Press release·11/04/2024 23:48:45

Overview

Farmer Mac is a vital provider of financing and risk management solutions for American agriculture and rural infrastructure. As a secondary market, Farmer Mac helps increase the accessibility of credit for rural communities by offering a range of products to agricultural lenders, agribusinesses, and rural electric cooperatives. Farmer Mac also serves as an investment tool for entities like states, counties, and pension funds by offering competitive returns.

During the third quarter of 2024, Farmer Mac:

• Provided $2.0 billion in liquidity and lending capacity to rural lenders
• Maintained strong liquidity and capital positions well above regulatory requirements
• Redeemed all $75.0 million of its Series C Preferred Stock

Financial Performance

Farmer Mac’s net income attributable to common stockholders was $42.3 million in the third quarter of 2024, a $2.0 million increase from the prior quarter. This was due to a decrease in the provision for credit losses and lower preferred stock dividends, partially offset by a loss on the retirement of the Series C Preferred Stock.

Compared to the third quarter of 2023, net income decreased by $9.0 million, primarily due to decreases in the fair value of financial derivatives and guarantee and commitment fee income, as well as the loss on the retirement of the Series C Preferred Stock.

Farmer Mac’s core earnings, a non-GAAP measure that excludes the effects of fair value fluctuations, increased by $5.1 million sequentially and decreased by $0.3 million year-over-year. The sequential increase was driven by a decrease in the provision for credit losses, an increase in net effective spread, and lower preferred stock dividends. The year-over-year decrease was due to an increase in the provision for credit losses, partially offset by an increase in net effective spread and lower preferred stock dividends.

Net Interest Income and Net Effective Spread

Net interest income decreased by $0.5 million sequentially and $0.9 million year-over-year. The sequential decrease was primarily due to a lower fair value of designated financial derivatives, partially offset by a shift in the composition of new business volume towards higher-yielding loans and lower funding costs. The year-over-year decrease was primarily due to higher funding costs and a lower fair value of designated financial derivatives, partially offset by the shift in new business volume.

Net effective spread, a non-GAAP measure that reflects Farmer Mac’s net spread between all assets and related funding, increased by $1.8 million sequentially and $2.0 million year-over-year. The sequential and year-over-year increases were primarily driven by the shift in new business volume towards higher-yielding loans, partially offset by higher funding costs.

Business Volume

Farmer Mac’s outstanding business volume was $28.5 billion as of September 30, 2024, a net decrease of $290.0 million from June 30, 2024. This was primarily due to a net decrease of $388.2 million in the Agricultural Finance line of business, partially offset by a net increase of $98.2 million in the Rural Infrastructure Finance line of business.

The decrease in Agricultural Finance was driven by scheduled maturities and repayments, partially offset by new purchases, commitments, and guarantees. The increase in Rural Infrastructure Finance was primarily due to new loan purchases and unfunded commitments, partially offset by scheduled maturities and repayments.

Capital and Credit Quality

Farmer Mac’s core capital, a measure of regulatory capital, was $1.5 billion as of September 30, 2024, with $579.9 million in capital in excess of the minimum capital level required.

Farmer Mac’s Agricultural Finance substandard assets, which represent loans with well-defined weaknesses, increased to $377.9 million (3.3% of the portfolio) as of September 30, 2024, compared to $248.0 million (2.2% of the portfolio) as of June 30, 2024. This increase was primarily driven by credit downgrades in permanent plantings, crops, livestock, part-time farms, and agricultural storage and processing.

Farmer Mac’s 90-day delinquencies in the Agricultural Finance portfolio increased to $144.4 million (1.26% of the portfolio) as of September 30, 2024, compared to $62.1 million (0.54% of the portfolio) as of June 30, 2024. This increase was primarily due to higher delinquencies in permanent plantings, crops, livestock, part-time farms, and agricultural storage and processing, including a single $37.6 million permanent planting borrower relationship.

There was one substandard asset with an outstanding balance of $24.1 million in the Rural Infrastructure Finance portfolio as of September 30, 2024.

Use of Non-GAAP Measures

Farmer Mac uses several non-GAAP measures to assess its financial performance, including “core earnings,” “core earnings per share,” and “net effective spread.” These measures exclude the effects of fair value fluctuations and certain infrequent or unusual transactions to provide a better understanding of Farmer Mac’s economic performance and business trends.

Outlook

Farmer Mac’s business outlook is influenced by several factors, including:

Products and Portfolio

• Demand for Farmer Mac’s products is affected by interest rates, the financial health of borrowers, and overall economic conditions in the agriculture and rural infrastructure sectors.
• Farmer Mac expects continued growth opportunities in its Rural Infrastructure Finance segment, particularly in renewable energy and telecommunications.

Funding

• Farmer Mac’s funding strategies, which do not rely on deposits, allow it to navigate liquidity disruptions and take advantage of opportunities in a competitive lending environment.
• Farmer Mac may benefit from natural business hedges that help mitigate the effects of interest rate volatility.

Operations

• Farmer Mac plans to continue investing in human capital, technology, and business infrastructure to increase capacity and efficiency to support growth.
• Investments in servicing capabilities and operational processes are expected to drive scalability and consistency.

Agricultural Finance Industry Outlook

• Farm incomes are expected to decline in 2024 due to lower crop revenues, partially offset by lower expenses for protein producers.
• Farmland values have slowed their rapid growth in 2024 due to higher interest rates and lower profitability in many agricultural sectors.
• Exogenous factors like trade policy, supply chain disruptions, and weather conditions could adversely affect the farm and food sectors.
• The production of food, feed, fiber, and biofuels remains economically viable, but moderating consumer prices have limited profit expansion.

Rural Infrastructure Finance Industry Outlook

• Growth in renewable energy generation and deployment of energy storage technologies presents opportunities for Farmer Mac.
• Investments in rural telecommunications infrastructure, driven by federal funding programs, are creating additional financing needs.
• Electric cooperatives’ capital expenditures related to maintaining and upgrading utility infrastructure are expected to continue at or above historical levels.

Legislative and Regulatory Outlook

• Farmer Mac is monitoring potential changes to the farm bill, regulatory capital requirements, and the composition of the Farm Credit Administration board.
• Farmer Mac will also monitor the effects of the fall elections on policies affecting its business.

In summary, Farmer Mac remains well-positioned to support the capital and liquidity needs of rural America through its diverse product offerings and business model. While the agricultural and rural infrastructure sectors face some headwinds, Farmer Mac’s strong financial position and strategic investments position it for continued growth and mission fulfillment.