Press release·08/05/2024 22:35:05

Farmer Mac’s Strong Financial Performance and Outlook

Farmer Mac, a vital player in the agricultural and rural infrastructure financing landscape, has reported another quarter of solid financial results. The company’s mission is to increase the accessibility of financing for American agriculture and rural infrastructure, serving as a secondary market provider and offering a range of financial solutions to support rural America.

Net Income and Core Earnings

Farmer Mac’s net income attributable to common stockholders for the second quarter of 2024 was $40.3 million, a slight decrease from the previous quarter’s $47.0 million. This was primarily due to a higher provision for credit losses and a decrease in the fair value of undesignated financial derivatives, partially offset by lower operating expenses.

Farmer Mac uses a non-GAAP measure called “core earnings” to assess its financial performance. Core earnings exclude the effects of fair value fluctuations and certain infrequent or unusual transactions. For the second quarter of 2024, Farmer Mac’s core earnings were $39.8 million, down from $42.2 million in the same period last year, mainly due to an increase in the provision for credit losses.

Net Interest Income and Net Effective Spread

Farmer Mac’s net interest income increased by $1.0 million sequentially and $8.7 million year-over-year, primarily due to a shift in the composition of new business volume towards higher-yielding loans and changes in the fair value of designated financial derivatives. The net effective spread, a non-GAAP measure that reflects the net spread Farmer Mac earns between its interest-earning assets and related funding costs, increased by $0.6 million sequentially and $1.8 million year-over-year, also driven by the shift in new business volume.

Business Volume

Farmer Mac’s outstanding business volume was $28.8 billion as of June 30, 2024, a net decrease of $88.9 million from the previous quarter. This decrease was primarily attributable to a net decline in the Agricultural Finance line of business, partially offset by a net increase in the Rural Infrastructure Finance line of business.

Capital

Farmer Mac’s core capital, which is the capital required to be held based on the company’s statutory charter, was $1.51 billion as of June 30, 2024, up from $1.45 billion at the end of 2023. The company’s capital in excess of the minimum capital level required also increased, from $589.4 million to $626.4 million, primarily due to an increase in retained earnings.

Credit Quality

Farmer Mac’s credit quality metrics remained strong, with a charge-off of $3.9 million on a single permanent planting loan that is in bankruptcy. The company’s on-balance sheet substandard assets decreased by $6.2 million during the quarter, primarily driven by credit upgrades in permanent plantings, partially offset by downgrades in other sectors. The 90-day delinquency rate for the Agricultural Finance mortgage loan portfolio decreased from 0.69% to 0.54% during the quarter, with the top ten borrower exposures over 90 days delinquent representing over half of the aggregate 90-day delinquencies.

Outlook

Farmer Mac’s business outlook remains positive, with several factors supporting continued growth and profitability:

Products and Portfolio: Farmer Mac’s diversified business model and the resilience of the agriculture and rural infrastructure sectors have enabled the company to increase outstanding business volume and net effective spread despite rising interest rates and economic volatility. Opportunities for future growth include Farmer Mac’s role in addressing liquidity, capital, and return-on-equity challenges faced by agricultural and rural infrastructure lenders, as well as the financing needs arising from industry consolidation and vertical integration.

Operations: Farmer Mac’s funding strategies, which do not rely on deposits, allow the company to navigate beyond short-term liquidity disruptions and take advantage of increased opportunities in a competitive lending environment. The company’s fundamental asset-liability management approach and natural business hedges help mitigate the effects of interest rate volatility on earnings.

Agricultural Finance Industry: While farm incomes are expected to decline in 2023 and 2024 due to lower commodity prices and higher expenses, the overall financial health of the sector remains strong. Farmland values have continued to appreciate, albeit at a slower pace, and Farmer Mac’s loan collateral is well-positioned to withstand reasonably foreseeable volatility in farmland values.

Rural Infrastructure Finance Industry: Growth in renewable energy generation and deployment of energy storage technologies, as well as increased investments in rural telecommunications infrastructure, present significant opportunities for Farmer Mac to deepen relationships with existing customers and expand its customer base.

Legislative and Regulatory Outlook: Farmer Mac continues to monitor potential legislative and regulatory changes, including the upcoming farm bill reauthorization and a proposed rulemaking by the Farm Credit Administration to review Farmer Mac’s regulatory capital framework.

Conclusion

Farmer Mac’s strong financial performance, diversified business model, and positive industry outlook position the company well for continued growth and success in serving the financing needs of American agriculture and rural infrastructure. The company’s focus on risk management, operational efficiency, and strategic investments in technology and infrastructure should enable it to capitalize on emerging opportunities and deliver value to its stakeholders.