31, 2019.
As of December 31, 2019, Farmer Mac's 90-day delinquencies were $61.0 million (0.78% of the Farm & Ranch portfolio), compared to $26.9 million (0.37% of the Farm & Ranch portfolio) as of December 31, 2018. Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.29% of total outstanding business volume as of December 31, 2019, compared to 0.14% as of December 31, 2018. Farmer Mac's 90-day delinquency rate remained below its historical average of 1.0% of the Farm & Ranch portfolio as of December 31, 2019.
Capital
As of December 31, 2019, Farmer Mac's core capital level was $815.4 million, which was $196.7 million above the minimum capital level required by our statutory charter. This compares to $727.6 million as of December 31, 2018, which was $182.6 million above the minimum capital requirement. Farmer Mac's Tier 1 capital ratio was 12.9% as of December 31, 2019. The increase in capital above the minimum capital level was due to the Board-authorized issuance of the Series D Preferred Stock in May 2019 and the increase in retained earnings partially offset by growth in our outstanding business volume and the redemption of the Series B Preferred Stock in June 2019.
Dividends
On February 24, 2020, Farmer Mac's board of directors declared a quarterly dividend of $0.80 per share on all three classes of common stock – Class A voting common stock (NYSE: AGM.A), Class B voting common stock (not listed on any exchange), and Class C non-voting common stock (NYSE: AGM). This quarterly dividend will be payable on March 31, 2020 to holders of record of common stock as of March 16, 2020. This is the eighth consecutive year that Farmer Mac has increased its quarterly common stock dividend, and Farmer Mac believes that the most recent increase is supported by Farmer Mac's earnings potential and overall capital position.
Farmer Mac's board of directors also declared a dividend on each of Farmer Mac's three classes of preferred stock. The quarterly dividend of $0.3672 per share of 5.875% Non-Cumulative Preferred Stock, Series A (NYSE: AGM.PR.A), $0.375 per share of 6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (NYSE: AGM.PR.C), and $0.35625 per share of 5.700% Non-Cumulative Preferred Stock, Series D (NYSE: AGM.PR.D) is for the period from but not including January 17, 2020 to and including April 17, 2020. The preferred dividends will be payable on April 17, 2020 to holders of record as of April 1, 2020.
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Earnings Conference Call Information
The conference call to discuss Farmer Mac's 2019 financial results will be held beginning at 5:00 p.m. Eastern time on Tuesday, February 25, 2020 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/
When dialing in to the call, please ask for the "Farmer Mac Earnings Conference Call." The call can be heard live and will also be available for replay on Farmer Mac’s website for two weeks following the conclusion of the call.
More complete information about Farmer Mac's performance for fourth quarter and full year 2019 is in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019 filed today with the SEC.
Use of Non-GAAP Measures
In the accompanying analysis of its financial information, Farmer Mac uses the following non-GAAP measures: "core earnings," "core earnings per share," and "net effective spread." Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management's view, they are useful alternative measures in understanding Farmer Mac's economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures 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.
Core earnings and core earnings per share principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected.
Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, 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. For example, we have excluded from core earnings the loss on retirement of preferred stock and the re-measurement of the deferred tax asset.
Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at
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amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship.
Net effective spread also principally differs from net interest income and net interest yield because it includes: (1) the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships ("undesignated financial derivatives"); and (2) the net effects of terminations or net settlements on financial derivatives. More information about Farmer Mac’s use of non-GAAP measures is available in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019 filed today with the SEC.
For a reconciliation of Farmer Mac's net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, and net interest income and net interest yield to net effective spread, see "Reconciliations" below.
Forward-Looking Statements
Management's expectations for Farmer Mac's future necessarily involve 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 in this release, including uncertainties about:
•the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms;
•legislative or regulatory developments that could affect Farmer Mac, its sources of business, or the agricultural or rural utilities industries;
•fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries;
•the level of lender interest in Farmer Mac's products and the secondary market provided by Farmer Mac;
•the general rate of growth in agricultural mortgage and rural utilities indebtedness;
•the effect of economic conditions and geopolitics on agricultural mortgage or rural utilities lending, borrower repayment capacity, or collateral values, including fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products, and volatility in commodity prices;
•the degree to which Farmer Mac is exposed to interest rate risk resulting from fluctuations in Farmer Mac's borrowing costs relative to market indexes;
•developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac;
•the effect of any changes in Farmer Mac's executive leadership; and
•other factors that could have a negative effect on agricultural mortgage lending or borrower repayment capacity, including the effects of weather and fluctuations in agricultural real estate values.
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Other risk factors are discussed in "Risk Factors" in Part I, Item 1A in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2019. Considering 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 required by applicable law. The information in this release is not necessarily indicative of future results.
About Farmer Mac
Farmer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of credit for the benefit of American agricultural and rural communities. As the nation’s secondary market for agricultural credit, we provide financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses, and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac's customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. For more than thirty years, Farmer Mac has been delivering the capital and commitment rural America deserves. More information about Farmer Mac (including the Annual Report on Form 10-K referenced above) is available on Farmer Mac's website at www.farmermac.com.
CONTACT: Jalpa Nazareth, Investor Relations
Megan Murray-Pelaez, Media Inquiries
(202) 872-7700
* * * *
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FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| As of | |||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||
| (in thousands) | |||||||||||
| Assets: | |||||||||||
| Cash and cash equivalents | $ | 604,381 | $ | 425,256 | |||||||
| Investment securities: | |||||||||||
| Available-for-sale, at fair value | 2,959,843 | 2,217,852 | |||||||||
| Held-to-maturity, at amortized cost | 45,032 | 45,032 | |||||||||
| Total Investment Securities | 3,004,875 | 2,262,884 | |||||||||
| Farmer Mac Guaranteed Securities: | |||||||||||
| Available-for-sale, at fair value | 7,143,025 | 5,974,497 | |||||||||
| Held-to-maturity, at amortized cost | 1,447,451 | 2,096,618 | |||||||||
| Total Farmer Mac Guaranteed Securities | 8,590,476 | 8,071,115 | |||||||||
| USDA Securities: | |||||||||||
| Trading, at fair value | 8,913 | 9,999 | |||||||||
