Farmer Mac Reports Third Quarter 2023 Results

– Outstanding Business Volume of $27.7 Billion –

WASHINGTON, Nov. 6, 2023 /PRNewswire/ — The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A), the nation’s secondary market provider that increases the accessibility of financing for American agriculture and rural infrastructure, today announced its results for the fiscal quarter ended September 30, 2023.

Third Quarter 2023 Highlights

Provided $2.3 billion in liquidity and lending capacity to lenders serving rural America
Net interest income grew 29% year-over-year to $87.6 million
Net effective spread1 increased 27% from the prior-year period to a record $83.4 million
Net income attributable to common stockholders was $51.3 million, compared to $34.6 million in the same period last year
Record core earnings1 of $45.2 million, or $4.13 per diluted common share, reflecting 35% growth year-over-year
Maintained strong capital position with total core capital of $1.4 billion, exceeding statutory requirement by 69% and a Tier 1 Capital Ratio of 16% as of September 30, 2023

1 Non-GAAP Measure

“We delivered another strong quarter, our sixth consecutive quarter of record earnings, seventh consecutive quarter of record net effective spread, and our tenth consecutive quarter of business volume growth. Our efforts over the last four years to strengthen our organizational alignment and resources with our business segments have supported increased diversification of our business and contributed to these results. At the same time, we’ve proactively managed our balance sheet and funding to ever-greater profitability and funding risk reduction. The strength in our consistent performance highlights the resilience and health of our business model as our growing base of customers increasingly turn to us as partners to help them grow their businesses and manage the risks they face around capital requirements and liquidity. Our capital base remains strong, positioning us well to create more opportunities to enhance shareholder value and fulfill our mission.”

$ in thousands, except per share amounts

Quarter Ended

Sep. 30,
2023

Jun. 30,
2023

Sep. 30,
2022

Sequential
% Change

YoY
% Change

Net Change in

Business Volume

$914,959

$252,934

$847,247

N/A

N/A

Net Interest Income (GAAP)

$87,643

$78,677

$67,853

11 %

29 %

Net Effective Spread

(Non-GAAP)

$83,424

$81,832

$65,641

2 %

27 %

Diluted EPS (GAAP)

$4.69

$3.70

$3.18

27 %

47 %

Core EPS (Non-GAAP)

$4.13

$3.86

$3.07

7 %

35 %

Earnings Conference Call Information

The conference call to discuss Farmer Mac’s third quarter 2023 financial results will be held beginning at 4:30 p.m. eastern time on Monday, November 6, 2023, and can be accessed by telephone or live webcast as follows:

Telephone (Domestic): (888) 346-2616
Telephone (International): (412) 902-4254
Webcast: https://www.farmermac.com/investors/events-presentations/  

When dialing in to the call, please ask for the “Farmer Mac Earnings Conference Call.” The call can be heard live and will also be available for replay on Farmer Mac’s website for two weeks following the conclusion of the call.

More complete information about Farmer Mac’s performance for third quarter 2023 is in Farmer Mac’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, filed today with the SEC.

Use of Non-GAAP Measures

In the accompanying analysis of its financial information, Farmer Mac uses “non-GAAP measures,” which are measures of financial performance that are not presented in accordance with GAAP.  Specifically, Farmer Mac uses the following non-GAAP measures: “core earnings,” “core earnings per share,” and “net effective spread.” Farmer Mac uses these non-GAAP measures to measure corporate economic performance and develop financial plans because, in management’s view, they are useful alternative measures in understanding Farmer Mac’s economic performance, transaction economics, and business trends. The non-GAAP financial measures that Farmer Mac uses may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac’s disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP.

Core Earnings and Core Earnings Per Share

The main difference between core earnings and core earnings per share (non-GAAP measures) and net income attributable to common stockholders and earnings per common share (GAAP measures) is that those non-GAAP measures exclude the effects of fair value fluctuations. These fluctuations are not expected to have a cumulative net impact on Farmer Mac’s financial condition or results of operations reported in accordance with GAAP if the related financial instruments are held to maturity, as is expected. Another difference is that these two non-GAAP measures exclude specified infrequent or unusual transactions that we believe are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac’s core business.

