farmer mac programs update agassist … mac farm credit trends 0 50 100 150 200 250 300 350 400) s...
TRANSCRIPT
Farmer Mac Programs Update
AgAssist
Restructuring for Success?
April 14, 2016
FARMER MAC
Grain prices fell in 2015 due to record plantings/yields; livestock also under pressure
• U.S. agricultural product use increased 6% in 2015; however, ending stocks also increased due to record
grain production
• Exports decreased 7%, driven by a stronger dollar and greater competition in overseas markets
Farm income declined 38% in 2015
• At $56 billion, 2015 projected farm income falls below the 10-year average of $83 billion
• Livestock profitability diminished in 2015 on lower prices
• Dairy prices remain pressured as a result of increased production and lower overseas demand
Average inflation-adjusted U.S. agricultural real estate values decreased 3% in 2015
• Corn belt farmland values down between 4% and 5% 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 into 2016
Land sales transactions have slowed with lower income and declining land values
• However, demographic trend (average age of U.S. farmer >60 years) provides support of primary
transaction volume
Agriculture is Always Changing Isn’t It?
2
(1) Source: USDA, National Agricultural Statistics Service, Nominal (current dollars) (as of February 2016).(2) Source: USDA, Economic Research Service, Nominal (current dollars) (as of February 2016).(3) Source: Federal Reserve Bank of Chicago Seventh District, Ag Credit Conditions Survey AgLetter (as of February 2016).
(3)
FARMER MAC
Farm Credit Trends
0
50
100
150
200
250
300
350
400
Deb
t O
uts
tand
ing (
20
09
=1
00
)B
illio
ns
Farm Debt Outstanding (adjusted for inflation)
Real Estate Production
3
Farmer Mac Created
US Farm Debt Crisis
FARMER MAC
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
Outstanding business volume
reaches $15 billion
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
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1987
1996
1998
1999
2008
2015
FARMER MAC
Lender Benefits
• Farmer Mac is not a lender and does not deal directly
with borrowers
• As a secondary market, Farmer Mac helps rural
lenders address:– Interest rate risk
–Lending limit constraints
–Loan credit risk
–Portfolio concentration risk
–Lender liquidity
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FARMER MAC
Lending Groups (Sellers)
• Commercial Banks
– National, regional and community banks
– $77 billion ag real estate loans outstanding
• Farm Credit System (FCS) Institutions
– 74 individual lending cooperatives
– $93 billion ag real estate loans outstanding
• Insurance Companies
• Credit Unions
• Rural Utility Cooperative Lenders
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FARMER MAC
Seller Locations
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FARMER MAC
Business Volume
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$4.4 $4.8 $5.2 $5.4 $5.8
$5.1$5.6
$6.0 $6.4$6.7
$1.5$1.6
$1.7$1.8
$1.9
$0.9
$1.0$1.1
$1.0
$1.5
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
2011 2012 2013 2014 2015
$ I
N B
ILLIO
NS
Farm & Ranch Institutional Credit USDA Guarantees Rural Utilities
$14.6
(1) Includes on- and off-balance sheet outstanding business volume.