| Held-to-maturity, at amortized cost | 2,232,160 | 2,166,174 | |||||||||
| Total USDA Securities | 2,241,073 | 2,176,173 | |||||||||
| Loans: | |||||||||||
| Loans held for investment, at amortized cost | 5,390,977 | 4,004,968 | |||||||||
| Loans held for investment in consolidated trusts, at amortized cost | 1,600,917 | 1,517,101 | |||||||||
| Allowance for loan losses | (10,454) | (7,017) | |||||||||
| Total loans, net of allowance | 6,981,440 | 5,515,052 | |||||||||
| Real estate owned, at lower of cost or fair value | 1,770 | 128 | |||||||||
| Financial derivatives, at fair value | 10,519 | 7,487 | |||||||||
| Interest receivable (includes $20,568 and $19,783, respectively, related to consolidated trusts) | 199,195 | 180,080 | |||||||||
| Guarantee and commitment fees receivable | 38,442 | 40,366 | |||||||||
| Deferred tax asset, net | 16,510 | 6,369 | |||||||||
| Prepaid expenses and other assets | 20,693 | 9,418 | |||||||||
| Total Assets | $ | 21,709,374 | $ | 18,694,328 | |||||||
| Liabilities and Equity: | |||||||||||
| Liabilities: | |||||||||||
| Notes payable: | |||||||||||
| Due within one year | $ | 10,019,082 | $ | 7,757,050 | |||||||
| Due after one year | 9,079,566 | 8,486,647 | |||||||||
| Total notes payable | 19,098,648 | 16,243,697 | |||||||||
| Debt securities of consolidated trusts held by third parties | 1,616,504 | 1,528,957 | |||||||||
| Financial derivatives, at fair value | 27,042 | 19,633 | |||||||||
| Accrued interest payable (includes $18,018 and $17,125, respectively, related to consolidated trusts) | 106,959 | 96,743 | |||||||||
| Guarantee and commitment obligation | 36,700 | 38,683 | |||||||||
| Accounts payable and accrued expenses | 22,081 | 11,891 | |||||||||
| Reserve for losses | 2,164 | 2,167 | |||||||||
| Total Liabilities | 20,910,098 | 17,941,771 | |||||||||
| Commitments and Contingencies | |||||||||||
| 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 as of December 31, 2018 (redemption value $75,000,000) | — | 73,044 | |||||||||
| Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding | 73,382 | 73,382 | |||||||||
| Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding | 96,659 | — | |||||||||
| 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, 9,180,744 shares and 9,137,550 shares outstanding, respectively | 9,181 | 9,138 | |||||||||
| Additional paid-in capital | 119,304 | 118,822 | |||||||||
| Accumulated other comprehensive (loss)/income, net of tax | (16,161) | 24,956 | |||||||||
| Retained earnings | 457,047 | 393,351 | |||||||||
| Total Equity | 799,276 | 752,557 | |||||||||
| Total Liabilities and Equity | $ | 21,709,374 | $ | 18,694,328 | |||||||
9
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | ||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||
| Investments and cash equivalents | $ | 19,804 | $ | 16,498 | $ | 81,522 | $ | 55,179 | |||||||||||||||
| Farmer Mac Guaranteed Securities and USDA Securities | 81,267 | 77,474 | 333,896 | 290,953 | |||||||||||||||||||
| Loans | 61,883 | 52,481 | 229,675 | 198,152 | |||||||||||||||||||
| Total interest income | 162,954 | 146,453 | 645,093 | 544,284 | |||||||||||||||||||
| Total interest expense | 113,584 | 104,237 | 471,958 | 369,848 | |||||||||||||||||||
| Net interest income | 49,370 | 42,216 | 173,135 | 174,436 | |||||||||||||||||||
| Provision for loan losses | (2,430) | (146) | (3,504) | (238) | |||||||||||||||||||
| Net interest income after provision for loan losses | 46,940 | 42,070 | 169,631 | 174,198 | |||||||||||||||||||
| Non-interest income: | |||||||||||||||||||||||
| Guarantee and commitment fees | 3,401 | 3,506 | 13,666 | 13,976 | |||||||||||||||||||
| Gains/(losses) on financial derivatives | 4,089 | (2,999) | 5,282 | (3,687) | |||||||||||||||||||
| Gains on trading securities | 172 | 57 | 326 | 81 | |||||||||||||||||||
| Losses on sale of available-for-sale investment securities | (236) | — | (236) | — | |||||||||||||||||||
| Losses on sale of real estate owned | — | — | — | (7) | |||||||||||||||||||
| Other income | 526 | 118 | 1,904 | 1,377 | |||||||||||||||||||
| Non-interest income | 7,952 | 682 | 20,942 | 11,740 | |||||||||||||||||||
| Non-interest expense: | |||||||||||||||||||||||
| Compensation and employee benefits | 6,732 | 7,167 | 28,762 | 27,534 | |||||||||||||||||||
| General and administrative | 5,773 | 5,829 | 20,311 | 19,707 | |||||||||||||||||||
| Regulatory fees | 725 | 687 | 2,788 | 2,562 | |||||||||||||||||||
| Real estate owned operating costs, net | — | — | 64 | 16 | |||||||||||||||||||
| Provision for/(release of) reserve for losses | 421 | 20 | (3) | 97 | |||||||||||||||||||
| Non-interest expense | 13,651 | 13,703 | 51,922 | 49,916 | |||||||||||||||||||
| Income before income taxes | 41,241 | 29,049 | 138,651 | 136,022 | |||||||||||||||||||
| Income tax expense | 8,743 | 6,193 | 29,105 | 27,942 | |||||||||||||||||||
| Net income attributable to Farmer Mac | 32,498 | 22,856 | 109,546 | 108,080 | |||||||||||||||||||
| Preferred stock dividends | (3,432) | (3,296) | (13,940) | (13,182) | |||||||||||||||||||
| Loss on retirement of preferred stock | — | — | (1,956) | — | |||||||||||||||||||
| Net income attributable to common stockholders | $ | 29,066 | $ | 19,560 | $ | 93,650 | $ | 94,898 | |||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic earnings per common share | $ | 2.72 | $ | 1.84 | $ | 8.76 | $ | 8.91 | |||||||||||||||
| Diluted earnings per common share | $ | 2.70 | $ | 1.82 | $ | 8.69 | $ | 8.83 | |||||||||||||||
10
Reconciliations
Reconciliations of Farmer Mac's net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings for the periods indicated:
| Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings | |||||||||||||||||
| For the Three Months Ended | |||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | |||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||
| Net income attributable to common stockholders | $ | 29,066 | $ | 14,406 | $ | 19,560 | |||||||||||
| Less reconciling items: | |||||||||||||||||
| Gains/(losses) on undesignated financial derivatives due to fair value changes | 4,469 | (7,117) | (96) | ||||||||||||||
| Losses on hedging activities due to fair value changes | (220) | (4,535) | (853) | ||||||||||||||
| Unrealized gains on trading securities | 172 | 49 | 57 | ||||||||||||||
| Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 40 | (7) | 67 | ||||||||||||||
| Net effects of terminations or net settlements on financial derivatives | 1,339 | 232 | (312) | ||||||||||||||
| Issuance costs on the retirement of preferred stock | — | — | — | ||||||||||||||
| Income tax effect related to reconciling items | (1,218) | 2,389 | 238 | ||||||||||||||
| Sub-total | 4,582 | (8,989) | (899) | ||||||||||||||
| Core earnings | $ | 24,484 | $ | 23,395 | $ | 20,459 | |||||||||||
| Composition of Core Earnings: | |||||||||||||||||
| Revenues: | |||||||||||||||||
Net effective spread(1) | $ | 45,991 | $ | 42,461 | $ | 38,855 | |||||||||||
Guarantee and commitment fees(2) | 5,432 | 5,208 | 5,309 | ||||||||||||||
Other(3) | 100 | 389 | (129) | ||||||||||||||
| Total revenues | 51,523 | 48,058 | 44,035 | ||||||||||||||
| Credit related expense/(income) (GAAP): | |||||||||||||||||
| Provision for losses | 2,851 | 623 | 166 | ||||||||||||||
| REO operating expenses | — | — | — | ||||||||||||||
| Losses/(gains) on sale of REO | — | — | — | ||||||||||||||
| Total credit related expense/(income) | 2,851 | 623 | 166 | ||||||||||||||
| Operating expenses (GAAP): | |||||||||||||||||
| Compensation and employee benefits | 6,732 | 7,654 | 7,167 | ||||||||||||||
| General and administrative | 5,773 | 5,253 | 5,829 | ||||||||||||||
| Regulatory fees | 725 | 688 | 687 | ||||||||||||||
| Total operating expenses | 13,230 | 13,595 | 13,683 | ||||||||||||||
| Net earnings | 35,442 | 33,840 | 30,186 | ||||||||||||||
Income tax expense(4) | 7,526 | 7,018 | 6,431 | ||||||||||||||
| Preferred stock dividends (GAAP) | 3,432 | 3,427 | 3,296 | ||||||||||||||
| Core earnings | $ | 24,484 | $ | 23,395 | $ | 20,459 | |||||||||||
| Core earnings per share: | |||||||||||||||||
| Basic | $ | 2.29 | $ | 2.19 | $ | 1.92 | |||||||||||
| Diluted | 2.27 | 2.17 | 1.90 | ||||||||||||||
(1)Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.