Net Effective Spread

Farmer Mac uses net effective spread to measure the net spread Farmer Mac earns between its interest-earning assets and the related net funding costs of these assets. As further explained below, net effective spread differs from net interest income and net interest yield by excluding certain items from net interest income and net interest yield and including certain other items that net interest income and net interest yield do not contain.

Farmer Mac excludes from net effective spread the interest income and interest expense associated with the consolidated trusts and the average balance of the loans underlying these trusts to reflect management’s view that the net interest income Farmer Mac earns on the related Farmer Mac Guaranteed Securities owned by third parties is effectively a guarantee fee. Accordingly, the excluded interest income and interest expense associated with consolidated trusts is reclassified to guarantee and commitment fees in determining Farmer Mac’s core earnings. Farmer Mac also excludes from net effective spread the fair value changes of financial derivatives and the corresponding assets or liabilities designated in fair value hedge accounting relationships because they are not expected to have an economic effect on Farmer Mac’s financial performance, as we expect to hold the financial derivatives and corresponding hedged items to maturity.

Net effective spread also differs from net interest income and net interest yield because it includes the accrual of income and expense related to the contractual amounts due on financial derivatives that are not designated in hedge accounting relationships (“undesignated financial derivatives”). Farmer Mac uses interest rate swaps to manage its interest rate risk exposure by synthetically modifying the interest rate reset or maturity characteristics of certain assets and liabilities. The accrual of the contractual amounts due on interest rate swaps designated in hedge accounting relationships is included as an adjustment to the yield or cost of the hedged item and is included in net interest income. For undesignated financial derivatives, Farmer Mac records the income or expense related to the accrual of the contractual amounts due in “Gains on financial derivatives” on the consolidated statements of operations. However, the accrual of the contractual amounts due for undesignated financial derivatives are included in Farmer Mac’s calculation of net effective spread.

Net effective spread also differs from net interest income and net interest yield because it includes the net effects of terminations or net settlements on financial derivatives, which consist of: (1) the net effects of cash settlements on agency forward contracts on the debt of other GSEs and U.S. Treasury security futures that we use as short-term economic hedges on the issuance of debt; and (2) the net effects of initial cash payments that Farmer Mac receives upon the inception of certain swaps. The inclusion of these items in net effective spread is intended to reflect our view of the complete net spread between an asset and all of its related funding, including any associated derivatives, whether or not they are designated in a hedge accounting relationship.

More information about Farmer Mac’s use of non-GAAP measures is available in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2022, filed February 24, 2023 with the SEC.  For a reconciliation of Farmer Mac’s net income attributable to common stockholders to core earnings and of earnings per common share to core earnings per share, and net interest income and net interest yield to net effective spread, see “Reconciliations” below.

Forward-Looking Statements

Management’s expectations for Farmer Mac’s future necessarily involve assumptions and estimates and the evaluation of risks and uncertainties. Various factors or events, both known and unknown, could cause Farmer Mac’s actual results to differ materially from the expectations as expressed or implied by the forward-looking statements in this release, including uncertainties about:

the availability to Farmer Mac of debt and equity financing and, if available, the reasonableness of rates and terms;
legislative or regulatory developments that could affect Farmer Mac, its sources of business, or agricultural or rural infrastructure industries;
fluctuations in the fair value of assets held by Farmer Mac and its subsidiaries;
the level of lender interest in Farmer Mac’s products and the secondary market provided by Farmer Mac;
the general rate of growth in agricultural mortgage and rural infrastructure indebtedness;
the effect of economic conditions stemming from disruptive global events or otherwise on agricultural mortgage or rural infrastructure lending, borrower repayment capacity, or collateral values, including rapid inflation, fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products and foreign currency exchange rates, supply chain disruptions, increases in input costs, labor availability, volatility from the recent commercial banking failures, and volatility in commodity prices;
the degree to which Farmer Mac is exposed to interest rate risk resulting from fluctuations in Farmer Mac’s borrowing costs relative to market indexes;
developments in the financial markets, including possible investor, analyst, and rating agency reactions to events involving government-sponsored enterprises, including Farmer Mac;
the effects of the Federal Reserve’s efforts to achieve monetary policy normalization and slow inflation; and
other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather, flooding and drought, climate change, or fluctuations in agricultural real estate values.

Other risk factors are discussed in “Risk Factors” in Part I, Item 1A in Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 24, 2023. Considering these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this release. The forward-looking statements contained in this release represent management’s expectations as of the date of this release. Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements included in this release to reflect new information or any future events or circumstances, except as otherwise required by applicable law. The information in this release is not necessarily indicative of future results.

