Farmer Mac Reports First Quarter 2024 Results
Farmer Mac reported strong first-quarter 2024 results with outstanding business volume of $28.8 billion. The company provided $1.4 billion in liquidity, saw a 9% increase in net interest income, and achieved 17% growth in net income. Farmer Mac maintained a solid capital position and core earnings grew by 12%. The company's performance reflects its commitment to rural America and stockholder value.
Outstanding business volume of $28.8 billion.
$1.4 billion provided in liquidity to lenders serving rural America.
9% year-over-year growth in net interest income.
17% year-over-year increase in net income attributable to common stockholders.
Core earnings grew by 12% year-over-year.
Net effective spread decreased by 2% from the prior year.
Core EPS declined by 3% from the prior year.
Farmer Mac's reported growth in net income to
A strong capital position with total core capital of
The agricultural financing sector is influenced by factors such as commodity prices, interest rates and government policies. Farmer Mac's strategic efforts to modernize infrastructure and develop new markets are imperative to capitalize on these variables. Given the reported growth in net effective spread of 8
As an entity focused on rural infrastructure development, the current economic initiatives and potential legislative attention on rural growth could further bolster Farmer Mac's market position. The increase in liquidity days to 295 showcases operational flexibility, which is important for coping with market volatility and sustaining credit flow to rural economies.
- Outstanding Business Volume of
"Farmer Mac delivered another quarter of strong earnings resulting from our well-disciplined asset-liability management, development of new markets, and investments to modernize our infrastructure," said President & Chief Executive Officer, Brad Nordholm. "With a strong capital position, a talented team, and a clear strategic vision, we are confident in our ability to continue delivering value to our stockholders and accelerating rural opportunities for American agriculture and rural infrastructure."
First Quarter 2024 Highlights
- Provided
$1.4 billion - Net interest income grew
9% year-over-year to$86.4 million - Net effective spread[1] increased
8% from the prior-year period to$83.0 million - Net income attributable to common stockholders grew
17% year-over-year to$47.0 million - Core earnings1 of
$43.4 million $3.96 12% growth year-over-year - Maintained strong capital position with total core capital of
$1.5 billion 70% and a Tier 1 Capital Ratio of15.5% as of March 31, 2024 - As of March 31, 2024, Farmer Mac had 295 days of liquidity
$ in thousands, except per | Quarter Ended | ||||
March 31, | Dec. 31, 2023 | March 31, | Sequential % | YOY % Change | |
Net Change in Business Volume | N/A | N/A | |||
Net Interest Income (GAAP) | 5 % | 9 % | |||
Net Effective Spread (Non-GAAP) | (2) % | 8 % | |||
Diluted EPS (GAAP) | 15 % | 16 % | |||
Core EPS (Non-GAAP) | (3) % | 11 % | |||
1 Non-GAAP Measure |
Earnings Conference Call Information
The conference call to discuss Farmer Mac's first quarter 2024 financial results will be held beginning at 8:30 a.m. eastern time on Monday, May 6, 2024, and can be accessed by telephone or live webcast as follows:
Telephone (Domestic): (800) 836-8184
Telephone (International): (646) 357-8785
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 first quarter 2024 is in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended March 31, 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.