11
(2)Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.
(3)Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.
(4)Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.
| Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings | |||||||||||
| For the Year Ended | |||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||
| (in thousands, except per share amounts) | |||||||||||
| Net income attributable to common stockholders | $ | 93,650 | $ | 94,898 | |||||||
| Less reconciling items: | |||||||||||
| Gains on undesignated financial derivatives due to fair value changes | 10,077 | 7,959 | |||||||||
| (Losses)/gains on hedging activities due to fair value changes | (9,010) | 4,449 | |||||||||
| Unrealized gains/(losses) on trading securities | 326 | 81 | |||||||||
| Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | (122) | (461) | |||||||||
| Net effects of terminations or net settlements on financial derivatives | 1,089 | 1,708 | |||||||||
| Issuance costs on the retirement of preferred stock | (1,956) | — | |||||||||
| Income tax effect related to reconciling items | (496) | (2,885) | |||||||||
| Sub-total | (92) | 10,851 | |||||||||
| Core earnings | $ | 93,742 | $ | 84,047 | |||||||
| Composition of Core Earnings: | |||||||||||
| Revenues: | |||||||||||
Net effective spread(1) | $ | 168,608 | $ | 151,195 | |||||||
Guarantee and commitment fees(2) | 21,335 | 20,733 | |||||||||
Other(3) | 1,775 | 520 | |||||||||
| Total revenues | 191,718 | 172,448 | |||||||||
| Credit related expense (GAAP): | |||||||||||
| Provision for losses | 3,501 | 335 | |||||||||
| REO operating expenses | 64 | 16 | |||||||||
| Losses/(gains) on sale of REO | — | 7 | |||||||||
| Total credit related expense | 3,565 | 358 | |||||||||
| Operating expenses (GAAP): | |||||||||||
| Compensation and employee benefits | 28,762 | 27,534 | |||||||||
| General and administrative | 20,311 | 19,707 | |||||||||
| Regulatory fees | 2,788 | 2,562 | |||||||||
| Total operating expenses | 51,861 | 49,803 | |||||||||
| Net earnings | 136,292 | 122,287 | |||||||||
Income tax expense(4) | 28,610 | 25,058 | |||||||||
| Preferred stock dividends (GAAP) | 13,940 | 13,182 | |||||||||
| Core earnings | $ | 93,742 | $ | 84,047 | |||||||
| Core earnings per share: | |||||||||||
| Basic | $ | 8.76 | $ | 7.89 | |||||||
| Diluted | 8.70 | 7.82 | |||||||||
(1)Net effective spread is a non-GAAP measure. See "Use of Non-GAAP Measures" above for an explanation of net effective spread. See below for a reconciliation of net interest income to net effective spread.
(2)Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.
12
(3)Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.
(4)Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.
| Reconciliation of GAAP Basic Earnings Per Share to Core Earnings Basic Earnings Per Share | |||||||||||||||||||||||||||||
| For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||||||||
| GAAP - Basic EPS | $ | 2.72 | $ | 1.34 | $ | 1.84 | $ | 8.76 | $ | 8.91 | |||||||||||||||||||
| Less reconciling items: | |||||||||||||||||||||||||||||
| Gains/(losses) on undesignated financial derivatives due to fair value changes | 0.42 | (0.66) | (0.01) | 0.94 | 0.75 | ||||||||||||||||||||||||
| (Losses)/gains on hedging activities due to fair value changes | (0.02) | (0.42) | (0.08) | (0.83) | 0.41 | ||||||||||||||||||||||||
| Unrealized gains on trading securities | 0.02 | — | 0.01 | 0.03 | 0.01 | ||||||||||||||||||||||||
| Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | — | — | 0.01 | (0.01) | (0.04) | ||||||||||||||||||||||||
| Net effects of terminations or net settlements on financial derivatives | 0.13 | 0.02 | (0.03) | 0.10 | 0.16 | ||||||||||||||||||||||||
| Issuance costs on the retirement of preferred stock | — | — | — | (0.18) | — | ||||||||||||||||||||||||
| Income tax effect related to reconciling items | (0.12) | 0.21 | 0.02 | (0.05) | (0.27) | ||||||||||||||||||||||||
| Sub-total | 0.43 | (0.85) | (0.08) | — | 1.02 | ||||||||||||||||||||||||
| Core Earnings - Basic EPS | $ | 2.29 | $ | 2.19 | $ | 1.92 | $ | 8.76 | $ | 7.89 | |||||||||||||||||||
| Shares used in per share calculation (GAAP and Core Earnings) | 10,711 | 10,706 | 10,669 | 10,696 | 10,654 | ||||||||||||||||||||||||
| Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings Per Share | |||||||||||||||||||||||||||||
| For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||||||||
| GAAP - Diluted EPS | $ | 2.70 | $ | 1.33 | $ | 1.82 | $ | 8.69 | $ | 8.83 | |||||||||||||||||||
| Less reconciling items: | |||||||||||||||||||||||||||||
| Gains/(losses) on undesignated financial derivatives due to fair value changes | 0.42 | (0.66) | (0.01) | 0.93 | 0.74 | ||||||||||||||||||||||||
| (Losses)/gains on hedging activities due to fair value changes | (0.02) | (0.42) | (0.08) | (0.83) | 0.41 | ||||||||||||||||||||||||
| Unrealized gains on trading securities | 0.02 | — | 0.01 | 0.03 | 0.01 | ||||||||||||||||||||||||
| Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | — | — | 0.01 | (0.01) | (0.04) | ||||||||||||||||||||||||
| Net effects of terminations or net settlements on financial derivatives | 0.12 | 0.02 | (0.03) | 0.10 | 0.16 | ||||||||||||||||||||||||
| Issuance costs on the retirement of preferred stock | — | — | — | (0.18) | — | ||||||||||||||||||||||||
| Income tax effect related to reconciling items | (0.11) | 0.22 | 0.02 | (0.05) | (0.27) | ||||||||||||||||||||||||
| Sub-total | 0.43 | (0.84) | (0.08) | (0.01) | 1.01 | ||||||||||||||||||||||||
| Core Earnings - Diluted EPS | $ | 2.27 | $ | 2.17 | $ | 1.90 | $ | 8.70 | $ | 7.82 | |||||||||||||||||||
| Shares used in per share calculation (GAAP and Core Earnings) | 10,784 | 10,776 | 10,745 | 10,778 | 10,746 | ||||||||||||||||||||||||
13
The following table presents a reconciliation of net interest income and net yield to net effective spread for the periods indicated:
| Reconciliation of GAAP Net Interest Income/Yield to Net Effective Spread | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Year Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income/yield | $ | 49,370 | 0.95 | % | $ | 40,112 | 0.78 | % | $ | 42,216 | 0.93 | % | $ | 173,135 | 0.87 | % | $ | 174,436 | 0.96 | % | |||||||||||||||||||||||||||||||||||||||
