Farmer Mac Reports Third Quarter 2024 Results
- Outstanding Business Volume of $28.5 Billion -
WASHINGTON, Nov. 4, 2024 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation ((Farmer Mac, NYSE:AGM), the nation's secondary market provider that increases the accessibility of financing for American agriculture and rural infrastructure, today announced its results for the fiscal quarter ended September 30, 2024.
"Farmer Mac delivered another solid quarter, demonstrating yet again the benefits of our successful efforts to continue to diversify our revenue streams, taking advantage of our strong capital base and uninterrupted access to low-cost capital," said President and Chief Executive Officer, Brad Nordholm. "Growth across our loan portfolio into newer lines of business and higher spread businesses continues to pay dividends for us through changing market cycles. Proactive management of our balance sheet remains a core focus, enhancing our ability to accelerate opportunities to better serve American agriculture and rural infrastructure markets and deliver value to our stockholders."
Third Quarter 2024 Highlights
Provided $2.0 billion in liquidity and lending capacity to lenders serving rural America
Net interest income was $86.8 million, compared to $87.6 million in third quarter 2023
Net effective spread1 improved $2.0 million from the prior-year period to $85.4 million
Net income attributable to common stockholders was $42.3 million
Core earnings1 was $44.9 million, or $4.10 per diluted common share
Maintained strong capital position with total core capital of $1.5 billion, exceeding statutory requirement by 66% and a Tier 1 Capital Ratio of 14.2% as of September 30, 2024
As of September 30, 2024, Farmer Mac had 309 days of liquidity
$ in thousands, except per share amounts
Quarter Ended
September 30, 2024
June 30, 2024
September 30, 2023
Sequential % Change
YOY % Change
Net Change in
Business Volume
$(290,036)
$(88,891)
$914,959
N/A
N/A
Net Interest Income (GAAP)
$86,791
$87,340
$87,643
(1) %
(1) %
Net Effective Spread
(Non-GAAP)
$85,396
$83,596
$83,424
2 %
2 %
Diluted EPS (GAAP)
$3.86
$3.68
$4.69
5 %
(18) %
Core EPS (Non-GAAP)
$4.10
$3.63
$4.13
13 %
(1) %
1 Non-GAAP Measure
Earnings Conference Call Information
The conference call to discuss Farmer Mac's third quarter 2024 financial results will be held beginning at 4:30 p.m. eastern time on Monday, November 4, 2024, and can be accessed by telephone or live webcast as follows:
Telephone (Domestic): (800) 836-8184Telephone (International): (646) 357-8785Webcast: 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 third quarter 2024 is in Farmer Mac's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, filed today with the SEC.
Use of Non-GAAP Measures
In the accompanying analysis of its financial information, Farmer Mac uses "non-GAAP measures," which are measures of financial performance that are not presented in accordance with GAAP. Specifically, 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
The main difference between core earnings and core earnings per share (non-GAAP measures) and net income attributable to common stockholders and earnings per common share (GAAP measures) is that those non-GAAP measures exclude 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. Another difference is that these two non-GAAP measures exclude specified infrequent or unusual transactions that we believe 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, in third quarter 2024, we excluded the loss on the retirement of the Series C Preferred Stock from core earnings and core earnings per share.
Net Effective Spread
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. As further explained below, net effective spread differs from net interest income and net interest yield by excluding certain items from net interest income and net interest yield and including certain other items that net interest income and net interest yield do not contain.
Farmer Mac excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management's view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac's core earnings. Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge accounting relationships because they are not expected to have an economic effect on Farmer Mac's financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity.
Net effective spread also differs from net interest income and net interest yield because it includes 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"). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in "(Losses)/gains on financial derivatives" on the consolidated statements of operations. However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac's calculation of net effective spread.
Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship.
