Federal Agricultural Mortgage Corporation (Farmer Mac) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 6, 2024. Farmer Mac provides secondary-market financing and liquidity for U.S. agriculture and rural infrastructure. Amounts below are in U.S. dollars; “million” and “billion” are used for readability.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Interest income | $396.3 million | $315.3 million, Q1 2023 |
| Net interest income | $86.4 million; net interest yield 1.15% | $79.1 million; 1.14%, Q1 2023 |
| Net income | $53.7 million; $47.0 million attributable to common stockholders | $47.0 million; $40.2 million, respectively, Q1 2023 |
| Common EPS | Basic $4.33; diluted $4.28 | Basic $3.73; diluted $3.69, Q1 2023 |
| Core earnings (non-GAAP) | $43.4 million; diluted core EPS $3.96 | $38.9 million; diluted core EPS $3.56, Q1 2023 |
| Operating expenses | $27.2 million | $23.7 million, up 15% year over year |
| Cash flows | Operating +$233.3 million; investing −$525.5 million; financing +$148.5 million. Cash ended at $745.1 million. | Operating +$60.6 million; investing −$461.3 million; financing +$404.3 million. Cash ended at $864.6 million, Q1 2023. |
| Balance sheet | Assets $29.77 billion; notes payable $26.51 billion; consolidated-trust debt held by third parties $1.33 billion; equity $1.48 billion | At December 31, 2023: assets $29.52 billion; notes payable $26.34 billion; trust debt $1.35 billion; equity $1.41 billion |
| Capital and liquidity | Core capital $1.484 billion, $612.1 million above the minimum; 295 days of liquidity at quarter-end | Liquidity requirement is at least 90 days; capital was $589.4 million above minimum at year-end 2023 |
Outstanding business volume was $28.85 billion, up $376 million from year-end 2023 and 8.9% year over year. Net effective spread, a non-GAAP measure, was $83.0 million (1.14%), versus $77.2 million (1.15%) in Q1 2023. Management attributes year-over-year earnings growth mainly to higher net interest income and effective spread from business growth, partly offset by higher expenses. The $1.87 million net release in credit-loss allowances and reserves also supported results.
Material changes and credit quality
- Net income attributable to common stockholders rose $6.7 million year over year; core earnings rose $4.5 million. Operating expenses increased $3.5 million, including higher compensation, headcount, stock compensation, software and consulting costs.
- Agricultural Finance substandard assets with direct exposure increased to $255.2 million, or 2.3% of that portfolio, from $186.0 million, or 1.7%, at year-end. Management cited downgrades across several agricultural collateral categories; it reported no significant associated loss provision, citing collateral values.
- Agricultural Finance 90-day delinquencies with direct exposure rose to $76.8 million (0.69%) from $34.7 million (0.31%) at year-end. Management noted first-quarter seasonality and said the rate remained below its approximately 1% 15-year average. The ten largest delinquent borrower exposures represented over half of the total.
- There were no Rural Infrastructure Finance 90-day delinquencies, and no substandard assets in that portfolio at March 31. The allowance release included a $2.0 million Rural Infrastructure release following the restructuring and partial paydown of one telecommunications loan.
- Available-for-sale securities had $163.2 million of unrealized losses at quarter-end. Held-to-maturity USDA securities had fair value of $2.015 billion against amortized cost of $2.333 billion. Management primarily attributed unrealized losses to interest-rate and market-spread changes, and stated it expects recovery; these marks are not equivalent to recognized credit losses.
Outlook, risks and other notable matters
- Management provided no specific earnings or business-volume guidance. It expects continued business opportunities in agriculture, renewable energy, rural utilities and telecommunications, while noting that interest rates, credit spreads, economic conditions and borrower health will affect growth and repayments.
- Management expects operating expenses to continue rising over the next several years as it invests in staff, technology and infrastructure. A securities-trading platform replacement and treasury management system are expected to be completed in 2024.
- Management cited lower farm-income forecasts for 2024, potentially moderating farmland-value growth, commodity and export volatility, severe weather, drought, trade policy, inflation and elevated interest rates as sector risks. It reported no material degradation in rural utilities portfolio performance through March 31.
- Interest-rate exposure remains important: a parallel 100-basis-point increase was estimated to reduce market value of equity by 4.1%, while a 100-basis-point decline was estimated to increase it by 3.9%. These are model-based sensitivities, not forecasts. Management reported a positive 3.6-month duration gap.
- Liquidity depends substantially on continued debt-market access. Management reported steady access in 2024 and believes resources are sufficient for the next 12 months, assuming that access continues. Farmer Mac had not used its statutory authority to borrow up to $1.5 billion from the U.S. Treasury.
- Off-balance-sheet exposures included $3.64 billion of maximum principal under long-term standby purchase commitments and $443.8 million of off-balance-sheet guaranteed securities. These amounts are potential exposures, not expected losses. The filing reported no legal proceedings and effective disclosure controls.
Important facts for investors to verify
- Whether the rise in agricultural delinquencies and substandard assets persists beyond seasonal first-quarter effects, and whether collateral values continue to support current loss estimates.
- How higher operating costs and planned technology investments affect future core earnings and efficiency.
- Whether net effective spread and earnings growth continue as funding costs, interest rates, prepayments and business mix change; compare non-GAAP core measures with GAAP results.
- Continued compliance with capital and liquidity requirements, and ongoing access to debt markets to fund the balance sheet.
- Interest-rate and fair-value sensitivity, including the large unrealized losses on certain securities and the assumptions used to value Level 3 instruments.
- Developments in farm incomes, farmland values, weather, commodity markets, renewable-energy demand and the proposed FCA capital-framework rulemaking.