| Net effects of consolidated trusts | (2,031) | 0.03 | % | (1,859) | 0.02 | % | (1,804) | 0.04 | % | (7,669) | 0.03 | % | (6,757) | 0.04 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Expense related to undesignated financial derivatives | (725) | (0.02) | % | (268) | — | % | (2,161) | (0.06) | % | (5,095) | (0.03) | % | (11,685) | (0.07) | % | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of premiums/discounts on assets consolidated at fair value | 58 | — | % | 28 | — | % | (138) | — | % | 398 | — | % | 417 | 0.01 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of losses due to terminations or net settlements on financial derivatives | 30 | — | % | (42) | — | % | (69) | — | % | (68) | — | % | (275) | — | % | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value changes on fair value hedge relationships | (711) | (0.01) | % | 4,490 | 0.10 | % | 811 | 0.02 | % | 7,907 | 0.04 | % | (4,941) | (0.03) | % | ||||||||||||||||||||||||||||||||||||||||||||
| Net effective spread | $ | 45,991 | 0.95 | % | $ | 42,461 | 0.90 | % | $ | 38,855 | 0.93 | % | $ | 168,608 | 0.91 | % | $ | 151,195 | 0.91 | % | |||||||||||||||||||||||||||||||||||||||
14
The following table presents core earnings for Farmer Mac's reportable operating segments and a reconciliation to consolidated net income for the three months ended December 31, 2019:
| Core Earnings by Business Segment | |||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
| Farm & Ranch | USDA Guarantees | Rural Utilities | Institutional Credit | Corporate | Reconciling Adjustments | Consolidated Net Income | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 18,674 | $ | 4,425 | $ | 4,195 | $ | 19,614 | $ | 2,462 | $ | — | $ | 49,370 | |||||||||||||||||||||||||||
Less: reconciling adjustments(1)(2)(3) | (2,300) | (62) | 676 | (1,606) | (87) | 3,379 | — | ||||||||||||||||||||||||||||||||||
| Net effective spread | 16,374 | 4,363 | 4,871 | 18,008 | 2,375 | 3,379 | |||||||||||||||||||||||||||||||||||
Guarantee and commitment fees(2) | 4,732 | 246 | 343 | 111 | — | (2,031) | 3,401 | ||||||||||||||||||||||||||||||||||
Other income/(expense)(3) | 339 | 82 | 7 | — | (328) | 4,451 | 4,551 | ||||||||||||||||||||||||||||||||||
| Non-interest income/(loss) | 5,071 | 328 | 350 | 111 | (328) | 2,420 | 7,952 | ||||||||||||||||||||||||||||||||||
| Provision for loan losses | (2,430) | — | — | — | — | — | (2,430) | ||||||||||||||||||||||||||||||||||
| Release of reserve for losses | (421) | — | — | — | — | — | (421) | ||||||||||||||||||||||||||||||||||
| Other non-interest expense | (4,927) | (1,478) | (1,303) | (1,920) | (3,602) | — | (13,230) | ||||||||||||||||||||||||||||||||||
Non-interest expense(4) | (5,348) | (1,478) | (1,303) | (1,920) | (3,602) | — | (16,081) | ||||||||||||||||||||||||||||||||||
| Core earnings before income taxes | 13,667 | 3,213 | 3,918 | 16,199 | (1,555) | 5,799 | (5) | 41,241 | |||||||||||||||||||||||||||||||||
| Income tax (expense)/benefit | (2,870) | (675) | (823) | (3,402) | 244 | (1,217) | (8,743) | ||||||||||||||||||||||||||||||||||
| Core earnings before preferred stock dividends | 10,797 | 2,538 | 3,095 | 12,797 | (1,311) | 4,582 | (5) | 32,498 | |||||||||||||||||||||||||||||||||
| Preferred stock dividends | — | — | — | — | (3,432) | — | (3,432) | ||||||||||||||||||||||||||||||||||
| Segment core earnings/(losses) | $ | 10,797 | $ | 2,538 | $ | 3,095 | $ | 12,797 | $ | (4,743) | $ | 4,582 | (5) | $ | 29,066 | ||||||||||||||||||||||||||
| Total assets at carrying value | $ | 5,408,302 | $ | 2,311,932 | $ | 1,717,405 | $ | 8,606,912 | $ | 3,664,823 | $ | — | $ | 21,709,374 | |||||||||||||||||||||||||||
| Total on- and off-balance sheet program assets at principal balance | $ | 7,776,950 | $ | 2,620,175 | $ | 2,280,571 | $ | 8,440,246 | $ | — | $ | — | $ | 21,117,942 | |||||||||||||||||||||||||||
(1)Excludes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts.
(2)Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management's view that the net interest income Farmer Mac earns is effectively a guarantee fee.
(3)Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in "(Losses)/gains on financial derivatives" on the consolidated financial statements, to determine the effective funding cost for each operating segment.
(4)Includes directly attributable costs and an allocation of indirectly attributable costs based on employee headcount.
(5)Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders.
15
Supplemental Information
The following table sets forth information about 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 December 31, 2019 | As of December 31, 2018 | ||||||||||
| (in thousands) | |||||||||||
| Farm & Ranch: | |||||||||||
| Loans | $ | 3,675,640 | $ | 3,071,222 | |||||||
| Loans held in trusts: | |||||||||||
| Beneficial interests owned by third party investors | 1,600,917 | 1,517,101 | |||||||||
| LTSPCs | 2,393,071 | 2,509,787 | |||||||||
| Guaranteed Securities | 107,322 | 135,862 | |||||||||
| USDA Guarantees: | |||||||||||
| USDA Securities | 2,199,072 | 2,120,553 | |||||||||
| Farmer Mac Guaranteed USDA Securities | 421,103 | 395,067 | |||||||||
| Rural Utilities: | |||||||||||
| Loans | 1,671,293 | 938,843 | |||||||||
LTSPCs(1) | 609,278 | 653,272 | |||||||||
| Institutional Credit | |||||||||||
| AgVantage Securities | 8,440,246 | 8,082,817 | |||||||||
Revolving floating rate AgVantage facility(2) | — | 300,000 | |||||||||
| Total | $ | 21,117,942 | $ | 19,724,524 | |||||||
(1)Includes $20.0 million and $17.0 million related to one-year loan purchase commitments on which Farmer Mac receives a nominal unused commitment fee as of December 31, 2019 and 2018, respectively.
(2)During 2019, the facility was drawn on two separate occurrences for $100.0 million and $150.0 million and later repaid. During 2018, $100.0 million of this facility was drawn and later repaid. The facility was terminated during fourth quarter 2019.