$13.0$14.0
$15.9
(1)
$11.9
Farmer Mac
Programs
FARMER MAC
Farmer Mac Programs
Farm and Ranch Loan Purchase Program• Farmer Mac underwritten and third-party servicing
Farmer Mac 2 Loan Purchase Program• Purchase of guaranteed portions of USDA loans
– Farm Service Agency and Rural Development
Purchase Commitment Program• Credit Protection
• Keep loans in portfolio
• Receive commitment from Farmer Mac that we will purchase qualified loans
• Pay Farmer Mac 50 bps annually (monthly payments) land loans, more if facility loans
AgVantage – Wholesale Financing• Lender issues collateralized debt which Farmer Mac purchases at a
competitive rate
• Lender uses ag loans as collateral
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FARMER MAC
Farm & Ranch Loan
Purchase Program
FARMER MAC
Farmer Mac Programs
Farm and Ranch Loan Purchase Program• Farmer Mac underwritten and third-party servicing
• Farmers or Non-Farmers
• Maximum loan size 12.3 million, 50 million in multiple loans to same
customer
• Competitive long term fixed rates and terms, full suite of products
• Maintain the customer relationship and earn field servicing fees
• Enhance return on equity, gain liquidity, and eliminate credit risk to
your institution
• Revolving LOC, AgEquity
• Restructuring Program, AgAssist
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FARMER MAC
Underwriting Grid
Fast Track Full UW Standard Full UW Choice
Pricing
Max Loan Size $1,000k $12.3/$50m $12.3/$50m
Loan-to-Value Ratio 55% 60% 60%
Debt to Asset Ratio 40% 50% 40%
Current Ratio 1:1 1.25:1 1.50:1
Debt Service Coverage 1:1 1.25:1 1.50:1
Credit Scores 720 680 680
Tax Return 2-Yrs 3-Yrs 3-Yrs
(More detail: http://www.efarmermac.com/Resource/Index.aspx)
FARMER MAC
AgAssist – New Option
Underwriting
Option
Total
Debt
Coverage
Ratio
Current
Ratio
Debt to
Asset
Ratio
Maximum Loan Amount Loan to ValueCredit
Score
AgAssist 1.10 1.00 60% 1000 acres; $50.0M 1000 acres; $12.3M
45% FAMC 85% CLTV
680
• Standard pricing
• Facility loans eligible on a case by case basis
• Eligible for cash-out
• 2nd mortgage must be guaranteed by a Federal or State agency
• AgAssist max loan size flexes with guaranteed loan amount
• Guaranteed loan required to be in a 2nd lien position
• Guaranteed loan ≥ 25% of combined 1st & 2nd loan amount
FARMER MAC
FARMER MAC
Program Overview
Farm Service Agency
• Farm Ownership
• Operating-Term
• Conservation
Rural Development
• Business & Industry
• Community Facility
• Water & Environmental
FARMER MAC
No Farmer Mac underwriting analysis
Lender receives fee income over life of the loan
Transaction is transparent to the applicant
No selling group requirements by Farmer Mac
No prepayment penalties
No maximum or minimum loan size
New loans and seasoned loans allowed
Streamlined Process
FARMER MAC
Sale Documents
Loan Note Guarantee
Assignment of Guarantee
Promissory Note
Other Documents
FARMER MAC
Purchase Commitment
Program
FARMER MAC
Farmer Mac Programs
Purchase Commitments – LTSPC
How it Works:
Lender identifies the loans for which it is seeking credit protection
and specifies what degree of protection it is seeking (full, partial,
etc.)
Farmer Mac reviews the loans and approves them according to its
standard credit requirements
Once approved, the lender pays an annual commitment fee for the
protection, retains the loans on its own balance sheet and continues
to earn the interest
If the loan defaults at 90 days, Farmer Mac purchases the loan at par
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FARMER MAC
Farmer Mac Programs
Purchase Commitments – LTSPC
Key Features:
Lender eliminates all, or part, of the credit risk on the identified
loans
With full credit protection, the risk weighting on the loans can drop
from 100% to as little as 20%, thereby improving the lender’s equity
position (discuss this with your regulator)
Lender retains the loans on its balance sheet, earns the interest on
these loans, and maintains the customer relationship
Very flexible way to manage credit risk, while not having to “say no”
to a customer – you can continue to grow with that customer
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FARMER MAC
Farmer Mac Programs
Purchase Commitments – LTSPC
Cost ?
–Once approved, the lender pays an annual commitment fee for the
protection, retains the loans on its own balance sheet and
continues to earn the interest (50 bps annually for a farmland loan)
–Processing, storage & marketing loans have negotiated pricing
based on risk profile
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FARMER MAC
Purchase Commitment - LTSPC
Program Benefits
Reduce credit risk for loans in the Long-Term Standby
Purchase Commitment (LTSPC) pool• Manage commodity, geographic and borrower concentrations
Improve financial results• Improve borrower hold limit calculations
• Repurchase sold participations, improving related profits
• Reduce reserve requirements for potential loan losses
• Free up capital through risk-weighting loans in pool at 20% versus 100% for portfolio loans