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, 2023, filed February 23, 2024 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, 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 agricultural or rural infrastructure 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 infrastructure indebtedness;
the effect of economic conditions stemming from disruptive global events or otherwise on agricultural mortgage or rural infrastructure lending, borrower repayment capacity, or collateral values, including inflation, fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products and foreign currency exchange rates, supply chain disruptions, increases in input costs, labor availability, 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 effects of the Federal Reserve's efforts to achieve monetary policy normalization to respond to inflation and employment levels; and
other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather, flooding and drought, climate change, or fluctuations in agricultural real estate values.
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, 2023, as filed with the SEC on February 23, 2024. 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 driven by its mission to increase the accessibility of financing for American agriculture and rural infrastructure. As the nation's premier secondary market for agricultural credit, we provide financial solutions to a broad spectrum of customers supporting rural America, including agricultural lenders, agribusinesses, and rural electric cooperatives. We are uniquely positioned to facilitate competitive access to financing that fuels growth, innovation, and prosperity in America's rural and agricultural communities. Additional information about Farmer Mac (including the Annual Report on Form 10-K referenced above) is available on our website at www.farmermac.com.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
As of
September 30, 2024
December 31, 2023
(in thousands)
Assets:
Cash and cash equivalents
$ 842,056
$ 888,707
Investment securities:
Available-for-sale, at fair value (amortized cost of $5,941,321 and $5,060,135, respectively)
5,877,936
4,918,931
Held-to-maturity, at amortized cost
9,270
53,756
Other investments
8,587
6,817
Total Investment Securities
5,895,793
4,979,504
Farmer Mac Guaranteed Securities:
Available-for-sale, at fair value (amortized cost of $5,939,268 and $5,825,433, respectively)
5,761,691
5,532,479
Held-to-maturity, at amortized cost
2,961,071
4,213,069
Total Farmer Mac Guaranteed Securities
8,722,762
9,745,548
USDA Securities:
Trading, at fair value
842
1,241
Held-to-maturity, at amortized cost
2,343,873
2,354,171
Total USDA Securities
2,344,715
2,355,412
Loans:
Loans held for investment, at amortized cost
10,668,844
9,623,119
Loans held for investment in consolidated trusts, at amortized cost
1,718,440
1,432,261
Allowance for losses
(19,951)
(16,031)
Total loans, net of allowance
12,367,333
11,039,349
Financial derivatives, at fair value
49,197
37,478
Accrued interest receivable (includes $14,781 and $16,764, respectively, related to consolidated trusts)
253,102
287,128
Guarantee and commitment fees receivable
46,077
49,832
Deferred tax asset, net
—
8,470
Prepaid expenses and other assets
94,186
132,954
Total Assets
$ 30,615,221
$ 29,524,382
Liabilities and Equity:
Liabilities:
Notes payable
$ 27,129,456
$ 26,336,542
Debt securities of consolidated trusts held by third parties
1,616,513
1,351,069
Financial derivatives, at fair value
64,351
117,131
Accrued interest payable (includes $8,236 and $9,407, respectively, related to consolidated trusts)
214,644
181,841
Guarantee and commitment obligation
43,939
47,563
Accounts payable and accrued expenses
81,697
76,662
Deferred tax liability, net
754
—
Reserve for losses
1,523
1,711
Total Liabilities
29,152,877
28,112,519
Commitments and Contingencies
Equity:
Preferred stock:
Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding as of December 31, 2023 (redemption value $75,000,000)
—
73,382
Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding
96,659
96,659
Series E, par value $25 per share, 3,180,000 shares authorized, issued and outstanding
77,003
77,003
Series F, par value $25 per share, 4,800,000 shares authorized, issued and outstanding
116,160
116,160
Series G, par value $25 per share, 5,000,000 shares authorized, issued and outstanding
121,327
121,327
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, 9,354,301 shares and 9,310,872 shares outstanding, respectively
9,354
9,311
Additional paid-in capital
135,225
132,919
Accumulated other comprehensive loss, net of tax
(2,554)
(40,145)
Retained earnings
907,639
823,716
Total Equity
1,462,344
1,411,863
Total Liabilities and Equity
$ 30,615,221
$ 29,524,382
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
(in thousands, except per share amounts)
Interest income:
Investments and cash equivalents
$ 88,879
$ 79,947
$ 258,341
$ 209,429
Farmer Mac Guaranteed Securities and USDA Securities
156,602
161,351
489,478
442,649
Loans
162,247
140,513
459,932
388,837
Total interest income
407,728
381,811
1,207,751
1,040,915
Total interest expense
320,937
294,168
947,252
795,537
Net interest income
86,791
87,643
260,499
245,378
(Provision for)/release of losses
(3,428)
136
(7,806)
(1,484)
Net interest income after (provision for)/release of losses
83,363
87,779
252,693
243,894
Non-interest income/(expense):
Guarantee and commitment fees
4,015
5,520
11,729
12,942
(Losses)/gains on financial derivatives
(1,934)
2,671
(1,654)
4,763
Losses on sale of mortgage loans
—
—
(1,147)
—
Gains on sale of available-for-sale investment securities
—
—
1,052
—
Release of/(provision for) reserve for losses
170
45
188
(227)
Other income
1,418
1,269
3,341
3,253
Non-interest income
3,669
9,505
13,509
20,731
Operating expenses:
Compensation and employee benefits
15,237
14,103
48,334
43,391
General and administrative
8,625
9,100
25,784
26,047
Regulatory fees
725
831
2,175
2,497
Real estate owned operating costs, net
196
—
196
—
Operating expenses
24,783
24,034
76,489
71,935
Income before income taxes
62,249
73,250
189,713
192,690
Income tax expense
12,421
15,113
39,034
40,306
Net income
49,828
58,137
150,679
152,384
Preferred stock dividends
(5,897)
(6,792)
(19,480)
(20,374)
Loss on retirement of preferred stock
(1,619)
—
(1,619)
—
Net income attributable to common stockholders
$ 42,312
$ 51,345
$ 129,580
$ 132,010
Earnings per common share:
Basic earnings per common share
$ 3.89
$ 4.74
$ 11.93
$ 12.20
Diluted earnings per common share
$ 3.86
$ 4.69
$ 11.82
$ 12.08
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
September 30, 2024
June 30, 2024
September 30, 2023
(in thousands, except per share amounts)
Net income attributable to common stockholders
$ 42,312
$ 40,313
$ 51,345
Less reconciling items:
(Losses)/gains on undesignated financial derivatives due to fair valuechanges
(1,064)
(359)
2,921
Gains on hedging activities due to fair value changes
205
2,604
3,210
Unrealized gains/(losses) on trading assets
99
(87)
1,714
Net effects of amortization of premiums/discounts and deferred gainson assets consolidated at fair value
27
26
29
Net effects of terminations or net settlements on financial derivatives
(503)
(1,505)
(79)
Issuance costs on the retirement of preferred stock
(1,619)
—
—
Income tax effect related to reconciling items
260
(143)
(1,638)
Sub-total
(2,595)
536
6,157
Core earnings
$ 44,907
$ 39,777
$ 45,188
Composition of Core Earnings:
Revenues:
Net effective spread(1)
$ 85,396
$ 83,596
$ 83,424
Guarantee and commitment fees(2)
4,997
5,256
4,828
Gain on sale of investment securities (GAAP)
—
1,052
—
Loss on sale of mortgage loan (GAAP)
—
(1,147)
—
Other(3)
1,133
481
1,056
Total revenues
91,526
89,238
89,308
Credit related expense (GAAP):
Provision for/(release of) losses
3,258
6,230
(181)
REO operating expenses
196
—
—
Total credit related expense
3,454
6,230
(181)
Operating expenses (GAAP):
Compensation and employee benefits
15,237
14,840
14,103
General and administrative
8,625
8,904
9,100
Regulatory fees
725
725
831
Total operating expenses
24,587