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 | Corporate | Net Effective Spread | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | Dollars | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| For the quarter ended: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2019(1) | $ | 16,374 | 1.90 | % | $ | 4,363 | 0.78 | % | $ | 4,871 | 1.17 | % | $ | 18,008 | 0.85 | % | $ | 2,375 | 0.27 | % | $ | 45,991 | 0.95 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2019 | 13,181 | 1.66 | % | 4,314 | 0.79 | % | 4,502 | 1.16 | % | 17,807 | 0.84 | % | 2,657 | 0.30 | % | 42,461 | 0.90 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2019 | 13,335 | 1.72 | % | 4,097 | 0.76 | % | 3,996 | 1.10 | % | 17,371 | 0.82 | % | 2,556 | 0.34 | % | 41,355 | 0.91 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2019 | 12,737 | 1.70 | % | 3,964 | 0.74 | % | 3,233 | 1.12 | % | 16,373 | 0.79 | % | 2,494 | 0.35 | % | 38,801 | 0.89 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2018 | 13,288 | 1.79 | % | 4,630 | 0.85 | % | 2,833 | 1.19 | % | 15,751 | 0.80 | % | 2,353 | 0.36 | % | 38,855 | 0.93 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2018 | 13,887 | 1.91 | % | 4,627 | 0.86 | % | 2,877 | 1.18 | % | 15,642 | 0.78 | % | 2,044 | 0.30 | % | 39,077 | 0.93 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 30, 2018 | 13,347 | 1.86 | % | 4,398 | 0.83 | % | 2,923 | 1.15 | % | 15,220 | 0.76 | % | 274 | 0.04 | % | 36,162 | 0.86 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2018 | 12,540 | 1.80 | % | 4,400 | 0.82 | % | 2,950 | 1.12 | % | 14,824 | 0.78 | % | 2,387 | 0.36 | % | 37,101 | 0.91 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | 12,396 | 1.80 | % | 4,979 | 0.93 | % | 3,057 | 1.14 | % | 14,800 | 0.78 | % | 2,235 | 0.35 | % | 37,467 | 0.93 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)See above for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended December 31, 2019.
16
The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:
| Core Earnings by Quarter Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 2019 | September 2019 | June 2019 | March 2019 | December 2018 | September 2018 | June 2018 | March 2018 | December 2017 | |||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net effective spread | $ | 45,991 | $ | 42,461 | $ | 41,355 | $ | 38,801 | $ | 38,855 | $ | 39,077 | $ | 36,162 | $ | 37,101 | $ | 37,467 | |||||||||||||||||||||||||||||||||||
| Guarantee and commitment fees | 5,432 | 5,208 | 5,276 | 5,419 | 5,309 | 5,170 | 5,171 | 5,083 | 5,157 | ||||||||||||||||||||||||||||||||||||||||||||
| Other | 100 | 389 | 777 | 509 | (129) | 110 | 111 | 428 | 69 | ||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 51,523 | 48,058 | 47,408 | 44,729 | 44,035 | 44,357 | 41,444 | 42,612 | 42,693 | ||||||||||||||||||||||||||||||||||||||||||||
| Credit related expense/(income): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for/(release of) losses | 2,851 | 623 | 420 | (393) | 166 | (3) | 582 | (410) | 464 | ||||||||||||||||||||||||||||||||||||||||||||
| REO operating expenses | — | — | 64 | — | — | — | — | 16 | — | ||||||||||||||||||||||||||||||||||||||||||||
| Losses/(gains) on sale of REO | — | — | — | — | — | 41 | (34) | — | (964) | ||||||||||||||||||||||||||||||||||||||||||||
| Total credit related expense/(income) | 2,851 | 623 | 484 | (393) | 166 | 38 | 548 | (394) | (500) | ||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation and employee benefits | 6,732 | 7,654 | 6,770 | 7,606 | 7,167 | 6,777 | 6,936 | 6,654 | 5,247 | ||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 5,773 | 5,253 | 4,689 | 4,596 | 5,829 | 4,350 | 5,202 | 4,326 | 4,348 | ||||||||||||||||||||||||||||||||||||||||||||
| Regulatory fees | 725 | 688 | 687 | 688 | 687 | 625 | 625 | 625 | 625 | ||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 13,230 | 13,595 | 12,146 | 12,890 | 13,683 | 11,752 | 12,763 | 11,605 | 10,220 | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | 35,442 | 33,840 | 34,778 | 32,232 | 30,186 | 32,567 | 28,133 | 31,401 | 32,973 | ||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 7,526 | 7,018 | 7,351 | 6,715 | 6,431 | 6,891 | 5,477 | 6,259 | 11,796 | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | 3,432 | 3,427 | 3,785 | 3,296 | 3,296 | 3,295 | 3,296 | 3,295 | 3,296 | ||||||||||||||||||||||||||||||||||||||||||||
| Core earnings | $ | 24,484 | $ | 23,395 | $ | 23,642 | $ | 22,221 | $ | 20,459 | $ | 22,381 | $ | 19,360 | $ | 21,847 | $ | 17,881 | |||||||||||||||||||||||||||||||||||
| Reconciling items: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gains/(losses) on undesignated financial derivatives due to fair value changes | 4,469 | (7,117) | 10,485 | 2,240 | (96) | 3,625 | 6,709 | (2,279) | (261) | ||||||||||||||||||||||||||||||||||||||||||||
| (Losses)/gains on hedging activities due to fair value changes | (220) | (4,535) | (1,438) | (2,817) | (853) | 1,051 | 1,687 | 2,564 | (3) | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gains/(losses) on trading assets | 172 | 49 | 61 | 44 | 57 | (3) | 11 | 16 | 60 | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of premiums/discounts and deferred gains on assets consolidated at fair value | 40 | (7) | (139) | (16) | 67 | (38) | 196 | (686) | (129) | ||||||||||||||||||||||||||||||||||||||||||||
| Net effects of terminations or net settlements on financial derivatives | 1,339 | 232 | (592) | 110 | (312) | 546 | 232 | 1,242 | 632 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance costs on the retirement of preferred stock | — | — | (1,956) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Re-measurement of net deferred tax asset due to enactment of new tax legislation | — | — | — | — | — | — | — | — | (1,365) | ||||||||||||||||||||||||||||||||||||||||||||
| Income tax effect related to reconciling items | (1,218) | 2,389 | (1,759) | 92 | 238 | (1,088) | (1,855) | (180) | (105) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | 29,066 | $ | 14,406 | $ | 28,304 | $ | 21,874 | $ | 19,560 | $ | 26,474 | $ | 26,340 | $ | 22,524 | $ | 16,710 | |||||||||||||||||||||||||||||||||||
17
Fourth Quarter 2019 Equity Investor Presentation
FARMER MAC Forward-Looking Statements In addition to historical information, this presentation includes forward- NO OFFER OR SOLICITATION OF SECURITIES looking statements that reflect management’s current expectations for This presentation does not constitute an offer to sell or a solicitation of Farmer Mac’s future financial results, business prospects, and business an offer to buy any Farmer Mac security. Farmer Mac securities are developments. Forward-looking statements include, without limitation, offered only in jurisdictions where permissible by offering documents any statement that may predict, forecast, indicate, or imply future available through qualified securities dealers. Any investor who is results, performance, or achievements. Management’s expectations for considering purchasing a Farmer Mac security should consult the Farmer Mac’s future necessarily involve assumptions, estimates, and applicable offering documents for the security and their own financial the evaluation of risks and uncertainties. Various factors or events, both and legal advisors for information about and analysis of the security, the known and unknown, could cause Farmer Mac’s actual results to differ risks associated with the security, and the suitability of the investment materially from the expectations as expressed or implied by the forward- for the investor’s particular circumstances. looking statements. Some of these factors are identified and discussed in Farmer Mac’s Annual Report on Form 10-K for the year ended Copyright © 2020 by Farmer Mac. No part of this document may be December 31, 2019, filed with the U.S. Securities and Exchange duplicated, reproduced, distributed, or displayed in public in any manner Commission (“SEC”) on February 25, 2020. These reports are also or by any means without the written permission of Farmer Mac. available on Farmer Mac’s website (www.farmermac.com). Considering 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 December 31, 2019, except as otherwise indicated. Farmer Mac undertakes no obligation to release publicly the results of revisions to any such forward-looking statements that may be made to reflect new information or any future events or circumstances, except as otherwise mandated by the SEC. The information in this presentation is not necessarily indicative of future results. 02