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 "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
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 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 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 forU.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 | |||
March 31, 2024 | December 31, 2023 | ||
(in thousands) | |||
Assets: | |||
Cash and cash equivalents | $ 745,105 | $ 888,707 | |
Investment securities: | |||
Available-for-sale, at fair value (amortized cost of | 5,007,787 | 4,918,931 | |
Held-to-maturity, at amortized cost | 53,756 | 53,756 | |
Other investments | 6,900 | 6,817 | |
Total Investment Securities | 5,068,443 | 4,979,504 | |
Farmer Mac Guaranteed Securities: | |||
Available-for-sale, at fair value (amortized cost of | 5,466,688 | 5,532,479 | |
Held-to-maturity, at amortized cost | 4,454,932 | 4,213,069 | |
Total Farmer Mac Guaranteed Securities | 9,921,620 | 9,745,548 | |
USDA Securities: | |||
Trading, at fair value | 1,066 | 1,241 | |
Held-to-maturity, at amortized cost | 2,333,027 | 2,354,171 | |
Total USDA Securities | 2,334,093 | 2,355,412 | |
Loans: | |||
Loans held for investment, at amortized cost | 9,837,962 | 9,623,119 | |
Loans held for investment in consolidated trusts, at amortized cost | 1,409,397 | 1,432,261 | |
Allowance for losses | (14,288) | (16,031) | |
Total loans, net of allowance | 11,233,071 | 11,039,349 | |
Financial derivatives, at fair value | 31,433 | 37,478 | |
Accrued interest receivable (includes | 245,202 | 287,128 | |
Guarantee and commitment fees receivable | 48,130 | 49,832 | |
Deferred tax asset, net | — | 8,470 | |
Prepaid expenses and other assets | 145,094 | 132,954 | |
Total Assets | $ 29,772,191 | $ 29,524,382 | |
Liabilities and Equity: | |||
Liabilities: | |||
Notes payable | $ 26,509,011 | $ 26,336,542 | |
Debt securities of consolidated trusts held by third parties | 1,325,289 | 1,351,069 | |
Financial derivatives, at fair value | 128,530 | 117,131 | |
Accrued interest payable (includes | 202,894 | 181,841 | |
Guarantee and commitment obligation | 45,866 | 47,563 | |
Accounts payable and accrued expenses | 74,821 | 76,662 | |
Deferred tax liability, net | 3,795 | — | |
Reserve for losses | 1,642 | 1,711 | |
Total Liabilities | 28,291,848 | 28,112,519 | |
Commitments and Contingencies | |||
Equity: | |||
Preferred stock: | |||
Series C, par value | 73,382 | 73,382 | |
Series D, par value | 96,659 | 96,659 | |
Series E, par value | 77,003 | 77,003 | |
Series F, par value | 116,160 | 116,160 | |
Series G, par value | 121,327 | 121,327 | |
Common stock: | |||
Class A Voting, | 1,031 | 1,031 | |
Class B Voting, | 500 | 500 | |
Class C Non-Voting, outstanding, respectively | 9,338 | 9,311 | |
Additional paid-in capital | 133,576 | 132,919 | |
Accumulated other comprehensive loss, net of tax | (4,118) | (40,145) | |
Retained earnings | 855,485 | 823,716 | |
Total Equity | 1,480,343 | 1,411,863 | |
Total Liabilities and Equity | $ 29,772,191 | $ 29,524,382 | |
FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||
For the Three Months Ended | |||
March 31, 2024 | March 31, 2023 | ||
(in thousands, except per share amounts) | |||
Interest income: | |||
Investments and cash equivalents | $ 84,924 | $ 59,703 | |
Farmer Mac Guaranteed Securities and USDA Securities | 166,813 | 136,537 | |
Loans | 144,580 | 119,032 | |
Total interest income | 396,317 | 315,272 | |
Total interest expense | 309,949 | 236,214 | |
Net interest income | 86,368 | 79,058 | |
Release of/(provision for) losses | 1,801 | (547) | |
Net interest income after release of/(provision for) losses | 88,169 | 78,511 | |
Non-interest income/(expense): | |||
Guarantee and commitment fees | 3,917 | 3,933 | |
Gains on financial derivatives | 2,079 | 399 | |
Release of/(provision for) reserve for losses | 69 | (203) | |
Other income | 1,249 | 1,226 | |
Non-interest income | 7,314 | 5,355 | |
Operating expenses: | |||
Compensation and employee benefits | 18,257 | 15,351 | |
General and administrative | 8,255 | 7,527 | |
Regulatory fees | 725 | 835 | |
Operating expenses | 27,237 | 23,713 | |
Income before income taxes | 68,246 | 60,153 | |
Income tax expense | 14,500 | 13,118 | |
Net income | 53,746 | 47,035 | |
Preferred stock dividends | (6,791) | (6,791) | |
Net income attributable to common stockholders | $ 46,955 | $ 40,244 | |
Earnings per common share: | |||
Basic earnings per common share | $ 4.33 | $ 3.73 | |
Diluted earnings per common share | $ 4.28 | $ 3.69 | |
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 | |||||
March 31, 2024 | December 31, 2023 | March 31, 2023 | |||
(in thousands, except per share amounts) | |||||
Net income attributable to common stockholders | $ 46,955 | $ 40,828 | $ 40,244 | ||
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