About Farmer Mac

Farmer Mac is a vital part of the agricultural credit markets and was created to increase access to and reduce the cost of credit for the benefit of American agricultural and rural communities. As the nation’s secondary market for agricultural credit, we provide financial solutions to a broad spectrum of the agricultural community, including agricultural lenders, agribusinesses, and other institutions that can benefit from access to flexible, low-cost financing and risk management tools. Farmer Mac’s customers benefit from our low cost of funds, low overhead costs, and high operational efficiency. More information about Farmer Mac (including the Annual Report on Form 10-K referenced above) is available on Farmer Mac’s website at www.farmermac.com.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

As of

September 30, 2023

December 31, 2022

(in thousands)

Assets:

Cash and cash equivalents

$                     782,318

$                     861,002

Investment securities:

Available-for-sale, at fair value (amortized cost of $5,114,476 and $4,769,426, respectively)

4,873,414

4,579,564

Held-to-maturity, at amortized cost

45,032

45,032

Other investments

5,807

3,672

Total Investment Securities

4,924,253

4,628,268

Farmer Mac Guaranteed Securities:

Available-for-sale, at fair value (amortized cost of $5,536,437 and $8,019,495, respectively)

5,058,697

7,607,226

Held-to-maturity, at amortized cost

4,157,414

1,021,154

Total Farmer Mac Guaranteed Securities

9,216,111

8,628,380

USDA Securities:

Trading, at fair value

1,302

1,767

Held-to-maturity, at amortized cost

2,322,355

2,409,834

Total USDA Securities

2,323,657

2,411,601

Loans:

Loans held for investment, at amortized cost

9,130,933

9,008,979

Loans held for investment in consolidated trusts, at amortized cost

1,422,854

1,211,576

Allowance for losses

(16,614)

(15,089)

Total loans, net of allowance

10,537,173

10,205,466

Financial derivatives, at fair value

28,855

37,409

Accrued interest receivable (includes $10,666 and $12,514, respectively, related to consolidated trusts)

230,523

229,061

Guarantee and commitment fees receivable

49,809

47,151

Deferred tax asset, net

4,711

18,004

Prepaid expenses and other assets

213,971

266,768

Total Assets

$                 28,311,381

$                27,333,110

Liabilities and Equity:

Liabilities:

Notes payable

$                 25,123,545

$                24,469,113

Debt securities of consolidated trusts held by third parties

1,334,014

1,181,948

Financial derivatives, at fair value

188,362

175,326

Accrued interest payable (includes $6,568 and $8,081, respectively, related to consolidated trusts)

172,150

117,887

Guarantee and commitment obligation

47,607

46,582

Accounts payable and accrued expenses

58,776

68,863

Reserve for losses

1,660

1,433

Total Liabilities

26,926,114

26,061,152

Commitments and Contingencies

Equity:

Preferred stock:

      Series C, par value $25 per share, 3,000,000 shares authorized, issued and outstanding

73,382

73,382

Series D, par value $25 per share, 4,000,000 shares authorized, issued and outstanding

96,659

96,659

Series E, par value $25 per share, 3,180,000 shares authorized, issued and outstanding

77,003

77,003

Series F, par value $25 per share, 4,800,000 shares authorized, issued and outstanding

116,160

116,160

Series G, par value $25 per share, 5,000,000 shares authorized, issued and outstanding

121,327

121,327

Common stock:

Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding

1,031

1,031

Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding

500

500

Class C Non-Voting, $1 par value, no maximum authorization, 9,309,351 shares and 9,270,265 shares outstanding, respectively

9,309

9,270

Additional paid-in capital

130,921

128,939

Accumulated other comprehensive loss, net of tax

(35,839)

(50,843)

Retained earnings

794,814

698,530

Total Equity

1,385,267

1,271,958

Total Liabilities and Equity

$                 28,311,381

$                27,333,110

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

For the Three Months Ended

For the Nine Months Ended

September 30,
2023

September 30,
2022

September 30,
2023

September 30,
2022

(in thousands, except per share amounts)

Interest income:

Investments and cash equivalents

$             79,947

$             21,581

$           209,429

$             38,497

Farmer Mac Guaranteed Securities and USDA Securities

161,351

74,695

442,649

169,231

Loans

140,513

97,514

388,837

241,393

Total interest income

381,811

193,790

1,040,915

449,121

Total interest expense

294,168

125,937

795,537

251,816

Net interest income

87,643

67,853

245,378

197,305

Release of/(provision for) losses

136

(617)

(1,484)

699

Net interest income after release of/(provision for) losses

87,779

67,236

243,894

198,004

Non-interest income/(expense):

Guarantee and commitment fees

5,520

2,643

12,942

9,551

Gains on financial derivatives

2,671

772

4,763

21,551

(Losses)/gains on trading securities

(2)

(41)

14

(75)

Release of/(provision for) reserve for losses

45

167

(227)

440

Other income

1,271

651

3,239

1,805

Non-interest income

9,505

4,192

20,731

33,272

Operating expenses:

Compensation and employee benefits

14,103

11,648

43,391

36,661

General and administrative

9,100

6,919

26,047

21,717

Regulatory fees

831

812

2,497

2,437

Operating expenses

24,034

19,379

71,935

60,815

Income before income taxes

73,250

52,049

192,690

170,461

Income tax expense

15,113

10,631

40,306

35,735

Net income

58,137

41,418

152,384

134,726

Preferred stock dividends

(6,792)

(6,791)

(20,374)

(20,374)

Net income attributable to common stockholders

$             51,345

$             34,627

$           132,010

$           114,352

Earnings per common share:

Basic earnings per common share

$                 4.74

$                 3.21

$               12.20

$               10.61

Diluted earnings per common share

$                 4.69

$                 3.18

$               12.08

$               10.51

Reconciliations

Reconciliations of Farmer Mac’s net income attributable to common stockholders to core earnings and core earnings per share are presented in the following tables along with information about the composition of core earnings for the periods indicated: 

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Three Months Ended

September 30, 2023

June 30, 2023

September 30, 2022

(in thousands, except per share amounts)

Net income attributable to common stockholders

$                   51,345

$                   40,421

$                   34,627

Less reconciling items:

Gains on undesignated financial derivatives due to fair value changes

2,921

2,141

6,441

Gains/(losses) on hedging activities due to fair value changes

3,210

(4,901)

(624)

Unrealized gains/(losses) on trading assets

1,714

(57)

(757)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value

29

29

24

Net effects of terminations or net settlements on financial derivatives

(79)

583

(3,522)

Income tax effect related to reconciling items

(1,638)

464

(327)

Sub-total

6,157

(1,741)

1,235

Core earnings

$                   45,188

$                   42,162

$                   33,392

Composition of Core Earnings:

Revenues:

Net effective spread(1)

$                   83,424

$                   81,832

$                   65,641

Guarantee and commitment fees(2)

4,828

4,581

4,201

Other(3)

1,056

409

473

Total revenues

89,308

86,822

70,315

Credit related expense (GAAP):

(Release of)/provision for losses

(181)

1,142

450

Total credit related expense

(181)

1,142

450

Operating expenses (GAAP):

Compensation and employee benefits

14,103

13,937

11,648

General and administrative

9,100

9,420

6,919

Regulatory fees

831

831

812

Total operating expenses

24,034

24,188

19,379

Net earnings

65,455

61,492

50,486

Income tax expense(4)

13,475

12,539

10,303

Preferred stock dividends (GAAP)

6,792

6,791

6,791

Core earnings

$                   45,188

$                   42,162

$                   33,392

Core earnings per share:

  Basic

$                       4.17

$                       3.89

$                       3.09

  Diluted

$                       4.13

$                       3.86

$                       3.07

(1)

Net effective spread is a non-GAAP measure.  See “Use of Non-GAAP Measures” above for an explanation of net effective spread.  See below for a reconciliation of net interest income to net effective spread.

(2)

Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management’s view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

(3)

Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.