FARMER MAC Use of Non-GAAP Financial Measures This presentation is for general informational purposes only, is current Core earnings and core earnings per share also differ from net income only as of December 31, 2019, and should be read in conjunction with attributable to common stockholders and earnings per common share, Farmer Mac’s Annual Report on Form 10-K filed with the SEC on respectively, by excluding specified infrequent or unusual transactions February 25, 2020. In the accompanying analysis of its financial that Farmer Mac believes are not indicative of future operating results and information, Farmer Mac uses the following non-GAAP financial that may not reflect the trends and economic financial performance of measures: core earnings, core earnings per share, and net effective Farmer Mac's core business. spread. Farmer Mac uses these non-GAAP measures to measure Farmer Mac uses net effective spread to measure the net spread Farmer corporate economic performance and develop financial plans because, Mac earns between its interest-earning assets and the related net funding in management's view, they are useful alternative measures in costs of these assets. Net effective spread differs from net interest understanding Farmer Mac's economic performance, transaction income and net interest yield because it excludes: (1) the amortization of economics, and business trends. The non-GAAP financial measures premiums and discounts on assets consolidated at fair value that are that Farmer Mac uses may not be comparable to similarly labeled non- amortized as adjustments to yield in interest income over the contractual GAAP financial measures disclosed by other companies. Farmer Mac's or estimated remaining lives of the underlying assets; (2) interest income disclosure of these non-GAAP financial measures is intended to be and interest expense related to consolidated trusts with beneficial supplemental in nature and is not meant to be considered in isolation interests owned by third parties, which are presented on Farmer Mac's from, as a substitute for, or as more important than, the related financial consolidated balance sheets as “Loans held for investment in information prepared in accordance with GAAP. consolidated trusts, at amortized cost;” and (3) beginning January 1, Core earnings and core earnings per share principally differ from net 2018, the fair value changes of financial derivatives and the corresponding income attributable to common stockholders and earnings per assets and liabilities designated in a fair value hedge relationship. Net common share, respectively, by excluding the effects of fair value effective spread also principally differs from net interest income and net fluctuations. These fluctuations are not expected to have a cumulative interest yield because it includes: (1) the accrual of income and expense net impact on Farmer Mac's financial condition or results of operations related to the contractual amounts due on financial derivatives that are not reported in accordance with GAAP if the related financial instruments designated in hedge relationships; and (2) effective in fourth quarter 2017, are held to maturity, as is expected. the net effects of terminations or net settlements on financial derivatives. 03
FARMER MAC Investment Highlights •90-Day delinquencies of only 0.29% across all lines of business Quality Assets •Cumulative Farm & Ranch lifetime losses of only 0.13% •Issue at narrow, GSE spreads to U.S. Treasuries Funding Advantage •E.g., 10-year U.S. Treasury +0.51% •Ag productivity must double to meet expected global demand Growth Prospects •6.5% share of an ~$245 billion and growing U.S. ag mortgage market •Overhead / outstanding business volume ~20 bps Operational Efficiency •~$900,000 earnings per employee in 2018 Quality, Recurring •99% of total revenues is recurring net effective spread and fees Earnings •Outstanding business volume CAGR of 10.6% (2000 to 2019) Strong Returns, •Core earnings ROE ~17% in 2019 Responsible Growth •Double-digit annual core earnings growth (2016-2019) 04
FARMER MAC A Mission-Driven, For-Profit Company Our Mission Farmer Mac initially chartered Farmer Mac is committed to help build a strong and vital by Congress as an instrumentality rural America by increasing the availability and 1987 of the United States affordability of credit for the benefit of American agricultural and rural communities Initial public offering First listed on NASDAQ Our Stakeholders 1988 (FAMCU & FAMCL) • Farmers, ranchers and rural Americans • Stockholders • Financial Institutions First major charter revision • Employees and expansion of authority 1996 (direct loan purchases) • Congress • Regulator First listed Our Corporate Social Responsibility 1999 on NYSE (AGM & AGM.A) • To help create sustainable, vibrant rural American communities • We achieve this by conducting our business Second major charter revision – With absolute integrity 2008 and expansion of authority – By holding ourselves to high ethical standards (Rural Utilities) – By promoting a diverse, respectful, and inclusive culture 05
FARMER MAC Executive Leadership Bradford T. Nordholm Aparna Ramesh Zachary N. Carpenter President & Chief Executive Officer Executive Vice President – Chief Financial Executive Vice President – Chief Business Officer & Treasurer Officer • 20+ years of experience in mission-oriented • 13+ years of experience in agribusiness • 40+ years of agricultural and energy finance finance roles banking, capital markets, finance, and experience corporate strategy • Joined Farmer Mac in 2020 from Federal • Joined Farmer Mac in October 2018 from Reserve Bank of Boston, where she • Joined Farmer Mac in 2019 from CoBank, Starwood Energy Group, a leading private previously served as Senior Vice President where he previously served as Managing investment firm where he served as CEO and Chief Financial Officer Director and Sector Vice President of its and later as Vice Chairman Corporate Agribusiness Banking Group • Prior experience includes roles spanning • Prior experience includes CEO of US Central product management, asset-liability • Prior experience includes Executive Director and management positions at National management and profitability within in CoBank’s Capital Markets division and Cooperative and within the Farm Credit Cambridge Savings Bank and M&T Bank. Vice President in Finance and Corporate System Strategy at Goldman Sachs 06
FARMER MAC U.S. Agricultural Balance Sheet (1) $ IN THOUSANDS $3,026,679,206 $3,000,000,000 Machinery & Vehicles, $270,982,438 $2,500,000,000 $2,000,000,000 Ag Real Estate Debt-to-Asset Ratio: Real Estate 9.8% $1,500,000,000 $2,510,163,458 $ in thousands in $ $1,000,000,000 Farmer Mac Market Share: 6.5% $500,000,000 $401,992,481 Non-Real Estate, $156,329,378 Inventories, $172,949,845 Real Estate, $245,663,103 $15,887,870 $0 Investments, $72,583,465 (2) Farm Sector Assets Farm Sector Debt Farmer Mac 07
FARMER MAC Central to a Large Addressable Ag Mortgage Market (3) (4) (FCS Secondary Market GSE) $15.9 Billion (6.5% Market Share) Loan Purchase Wholesale Funding Credit Protection Farm Credit System Non-FCS Ag (FCS) Lenders (Cooperative GSE) BANKS AG Addressable • Insurance$61B Companies • Four FCS Banks Agriculture Mortgage Mortgage Market Mortgage • Ag Banks Financing Financing • 73 Retail Agricultural $246 Billion(4) Credit Associations • Non-Bank Lenders NON {Farmers & Ranchers} LENDERS $13B - BANK 08
FARMER MAC Growth Opportunities Broaden Farmer Mac’s Market = Relative Size Evaluating opportunities not of Volume Opportunity currently being pursued by Farmer Renewable Mac Energy Project Finance • New lines of business = Broaden • New products Securitization Deepen Farmer Mac’s Market Syndications = Deepen Improving processes and operating practices • Customer interaction = Both • Transaction processes Loan • Existing loan features and pricing Process Rural Improvement Broadband Broaden Farmer Mac’s Market Mac’s Farmer Broaden Timber Borrower Retention Deepen Farmer Mac’s Market 09
FARMER MAC Lines of Business and Products AS OF DECEMBER 31, 2019 Product Type Target Customers Lines of Business $ IN BILLIONS AND PERCENTAGE OF TOTAL VOLUME LOAN PURCHASES • Ag Banks F & R USDA RU IC Total • FCS Institutions $5.3 $2.6 $1.7 -- $9.6 • Insurance Companies 25% 12% 8% 45% • Rural Utilities Cooperatives WHOLESALE FINANCING • Ag Banks -- -- -- $8.4 $8.4 • Ag Investment Funds • AgVantage 40% 40% • Insurance Companies • Farm Equity AgVantage • Rural Utilities Cooperatives CREDIT PROTECTION • FCS Institutions $2.5 -- $0.6 -- $3.1 • Ag Banks • Long-term Standby Purchase 12% 3% 15% Commitments (LTSPCs)/ • Insurance Companies AMBS Guarantees • Ag Investment Funds • Rural Utilities Cooperatives Total $7.8 $2.6 $2.3 $8.4 $21.1 = Allowances and provisions recorded on these assets Note: Table may not sum to total due to rounding 10
FARMER MAC Growing, Recurring, High-Quality Earnings Outstanding Business Volume $20.0 7.4% CAGR (2015-2019) $15.0 $10.0 $ IN BILLIONS $ IN $5.0 $15.9 $17.4 $19.0 $19.7 $21.1 $0.0 2015 2016 2017 2018 2019 Outstanding Business Volume Net Effective Spread & Core Earnings 9.5% CAGR 18.9% CAGR $180.0 (2015-2019) (2015-2019) $100.0 $160.0 CORE EARNINGS $140.0 $80.0 IN $ MILLIONS $120.0 $100.0 $60.0 $80.0 $40.0 $60.0 $ IN MILLIONS $ IN $40.0 $20.0 $20.0 $117.4 $47.0 $123.1 $53.5 $141.3 $65.6 $151.2 $84.0 $168.6 $93.7 NET EFFECTIVE SPREAD EFFECTIVE NET $0.0 $0.0 2015 2016 2017 2018 2019 Net Effective Spread Core Earnings Core earnings and net effective spread are non-GAAP measures. For more information on the use of these non-GAAP measures, please see page 3. 11 For a reconciliation of core earnings to GAAP net income attributable to common stockholders and a reconciliation of net effective spread to GAAP net interest income, please refer to pages 23-24 of the Appendix.
