Federal Agricultural Mortgage Corporation (Farmer Mac) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 24, 2023. This is an annual report, not a standalone fourth-quarter filing. Farmer Mac is a federally chartered, stockholder-owned secondary-market provider for agricultural and rural infrastructure loans. Its primary revenue sources are net interest income and guarantee and commitment fees. Its obligations are not guaranteed by the U.S. government.
Financial performance and position
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Net income attributable to common stockholders | $151.0 million | $111.4 million | Up 35.5% |
| Core earnings (non-GAAP) | $124.3 million | $113.6 million | Up 9.5%; diluted core EPS was $11.42 versus $10.47 |
| Diluted GAAP EPS | $13.87 | $10.27 | GAAP earnings included substantial favorable derivative fair-value effects |
| Net interest income / yield | $270.9 million / 1.04% | $222.0 million / 0.94% | Up $49.0 million; higher volume, asset yields, and hedge effects contributed |
| Net effective spread (non-GAAP) | $255.5 million / 1.02% | $220.7 million / 0.98% | Up $34.9 million |
| Operating expenses | $82.6 million | $73.4 million | Up 12.5%, including personnel, technology, and growth-related spending |
| Total assets / equity | $27.33 billion / $1.27 billion | $25.12 billion / $1.21 billion | Assets increased 9%; equity increased 5% |
| Notes payable | $24.47 billion | $22.71 billion | Up $1.76 billion; $8.03 billion due within one year |
| Operating cash flow | $809.3 million | $436.4 million | Investing cash outflow was $3.04 billion; financing cash inflow was $2.19 billion |
| Outstanding business volume | $25.92 billion | $23.61 billion | Up $2.31 billion, or about 9.8% |
Liquidity and capital: Cash and cash equivalents plus investment securities totaled $5.49 billion. Farmer Mac reported 324 days of liquidity at year-end (2022 monthly average: 368 days; regulatory minimum: 90 days). Core capital was $1.32 billion, $516.9 million above the statutory minimum; the Tier 1 capital ratio was 14.9%. The company was classified at the highest regulatory capital compliance level.
Credit quality: Agricultural Finance 90-day delinquencies were $43.5 million, or 0.41% of the directly exposed mortgage portfolio, down from 0.48% a year earlier. Substandard Agricultural Finance mortgage assets were $209.4 million, or 2.0%, versus $246.7 million, or 2.5%. The allowance for losses and reserve for losses totaled $17.2 million; 2022 credit-related expense was $1.6 million, including REO costs. Rural Infrastructure Finance reported no delinquencies.
Material changes versus 2021
- Business volume grew in both Agricultural Finance and Rural Infrastructure Finance. Renewable Energy volume rose to $230.2 million from $86.8 million, while Farm & Ranch remained the largest segment.
- Higher market rates lifted returns on short-term investments and helped increase net interest income and spread. They also contributed to significant unrealized valuation losses: accumulated other comprehensive income moved from positive $3.9 million to negative $50.8 million.
- Available-for-sale AgVantage securities had a $7.60 billion fair value against $8.01 billion amortized cost at year-end. Their valuation uses significant unobservable discount-rate assumptions and was identified as a critical audit matter.
- Net income benefited from $13.5 million of gains on undesignated derivative fair-value changes and $15.8 million of net effects from derivative terminations or settlements, among other reconciling items. Core earnings exclude specified fair-value fluctuations and unusual items; it is a non-GAAP measure.
- The 2021 $6.5 million gain on a structured loan securitization did not recur. Farmer Mac completed another structured securitization in 2022, with approximately $297.7 million of loans transferred into a consolidated trust.
- Operating expenses increased to $82.6 million from $73.4 million, primarily reflecting compensation, software and IT, and strategic initiatives.
Outlook, risks, and unusual items
- Management sees opportunities for continued portfolio growth, including in broadband, telecommunications, renewable energy, and agricultural supply-chain financing. It expects operating expenses to continue rising over the next several years as it invests in staffing, technology, servicing, and infrastructure.
- Management cited favorable 2022 farm income and credit trends but noted USDA projections for net cash farm income to decline 21% in 2023, to $150.6 billion, as commodity prices moderate and expenses remain elevated. Management nevertheless expects factors to be generally supportive of continued net portfolio growth into 2023; no specific earnings guidance was provided.
- Key exposures include inflation and borrower input costs, interest-rate and refinancing risk, commodity and export volatility, supply-chain disruption, drought and severe weather, collateral values, and possible recession. Faster rate increases can affect funding costs, prepayments, fair values, and liquidity.
- AgVantage counterparty concentration is material: three counterparties issued approximately $8.0 billion of the $9.0 billion outstanding at year-end. Two institutions accounted for nearly all Rural Infrastructure Finance business volume, and ten institutions generated about 71% of 2022 Agricultural Finance loan purchase volume.
- Off-balance-sheet LTSPCs and guaranteed securities totaled $3.93 billion. Farmer Mac also disclosed $5.49 billion of cash and investment securities as a funding source and access to up to $1.5 billion of U.S. Treasury borrowing solely for guarantee obligations, subject to statutory conditions; this authority has never been used. The government does not guarantee Farmer Mac’s debt, securities, or stock.
- LIBOR transition remained relevant: at year-end, $2.9 billion of floating-rate assets, $0.2 billion of floating-rate debt, and $10.5 billion notional of swaps reset on LIBOR. The Series C preferred stock is scheduled to change to a LIBOR-linked floating rate after July 17, 2024.
- The FCA approved an advance notice of proposed rulemaking in January 2023 to review Farmer Mac’s capital framework. The 2023 farm bill, then due for reauthorization, may also affect the charter or business.
- Farmer Mac revised prior-period financial statements for an immaterial error involving accrued interest on cleared derivatives. The auditor issued unqualified opinions on the financial statements and internal control; management and the auditor concluded controls were effective. No legal proceedings were reported.
Most important facts for investors to verify
- Whether growth in net interest income and core earnings is sustainable as funding costs, asset yields, and portfolio mix change; distinguish non-GAAP core earnings from GAAP net income.
- The valuation sensitivity and credit condition of AgVantage securities, including exposure to the three largest counterparties and the unobservable discount-rate assumptions.
- Whether agricultural income, borrower repayment capacity, delinquencies, and collateral values hold up amid lower projected farm income, high costs, rate changes, and weather risks.
- Upcoming debt maturities and refinancing needs, continued capital-market access, and maintenance of the reported liquidity and regulatory capital buffers.
- Implementation of LIBOR replacements and the effect of the FCA capital-framework review and farm bill reauthorization on capital, products, and growth.