(4)

Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

Reconciliation of Net Income Attributable to Common Stockholders to Core Earnings

For the Nine Months Ended

September 30, 2023

September 30, 2022

(in thousands, except per share amounts)

Net income attributable to common stockholders

$                     132,010

$                     114,352

Less reconciling items:

Gains on undesignated financial derivatives due to fair value changes

5,978

11,899

(Losses)/gains on hedging activities due to fair value changes

(1,796)

5,491

Unrealized gains/(losses) on trading assets

2,016

(948)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value

87

(18)

Net effects of terminations or net settlements on financial derivatives

1,027

14,526

Income tax effect related to reconciling items

(1,536)

(6,499)

Sub-total

5,776

24,451

Core earnings

$                     126,234

$                       89,901

Composition of Core Earnings:

Revenues:

Net effective spread(1)

$                     242,429

$                     184,426

Guarantee and commitment fees(2)

14,063

13,467

Other(3)

2,532

1,294

Total revenues

259,024

199,187

Credit related expense (GAAP):

Provision for/(release of) losses

1,711

(1,139)

Total credit related expense

1,711

(1,139)

Operating expenses (GAAP):

Compensation and employee benefits

43,391

36,661

General and administrative

26,047

21,717

Regulatory fees

2,497

2,437

Total operating expenses

71,935

60,815

Net earnings

185,378

139,511

Income tax expense(4)

38,770

29,236

Preferred stock dividends (GAAP)

20,374

20,374

Core earnings

$                     126,234

$                       89,901

Core earnings per share:

  Basic

$                         11.66

$                           8.33

  Diluted

$                         11.56

$                           8.27

(1)

Net effective spread is a non-GAAP measure.  See “Use of Non-GAAP Measures” above for an explanation of net effective spread.  See below for a reconciliation of net interest income to net effective spread.

(2)

Includes interest income and interest expense related to consolidated trusts owned by third parties reclassified from net interest income to guarantee and commitment fees to reflect management’s view that the net interest income Farmer Mac earns is effectively a guarantee fee on the consolidated Farmer Mac Guaranteed Securities.

(3)

Reflects reconciling adjustments for the reclassification to exclude expenses related to interest rate swaps not designated as hedges and terminations or net settlements on financial derivatives, and reconciling adjustments to exclude fair value adjustments on financial derivatives and trading assets and the recognition of deferred gains over the estimated lives of certain Farmer Mac Guaranteed Securities and USDA Securities.

(4)

Includes the tax impact of non-GAAP reconciling items between net income attributable to common stockholders and core earnings.

Reconciliation of GAAP Basic Earnings Per Share to Core Earnings Basic Earnings Per Share

For the Three Months Ended

For the Nine Months Ended

September 30,
2023

June 30,
2023

September 30,
2022

September 30,
2023

September 30,
2022

(in thousands, except per share amounts)

GAAP – Basic EPS

$               4.74

$            3.73

$              3.21

$            12.20

$             10.61

Less reconciling items:

Gains on undesignated financial derivatives due to fair value changes

0.27

0.20

0.60

0.55

1.10

Gains/(losses) on hedging activities due to fair value changes

0.30

(0.45)

(0.06)

(0.17)

0.51

Unrealized gains/(losses) on trading securities

0.16

(0.07)

0.19

(0.09)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value

0.01

Net effects of terminations or net settlements on financial derivatives

(0.01)

0.05

(0.32)

0.10

1.36

Income tax effect related to reconciling items

(0.15)

0.04

(0.03)

(0.14)

(0.60)

Sub-total

0.57

(0.16)

0.12

0.54

2.28

Core Earnings – Basic EPS

$               4.17

$            3.89

$              3.09

$            11.66

$               8.33

Shares used in per share calculation (GAAP and Core Earnings)

10,839

10,833

10,799

10,825

10,787

Reconciliation of GAAP Diluted Earnings Per Share to Core Earnings Diluted Earnings Per Share

For the Three Months Ended

For the Nine Months Ended

September 30,
2023

June 30,
2023

September 30,
2022

September 30,
2023

September 30,
2022

(in thousands, except per share amounts)

GAAP – Diluted EPS

$               4.69

$            3.70

$               3.18

$            12.08

$            10.51

Less reconciling items:

Gains on undesignated financial derivatives due to fair value changes

0.27

0.20

0.59

0.54

1.09

Gains/(losses) on hedging activities due to fair value changes

0.29

(0.45)

(0.06)

(0.16)

0.50

Unrealized gains/(losses) on trading securities

0.16

(0.07)

0.18

(0.09)

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value

0.01

Net effects of terminations or net settlements on financial derivatives

(0.01)

0.05

(0.32)

0.09

1.34

Income tax effect related to reconciling items

(0.15)

0.04

(0.03)