FARMER MAC Proven, Rigorous Underwriting Industry-leading Credits are less Losses less likely credit requirements likely to default even in default – Total debt coverage ratio – Focus on repayment – Average LTV of 45% as of at least 1.25x capacity through of December 31, 2019 stressed inputs – LTVs average 40% to – Land values need to 45% on mortgages – Not a “lender of last decline >55% to purchased resort” generate losses – Minimum borrower net – Farm Credit – “Stress scenario” losses equity of 50% Administration is our of 17% to 48% safety and soundness regulator – 1980s crisis saw land value declines of ~23% (5) 12
FARMER MAC Credit Consistently Outperforms 90-Day Delinquencies 2.50% 2.00% 1.50% 1.12% 1.00% 0.78% 0.50% 0.29% 0.00% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Industry 90-Day Delinquencies(6) Farmer Mac 90-Day Delinquencies (Farm & Ranch Portfolio Only) (7) Farmer Mac 90-Day Delinquences (Total Portfolio) Agricultural Lender Charge-off Rates 0.60% Banks 0.50% Average 0.19% All Commercial Banks (8) 0.40% Loans and Leases Farm Credit System Average 0.96% Average 0.11% 0.30% Farmer Mac 0.20% Average 0.02% OFFS AS % OF ASSETS OF % AS OFFS - 0.10% CHARGE 0.00% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -0.10% 13 Banks(8) (9) Farm Credit System(10) Farmer Mac(11)
FARMER MAC Historical Credit Losses Ag Storage & Processing Crops Permanent Plantings Livestock Part-Time Farm / Rural Housing $12 $10 $8 $6 $ IN MILLIONS $ IN NET LOSS / (GAIN) / LOSS NET $4 $2 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -$2 & Prior BY YEAR OF ORIGINATION Farm & Ranch line of business has historical cumulative losses of 0.13%, or less than 1bp per year • Cumulative F&R losses of $33 million on $27 billion of cumulative F&R historical business volume Farmer Mac’s Rural Utilities, USDA Guarantees, and Institutional Credit lines of business have not had any credit losses to date 14
FARMER MAC Strong and Growing Equity Capital Base $815 25.0% $800 $728 $196 $657 20.0% $610 $183 $600 $564 $137 $143 $102 13.4% 15.0% 12.6% 12.9% $400 10.5% 12.7% $ IN MILLIONS $ IN CORE CAPITAL CORE 10.0% TIER 1 CAPITAL RATIO (%) RATIO 1 CAPITAL TIER $200 5.0% $462 $467 $520 $545 $619 $0 0.0% 2015 2016 2017 2018 2019 Statutory Minimum Core Capital Core Capital Amount Above Statutory Minimum Capital Tier 1 Capital Ratio Statutory Minimum Core Capital defined as total stockholders’ equity less accumulated other comprehensive income. 15
FARMER MAC Quality Earnings Drives Strong Dividends Increased Target Payout Ratio of $0.90 Core Earnings to ~35% $0.80 $0.80 $0.70 $0.70 $0.60 $0.58 Initiated New Dividend Policy: $0.50 Target ~30% Payout Ratio of Core Earnings $0.40 $0.36 $ PER SHARE $ PER $0.30 $0.26 $0.20 $0.16 $0.14 $0.12 $0.10 $0.10 $0.05 $0.00 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Quarterly Dividend per Common Share 16
FARMER MAC Investment Highlights •90-Day delinquencies of only 0.29% across all lines of business Quality Assets •Cumulative Farm & Ranch lifetime losses of only 0.13% •Issue at narrow, GSE spreads to U.S. Treasuries Funding Advantage •E.g., 10-year U.S. Treasury +0.51% •Ag productivity must double to meet expected global demand Growth Prospects •6.5% share of an ~$245 billion and growing U.S. ag mortgage market •Overhead / outstanding business volume ~20 bps Operational Efficiency •~$900,000 earnings per employee in 2018 Quality, Recurring •99% of total revenues is recurring net effective spread and fees Earnings •Outstanding business volume CAGR of 10.6% (2000 to 2019) Strong Returns, •Core earnings ROE ~17% in 2019 Responsible Growth •Double-digit annual core earnings growth (2016-2019) 17
Appendix
FARMER MAC Key Company Metrics ($ in thousands, except per share amounts) 2019 2018 2017 2016 2015 Core Earnings $93,742 $84,047 $65,631 $53,481 $47,035 Core Earnings per Diluted Share $8.70 $7.82 $6.08 $4.98 $4.16 Net Effective Spread ($) $168,608 $151,195 $141,303 $123,072 $117,428 Net Effective Spread (%) 0.91% 0.91% 0.91% 0.84% 0.85% Guarantee & Commitment Fees $21,335 $20,733 $20,350 $19,170 $17,155 Core Capital Above Statutory Minimum $196,700 $182,600 $136,800 $143,200 $102,400 Common Stock Dividends per Share $2.80 $2.32 $1.44 $1.04 $0.64 Outstanding Business Volume $21,117,942 $19,724,525 $19,007,311 $17,399,475 $15,898,820 90-Day Delinquencies – Farm & Ranch 0.78% 0.37% 0.71% 0.34% 0.56% Charge-Offs $67 $17 $327 $130 $3,772 Book Value per Share $54.80 $49.01 $42.59 $38.42 $33.66 Core Earnings Return on Equity 17% 17% 15% 13% 13% • Core earnings, core earnings per share, and net effective spread are non-GAAP measures. For more information on the use of these non- GAAP measures, please see page 3. For a reconciliation of core earnings to GAAP net income attributable to common stockholders and core earnings per share to earnings per common share, and a reconciliation of net effective spread to GAAP net interest income, please refer to pages 23-24 of the Appendix. • Periods prior to fourth quarter 2017 have been recast to reflect the revised methodology for calculating net effective spread that became effective in fourth quarter 2017, as further described on page 3. • Book Value per Share excludes accumulated other comprehensive income. 19
FARMER MAC Equity Capital Structure NYSE Dividend Shares Ticker Yield Outstanding CLASS A VOTING COMMON STOCK AGM.A 3.80% 1.0 million • Ownership restricted to non-Farm Credit System financial institutions STOCK CLASS B VOTING COMMON STOCK -- -- 0.5 million • Ownership restricted to Farm Credit System institutions CLASS C NON-VOTING COMMON STOCK AGM 3.35% 9.2 million • No ownership restrictions COMMON SERIES A NON-CUMULATIVE PREFERRED STOCK AGM.PR.A 5.875% 2.4 million • Option to redeem at any time on or after January 17, 2018 • Redemption Value: $25 per share STOCK SERIES C FIXED-TO-FLOATING RATE NON-CUMULATIVE AGM.PR.C 6.000% 3.0 million PREFERRED STOCK • Option to redeem at any time on or after July 18, 2024 • Redemption Value: $25 per share SERIES D NON-CUMULATIVE PREFERRED STOCK AGM.PR.D 5.700% 4.0 million PREFERRED • Option to redeem at any time on or after July 17, 2024 • Redemption Value: $25 per share • Common stock dividend annualized divided by quarter-end closing price 20 • Par value of annual dividend for preferred stock
