Press release·02/21/2025 20:46:37

Farmer Mac’s Strong Financial Performance in 2024

Farmer Mac, the federal agricultural credit corporation, reported another year of solid financial results in 2024. The company’s net income attributable to common stockholders increased by $7.6 million to $180.4 million compared to 2023. This was driven by higher net interest income, tax benefits, and lower preferred stock dividends, which offset increases in the provision for credit losses and operating expenses.

Farmer Mac’s core earnings, a non-GAAP measure that excludes the effects of fair value fluctuations, also increased slightly to $171.6 million in 2024 from $171.2 million in 2023. The increase was due to higher net effective spread, tax benefits, and lower preferred stock dividends, partially offset by higher credit-related expenses and operating costs.

Strong Net Interest Income and Net Effective Spread

A key driver of Farmer Mac’s profitability is its net interest income, which grew by $26.3 million or 8% in 2024 compared to 2023. This increase was primarily due to a shift in the composition of new business volume toward higher-yielding loans and an increase in the fair value of derivatives used to hedge interest rate risk.

Farmer Mac’s net effective spread, a non-GAAP measure that reflects the net spread earned on all the company’s assets and related funding, also increased by $12.6 million or 3.8% in 2024. This was mainly attributable to the shift toward higher-yielding loans, partially offset by decreases in cash-basis interest income and higher funding costs.

For 2023, net interest income grew by $56.6 million or 21% compared to 2022, driven by lower funding costs and an increase in net new business volume. Net effective spread also increased significantly by $71.5 million or 28% in 2023, primarily due to the decrease in funding costs.

Diverse and Growing Business Volume

Farmer Mac’s outstanding business volume reached $29.5 billion as of the end of 2024, a net increase of $1.1 billion from the prior year. This growth was primarily driven by a $1.1 billion increase in the Infrastructure Finance line of business, which includes power and utilities, broadband infrastructure, and renewable energy.

In the Agricultural Finance segment, Farmer Mac saw a net decrease of $0.2 billion in the Farm & Ranch portfolio, as $3.4 billion in scheduled maturities and repayments were partially offset by $3.2 billion in new purchases, commitments, and guarantees. The Corporate AgFinance portfolio increased by $0.2 billion due to $1.2 billion in new activity, partially offset by $1.0 billion in maturities, repayments, and paydowns.

Looking ahead, Farmer Mac sees opportunities for profitable growth across its business lines. In Agricultural Finance, factors like the need for additional liquidity and working capital among borrowers, as well as relationships with larger lenders, could drive increased demand. In Infrastructure Finance, the company expects continued strong activity in renewable energy, broadband, and power and utilities projects.

Credit Quality Remains Stable

Farmer Mac’s credit quality metrics remained relatively stable in 2024, though there were some increases in delinquencies and substandard assets. The company’s 90-day delinquency rate for Agricultural Finance mortgage loans increased to 0.88% as of the end of 2024, up from 0.31% a year earlier. This was primarily driven by credit downgrades in permanent plantings, crops, livestock, and other sectors.

Substandard assets in the Agricultural Finance portfolio also increased to 3.2% of the portfolio, up from 1.7% in 2023. This was again concentrated in permanent plantings and crops, reflecting the current agricultural cycle and economic conditions.

Despite these increases, Farmer Mac’s credit quality metrics remain within historical norms. The company’s average 90-day delinquency rate over the past 15 years is around 1%, and its substandard asset rate has averaged around 4% over that period. Farmer Mac believes its portfolio is well-diversified and adequately collateralized to withstand the current agricultural cycle.

Critical Accounting Estimate: Fair Value of AgVantage Securities

Farmer Mac considers the fair value estimation of its AgVantage securities, both those classified as held-to-maturity and available-for-sale, to be a critical accounting estimate. These securities, which totaled $8.2 billion as of the end of 2024, are valued using significant unobservable inputs, as there are no observable market transactions for these types of securities.

Farmer Mac applies discount rates ranging from 5.0% to 5.5% for AgVantage available-for-sale securities and 5.0% to 6.8% for AgVantage held-to-maturity securities to estimate their fair values. A 0.50% increase in these discount rates would decrease the overall carrying value of these securities by approximately 1.8% and 1.3%, respectively.

The periodic measurement of the fair value of AgVantage securities and the underlying discount rate methodology are subject to Farmer Mac’s internal controls and review by management. This critical accounting estimate has a significant impact on the company’s financial statements and disclosures.

Use of Non-GAAP Measures

Farmer Mac uses several non-GAAP financial measures to assess its 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 that management believes do not reflect the company’s underlying economic performance.

Core earnings increased slightly to $171.6 million in 2024, compared to $171.2 million in 2023. This measure provides an alternative view of Farmer Mac’s financial results by removing the volatility associated with fair value changes.

Net effective spread, which reflects the net spread Farmer Mac earns on its interest-earning assets and related funding, grew by $12.6 million or 3.8% in 2024. This measure provides insight into the company’s underlying profitability and transaction economics.

Farmer Mac believes these non-GAAP measures are useful for understanding its financial performance, but they should be considered supplemental to, and not as a substitute for, the related GAAP measures.

Outlook: Opportunities for Continued Growth

Farmer Mac sees several opportunities for profitable growth in the years ahead. In the Agricultural Finance segment, factors like the need for additional liquidity and working capital among borrowers, as well as relationships with larger lenders, could drive increased demand for the company’s loan purchases, guarantees, and other risk management solutions.

In Infrastructure Finance, Farmer Mac expects continued strong activity in renewable energy, broadband, and power and utilities projects, driven by factors like government policies, technological advancements, and infrastructure investment needs.

The company also plans to continue investing in its human capital, technology, and business infrastructure to enhance its operational efficiency and support future growth. These investments are aimed at improving product delivery, funding efficiency, and servicing capabilities.

Overall, Farmer Mac remains well-positioned to serve the financing needs of rural America and capitalize on growth opportunities across its diverse business lines. The company’s strong financial performance, stable credit quality, and strategic investments position it for continued success in the years to come.