(0.14)

(0.60)

Sub-total

0.56

(0.16)

0.11

0.52

2.24

Core Earnings – Diluted EPS

$               4.13

$            3.86

$               3.07

$            11.56

$              8.27

Shares used in per share calculation (GAAP and Core Earnings)

10,938

10,916

10,874

10,924

10,875

The following table presents a reconciliation of net interest income and net yield to net effective spread for the periods indicated:

Reconciliation of GAAP Net Interest Income/Yield to Net Effective Spread

For the Three Months Ended

For the Nine Months Ended

September 30, 2023

June 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

(dollars in thousands)

Net interest income/yield

$   87,643

1.22 %

$  78,677

1.12 %

$   67,853

1.04 %

$ 245,378

1.16 %

$ 197,305

1.03 %

Net effects of consolidated trusts

(1,024)

0.02 %

(1,044)

0.02 %

(843)

0.02 %

(3,123)

0.02 %

(3,044)

0.02 %

Expense related to undesignated financial derivatives

(805)

(0.01) %

(1,568)

(0.02) %

(2,613)

(0.05) %

(3,999)

(0.02) %

(5,633)

(0.03) %

Amortization of premiums/discounts on assets consolidated at fair value

(24)

— %

(24)

— %

(21)

— %

(71)

— %

28

— %

Amortization of losses due to terminations or net settlements on financial derivatives

844

0.01 %

890

0.01 %

640

0.01 %

2,448

0.01 %

1,723

0.01 %

Fair value changes on fair value hedge relationships

(3,210)

(0.04) %

4,901

0.07 %

625

0.01 %

1,796

0.01 %

(5,953)

(0.03) %

Net effective spread

$   83,424

1.20 %

$  81,832

1.20 %

$   65,641

1.03 %

$ 242,429

1.18 %

$ 184,426

1.00 %

The following table presents core earnings for Farmer Mac’s reportable operating segments and a reconciliation to consolidated net income for the three months ended September 30, 2023:

Core Earnings by Business Segment

For the Three Months Ended September 30, 2023

Agricultural Finance

Rural Infrastructure

Treasury

Corporate

Farm &
Ranch

Corporate
Finance

Rural 

Utilities

Renewable
Energy

Funding

Investments

Reconciling

Adjustments

Consolidated
Net Income

(in thousands)

Net interest income

$      33,735

$      8,250

$      6,393

$      1,150

$    37,642

$          473

$         —

$             —

$       87,643

Less: reconciling adjustments(1)(2)(3)

(1,017)

(31)

(3,230)

59

4,219

Net effective spread

32,718

8,250

6,362

1,150

34,412

532

4,219

Guarantee and commitment fees

4,447

78

279

24

692

5,520

Other income/(expense)(3)

807

3

6

240

2,884

3,940

Total revenues

37,972

8,328

6,641

1,174

34,415

538

240

7,795

97,103

Release of/(provision for) losses

13

3,694

(3,504)

(66)

(1)

136

Release of/(provision for) reserve for losses

58

(13)

45

Operating expenses

(24,034)

(24,034)

Total non-interest expense

58

(13)

(24,034)

(23,989)

Core earnings before income taxes

38,043

12,022

3,124

1,108

34,415

537

(23,794)

7,795

(4)

73,250

Income tax (expense)/benefit

(7,989)

(2,525)

(656)

(233)

(7,226)

(113)

5,267

(1,638)

(15,113)

Core earnings before preferred stock dividends

30,054

9,497

2,468

875

27,189

424

(18,527)

6,157

(4)

58,137

Preferred stock dividends

(6,792)

(6,792)

Segment core earnings/(losses)

$      30,054

$      9,497

$      2,468

$        875

$    27,189

$          424

$ (25,319)

$        6,157

(4)

$       51,345

Total Assets

$  14,660,371

$  1,619,664

$  6,648,693

$  320,572

$          —

$ 4,866,969

$ 195,112

$             —

$ 28,311,381

Total on- and off-balance sheet program assets at principal balance

$  18,461,835

$  1,741,306

$  7,118,295

$  330,575

$          —

$            —

$         —

$             —

$ 27,652,011

(1)

Includes the amortization of premiums and discounts on assets consolidated at fair value, originally included in interest income, to reflect core earnings amounts.

