Federal Agricultural Mortgage Corporation (Farmer Mac) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 23, 2024. Financial statements are consolidated. Farmer Mac is a federally chartered, stockholder-owned secondary-market provider for agricultural and rural-infrastructure credit. Its obligations are not guaranteed by the full faith and credit of the U.S. government.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net income attributable to common stockholders | $172.8 million | $151.0 million |
| Core earnings (non-GAAP) | $171.2 million | $124.3 million |
| Basic / diluted EPS | $15.97 / $15.81 | $14.00 / $13.87 |
| Net interest income | $327.5 million; 1.15% yield | $270.9 million; 1.04% yield |
| Net effective spread (non-GAAP) | $327.0 million; 1.18% | $255.5 million; 1.02% |
| Operating expenses | $97.1 million | $81.8 million |
| Net cash from operating activities | $375.8 million | $809.3 million |
Net income attributable to common stockholders rose 14.5%; core earnings increased 37.7%. Management attributed earnings growth principally to higher net interest income and net effective spread, supported by portfolio growth and repricing of investments. Operating expenses rose about 19%, reflecting headcount, technology, and consulting costs. Investing activities used $2.0 billion of cash, while financing activities provided $1.6 billion; cash and cash equivalents ended the year at $888.7 million.
Outstanding business volume grew 9.8% to $28.5 billion, comprising $20.5 billion in Agricultural Finance and $8.0 billion in Rural Infrastructure Finance. Total assets were $29.5 billion, total liabilities $28.1 billion, and equity $1.4 billion. Notes payable were $26.3 billion carrying value; principal outstanding was approximately $26.6 billion.
Liquidity assets totaled $5.86 billion, and reported liquidity was 319 days at year-end against a 90-day regulatory minimum. Tier 1 capital ratio was 15.4%, versus 14.9% in 2022; core capital exceeded the $862.6 million minimum requirement by $589.4 million. The allowance and reserve for losses totaled $18.3 million. Common dividends were $1.10 per share quarterly in 2023; in February 2024 the board declared a $1.40 quarterly dividend.
Changes, outlook, and principal risks
- Rural Infrastructure Finance volume increased about $1.4 billion, led by Rural Utilities and Renewable Energy; Agricultural Finance increased about $1.2 billion. Renewable Energy volume more than doubled year over year, though from a smaller base.
- Agricultural credit indicators improved: direct-exposure Agricultural Finance loans at least 90 days delinquent were $34.7 million, or 0.31% of the portfolio, versus $43.5 million, or 0.41%, in 2022. Substandard Agricultural Finance assets declined to $186.0 million from $209.4 million. One $29.4 million telecommunications loan was substandard; Rural Infrastructure loans had no reported delinquencies.
- Management expects continued opportunities in wholesale funding, rural broadband and telecommunications, and renewable energy, while noting that elevated interest rates may dampen Farm & Ranch loan demand and influence repayments. Farm income was forecast by USDA to decline in 2024, and management anticipates higher operating expenses over the next several years as it invests in staffing, technology, servicing, and infrastructure. No specific earnings or revenue guidance was provided.
- Key exposures include borrower and sector concentration, weather and climate impacts on farm income and collateral, interest-rate and refinancing risk, capital-market access, and counterparty risk. Three counterparties issued approximately 90% of AgVantage securities; $9.0 billion of the $10.0 billion outstanding was issued by three counterparties. Rural Infrastructure business was also concentrated, with two institutions representing nearly all segment volume.
- Farmer Mac’s $4.1 billion of off-balance-sheet guarantees and LTSPCs represents maximum exposure before collateral and recoveries, not expected loss. The company reported $5.9 billion of cash and investment securities available as a funding source. Its $1.5 billion Treasury borrowing authority, usable only for guarantee obligations under specified conditions, has never been used; the government does not guarantee Farmer Mac securities.
- AgVantage fair value is a critical estimate using significant unobservable discount-rate inputs. Level 3 fair-value assets totaled $5.6 billion; the auditor identified valuation of AgVantage securities as a critical audit matter. The FCA’s proposed review of Farmer Mac’s regulatory capital framework was anticipated, but not finalized, in the filing.
Most important facts for investors to verify
- Reconcile GAAP earnings with management’s non-GAAP core earnings and net effective spread, including fair-value and derivative adjustments.
- Review AgVantage counterparty concentration, collateralization terms, maturity schedule, valuation assumptions, and sensitivity to discount rates.
- Assess the effect of projected farm-income declines, commodity and export volatility, weather, and farmland values on borrower repayment and collateral.
- Monitor debt-market access, refinancing costs, upcoming maturities, liquidity coverage, and interest-rate sensitivity.
- Track Rural Infrastructure concentration and the performance of the substandard telecommunications exposure, as well as implementation costs for servicing and technology initiatives.