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 many federally supervised financial institutions (banks, etc.) Debt Securities Trade at Narrow Spreads to Comparable Maturity Treasuries MATURITY (YEARS) 3 5 7 10 SPREAD TO TREASURY 12 bps 14 bps 35 bps 51 bps (AS OF DECEMBER 31, 2019) 21
FARMER MAC “Demand Pull” Provides Sustained Growth Opportunity(12) (13) 12.0 0.50 0.43 0.45 LAND ARABLE PER CAPITA 10.0 0.40 (hectare use in perperson) 8.0 0.35 0.30 6.0 0.25 0.18 (in billions) (in 0.20 4.0 0.15 WORLD POPULATION WORLD 2.0 0.10 3.0 9.8 0.05 0.0 0.00 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 World Population Arable Land per capita World population is expected to grow to 9.8 billion by 2050 • Arable land per person is expected to decline over 40% from 2005 to 2050 USDA projects a 75% increase in total production and consumption of major field crops in the same period • 43% increase in world population • Higher protein diets as incomes in developing countries increase Productivity would need to nearly double by 2050 to feed the world 22
FARMER MAC Reconciliation of Net Income to Core Earnings Core Earnings by Period Ended (in thousands) 2019 2018 2017 2016 2015 Net income attributable to common stockholders $ 93,650 $ 94,898 $ 71,300 $ 64,152 $ 47,371 Less reconciling items: Gains on undesignated financial derivatives due to fair value changes 10,077 7,959 10,218 8,585 1,859 (Losses)/gains on hedging activities due to fair value changes (9,010) 4,449 (719) 5,043 9,065 Unrealized gains/(losses) on trading assets 326 81 (24) 1,460 1,220 Amortization of premiums/discounts and deferred gains on assets consolidated at fair value (122) (461) (1,327) (849) (1,319) Net effects of terminations or net settlements on financial derivatives and hedging activities 1,089 1,708 2,674 2,178 (699) Issuance costs on retirement of preferred stock (1,956) - - - (8,147) Re-measurement of net deferred tax asset due to enactment of new tax legislation - - (1,365) - - Income tax effect related to reconciling items (496) (2,885) (3,788) (5,746) (1,643) Sub-total (92) 10,851 5,669 10,671 336 Core earnings $ 93,742 $ 84,047 $ 65,631 $ 53,481 $ 47,035 • Periods prior to 2017 have been recast to reflect the revised methodology for calculating net effective spread that became effective in fourth quarter 2017, as further described on page 3. • Issuance costs on retirement of preferred stock relates to the write-off of deferred issuance costs as a result of the retirement of Series B Preferred Stock and Farmer Mac II LLC Preferred Stock. 23
FARMER MAC Reconciliation of Net Interest Income to Net Effective Spread For the Year Ended December 31, 2019 2018 2017 2016 2015 $ in thousands Dollars Yield Dollars Yield Dollars Yield Dollars Yield Dollars Yield Net interest income/yield $ 173,135 0.87% $ 174,436 0.96% $ 157,647 0.94% $ 140,274 0.90% $ 125,807 0.88% Net effects of consolidated trusts (7,669) 0.03% (6,757) 0.04% (6,236) 0.04% $ (4,302) 0.03% $ (3,078) 0.01% Expense related to undesignated financial derivatives (5,095) -0.03% (11,685) -0.07% (10,261) -0.07% (11,480) -0.07% (5,649) -0.04% Amortization of premiums/discounts on assets consolidated at fair value 398 0.00% 417 0.01% 1,191 0.01% 610 0.00% 2,300 0.02% Amortization of losses due to terminations or net settlements on financial derivatives and hedging activities (68) 0.00% (275) 0.00% (1,038) -0.01% (2,030) -0.02% (1,952) -0.02% Fair Value Changes on fair value hedge relationships 7,907 0.04% (4,941) -0.03% 0 0.00% 0 0.00% 0 0.00% Net Effective Spread $ 168,608 0.91% $ 151,195 0.91% $ 141,303 0.91% $ 123,072 0.84% $ 117,428 0.85% 24
FARMER MAC Resources Footnote 1: USDA Economic Research Service year end 2018 balance sheet as of September 9, 2019. Footnote 2: Farmer’s Mac’s total excludes loan purchases, LTSPCs, and AgVantage business with rural utilities customers. Market share represents Farmer Mac’s percentage of only Farm Sector Real Estate Debt outstanding. Footnote 3: Eligible ag real estate mortgage market structure shown includes the forecast for outstanding unpaid principal balance of first lien ag mortgage assets as of December 31, 2018 Footnote 4: USDA, Economic Research Service forecast for remaining non-bank lenders for year-end 2018 on a prorated basis. Footnote 5: USDA, National Agricultural Statistics Service (as of August 2015). Historic values are not necessarily predictive of future results or outcomes. Footnote 6: FDIC Call Report Data & Farm Credit Funding Corp Annual Information Statements – Non-accrual real estate loans and accruing loans that are 90 days or more past due made by commercial and Farm Credit System banks (as of June 2019). Footnote 7: 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 with at least one missed payment, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan. Footnote 8: Board of Governors of the Federal Reserve System charge-off rates - https://www.federalreserve.gov/releases/chargeoff/ Footnote 9: Banks’ charge-off rate is a percentage of agricultural loan assets. Footnote 10: Farm Credit Banks Funding Corporation Annual Information Statements; Farm Credit System’s charge-off rate is the percentage of total loans and guarantees Footnote 11: Farmer Mac’s charge-off rate is the percentage of total loans and guarantees. Footnote 12: USDA, Economic Research Service Global Drivers of Agricultural Demand and Supply, September 2014. Footnote 13: Food and Agriculture Organization of the United Nations, “World Agriculture Towards 2030/2050,” June 2012 25