(2)

Includes the reclassification of interest income and interest expense from consolidated trusts owned by third parties to guarantee and commitment fees, to reflect management’s view that the net interest income Farmer Mac earns is effectively a guarantee fee. 

(3)

Includes the reclassification of interest expense related to interest rate swaps not designated as hedges, which are included in “Gains on financial derivatives” on the consolidated financial statements, to determine the effective funding cost for each operating segment.

(4)

Net adjustments to reconcile to the corresponding income measures: core earnings before income taxes reconciled to income before income taxes; core earnings before preferred stock dividends reconciled to net income; and segment core earnings reconciled to net income attributable to common stockholders.

Supplemental Information

The following table sets forth information about outstanding volume in each of Farmer Mac’s lines of business as of the dates indicated:

Outstanding Business Volume

On or Off

Balance Sheet

As of September 30, 2023

As of December 31, 2022

(in thousands)

Agricultural Finance:

Farm & Ranch:

Loans

On-balance sheet

$                         4,987,818

$                       5,150,750

Loans held in consolidated trusts:

Beneficial interests owned by third-party investors (Pass-Through)(1)

On-balance sheet

859,917

914,918

Beneficial interests owned by third-party investors (Structured)(1)

On-balance sheet

562,937

296,658

IO-FMGS(2)

On-balance sheet

9,580

10,622

USDA Securities

On-balance sheet

2,329,830

2,407,302

AgVantage Securities(1)

On-balance sheet

5,685,000

5,605,000

LTSPCs and unfunded commitments

Off-balance sheet

2,992,061

2,822,309

Other Farmer Mac Guaranteed Securities(3)

Off-balance sheet

455,681

500,953

Loans serviced for others

Off-balance sheet

579,011

20,280

Total Farm & Ranch

$                       18,461,835

$                     17,728,792

Corporate Finance:

Loans

On-balance sheet

$                         1,223,777

$                       1,166,253

AgVantage Securities(1)

On-balance sheet

383,173

359,600

Unfunded commitments

Off-balance sheet

134,356

77,654

Total Corporate AgFinance

$                         1,741,306

$                       1,603,507

Total Agricultural Finance

$                       20,203,141

$                     19,332,299

Rural Infrastructure Finance:

Rural Utilities:

Loans

On-balance sheet

$                         3,024,640

$                       2,801,696

AgVantage Securities(1)

On-balance sheet

3,617,542

3,044,156

LTSPCs and unfunded commitments

Off-balance sheet

475,015

512,592

Other Farmer Mac Guaranteed Securities(3)

Off-balance sheet

1,098

1,169

Total Rural Utilities

$                         7,118,295

$                       6,359,613

Renewable Energy:

Loans

On-balance sheet

$                            318,073

$                          219,570

Unfunded commitments

Off-balance sheet

12,502

10,600

Total Renewable Energy

$                            330,575

$                          230,170

Total Rural Infrastructure Finance

$                         7,448,870

$                       6,589,783

Total

$                       27,652,011

$                     25,922,082

(1)

A Farmer Mac Guaranteed Security.

(2)

An interest-only Farmer Mac Guaranteed Security retained as part of a structured securitization.

(3)

Other categories of Farmer Mac Guaranteed Securities that were sold by Farmer Mac to third parties

The following table presents the quarterly net effective spread (a non-GAAP measure) by segment:

Net Effective Spread(1)

Agricultural Finance

Rural Infrastructure Finance

Treasury

Farm & Ranch

Corporate Finance

Rural Utilities

Renewable Energy

Funding

Investments

Net Effective Spread

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

(dollars in thousands)

For the quarter ended:

September 30, 2023(2)

$  32,718

0.97 %

$ 8,250

2.05 %

$ 6,362

0.39 %

$ 1,150

1.46 %

$  34,412

0.49 %

$    532

0.04 %

$  83,424

1.20 %

June 30, 2023

34,388

1.03 %

7,444

1.92 %

5,808

0.38 %

1,100

1.47 %

32,498

0.48 %

594

0.04 %

81,832

1.20 %

March 31, 2023

32,465

0.97 %

7,148

1.94 %

5,507

0.36 %

858

1.53 %

31,738

0.47 %

(543)

(0.04) %

77,173

1.15 %

December 31, 2022

32,770

0.98 %

7,471

1.94 %

4,960

0.34 %

935

1.76 %

27,656

0.42 %

(2,689)

(0.19) %

71,103

1.07 %

September 30, 2022

33,343

1.04 %

7,600

1.99 %

4,220

0.30 %

705

1.97 %

22,564

0.36 %

(2,791)

(0.21) %

65,641

1.03 %

June 30, 2022

32,590

1.05 %

6,929

1.87 %

3,733

0.27 %

468

1.78 %

18,508

0.30 %

(1,282)

(0.10) %

60,946

0.99 %

March 31, 2022

30,354

1.02 %

7,209

1.96 %

3,159

0.23 %

375

1.69 %

16,738

0.28 %

4

— %

57,839

0.97 %

December 31, 2021

28,998

0.99 %

6,321

1.84 %

2,521

0.19 %

356

1.53 %

15,979

0.28 %

158

0.01 %

54,333

0.94 %

September 30, 2021

28,914

1.06 %

7,163

1.80 %

2,067

0.16 %

236

1.09 %

17,386

0.31 %

159

0.01 %

55,925

0.99 %

(1)

Farmer Mac excludes the Corporate segment in the presentation above because the segment does not have any interest-earning assets.

(2)

See above for a reconciliation of GAAP net interest income by line of business to net effective spread by line of business for the three months ended September 30, 2023.

The following table presents quarterly core earnings reconciled to net income attributable to common stockholders:

Core Earnings by Quarter Ended

September
2023

June
2023

March
2023

December
2022

September
2022

June
2022

March
2022

December
2021

September
2021

(in thousands)

Revenues:

Net effective spread

$   83,424

$  81,832

$  77,173

$   71,103

$   65,641

$  60,946

$  57,839

$   54,333

$   55,925

Guarantee and commitment fees

4,828

4,581

4,654

4,677

4,201

4,709

4,557

4,637

4,322

Gains on sale of mortgage loans

6,539

Other

1,056

409

1,067

390

473

307

514

241

687

Total revenues

89,308

86,822

82,894

76,170

70,315

65,962

62,910

65,750

60,934

Credit related expense/(income):

(Release of)/provision for losses

(181)

1,142

750

1,945

450

(1,535)

(54)

(1,428)

255

REO operating expenses

819

Total credit related expense/(income)

(181)

1,142

750

2,764

450

(1,535)

(54)

(1,428)

255

Operating expenses:

Compensation and employee benefits

14,103

13,937

15,351

12,105

11,648

11,715

13,298

11,246

10,027

General and administrative

9,100

9,420

7,527

8,055

6,919

7,520

7,278

8,492

6,330

Regulatory fees

831

831

835

832

812

813

812

812

750

Total operating expenses

24,034

24,188

23,713

20,992

19,379

20,048

21,388

20,550

17,107

Net earnings

65,455

61,492

58,431

52,414

50,486

47,449

41,576

46,628

43,572

Income tax expense

13,475

12,539

12,756

11,210

10,303

9,909

9,024

9,809

9,152

Preferred stock dividends

6,792

6,791

6,791

6,791

6,791

6,792

6,791

6,792

6,774

Core earnings

$   45,188

$  42,162

$  38,884

$   34,413

$   33,392

$  30,748

$  25,761

$   30,027

$   27,646

Reconciling items:

Gains/(losses) on undesignated financial derivatives due to fair value changes

$     2,921

$    2,141

$      916

$     1,596

$     6,441

$    2,846

$    2,612

$   (1,242)

$      (405)

Gains/(losses) on hedging activities due to fair value changes

3,210

(4,901)

(105)

(148)

(624)

428

5,687

(2,079)

1,818

Unrealized gains/(losses) on trading assets

1,714

(57)

359

31

(757)

(285)

94

(76)

36

Net effects of amortization of premiums/discounts and deferred gains on assets consolidated at fair value

29

29

29

57

24

(62)

20

71

23

Net effects of terminations or net settlements on financial derivatives

(79)

583

523

1,268

(3,522)

2,536

15,512

(429)

(351)

Income tax effect related to reconciling items

(1,638)

464

(362)

(590)

(327)

(1,148)

(5,024)

789

(236)

Net income attributable to common stockholders

$   51,345

$  40,421

$  40,244

$   36,627

$   34,627

$  35,063

$  44,662

$   27,061

$   28,531

SOURCE Farmer Mac

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