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Farmer Mac Reports Third Quarter 2022 Results

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November 7, 2022 4:05 PM EST

- Outstanding Business Volume of $25.3 Billion -

WASHINGTON, Nov. 7, 2022 /PRNewswire/ -- The Federal Agricultural Mortgage Corporation (Farmer Mac; NYSE: AGM and AGM.A), the nation's secondary market provider that increases the availability and affordability of credit for the benefit of rural America, today announced its results for the fiscal quarter ended September 30, 2022.

"I'm pleased to report another quarter of outstanding results, building upon the solid financial results we delivered in the first half of the year," said President and Chief Executive Officer Brad Nordholm. "During the quarter, we continued to closely monitor the changing economic conditions and believe that we're well-positioned to withstand ongoing market volatility. Our capital base is strong and serves as a buffer against unexpected market developments while supporting our future growth and creating more opportunities for shareholder value."

Third Quarter 2022 Highlights

  • Added $2.7 billion of gross business volume, resulting in net growth of $847.2 million
  • Net interest income grew $8.9 million year-over-year to $67.9 million
  • Net effective spread1 increased 17% from the prior-year period to a record $65.6 million
  • Net income attributable to common stockholders of $34.6 million compared to $28.5 million in third quarter 2021
  • Record Core earnings1 of $33.4 million, or $3.07 per diluted common share, reflecting 21% growth year-over-year
  • 90-day delinquencies were 0.17% across the entire $25.3 billion portfolio as of September 30, 2022

1 Non-GAAP Measure

 

$ in thousands, except per share amounts

Quarter Ended

Sept 30, 2022

Jun. 30, 2022

Sept 30, 2021

Sequential % Change

YoY% Change

Net Change in Business Volume

$847,247

$235,981

$921,629

N/A

N/A

Net Interest Income (GAAP)

$67,853

$63,914

$58,916

6 %

15 %

Net Effective Spread (Non-GAAP)

$65,641

$60,946

$55,925

8 %

17 %

Diluted EPS (GAAP)

$3.18

$3.23

$2.63

(2) %

21 %

Core EPS (Non-GAAP)

$3.07

$2.83

$2.55

8 %

20 %

 

Third Quarter 2022 Results

Spreads

Net interest income for third quarter 2022 was $67.9 million, an $8.9 million increase compared to $58.9 million in the prior-year period, primarily due to a $6.0 million increase from net new business volume and a $5.5 million decrease in funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity. Net interest yield was 1.04% in third quarter 2022 compared to 1.00% in the prior-year period.

Net effective spread, a non-GAAP measure, for third quarter 2022 was $65.6 million, a $9.7 million increase from $55.9 million in the prior-year period. The $9.7 million year-over-year increase in net effective spread in dollars was primarily due to a $7.1 million increase from net new business volume, a $2.3 million decrease in non-GAAP funding costs, due to increasing yields on interest-earning assets on our short-term investments that are funded by non-interest bearing excess equity, and a $0.6 million increase in cash-basis interest income. In percentage terms, the year-over-year increase of 0.04% was primarily attributable to an decrease of 0.01% in non-GAAP funding costs and an increase of 0.02% in net new business volume. In percentage terms, net effective spread was 1.03% in third quarter 2022, compared to 0.99% in the prior-year period. 

Earnings

Farmer Mac's net income attributable to common stockholders for third quarter 2022 was $34.6 million ($3.18 per diluted common share), compared to $28.5 million ($2.63 per diluted common share) in the prior-year period. The $6.1 million year-over-year increase in net income attributable to common stockholders was due to a $7.1 million after-tax increase in net interest income and a $1.3 million after-tax increase in the fair value of undesignated financial derivatives. These factors were partially offset by a $1.8 million after-tax increase in operating expenses and a $0.4 million decrease in guarantee fees.

Farmer Mac enters into financial derivatives transactions to hedge interest rate risks inherent in its business and carries its financial derivatives at fair value in its consolidated financial statements. The fair value fluctuations of these financial derivatives are not expected to have a cumulative net impact on Farmer Mac's financial condition or results of operations reported with GAAP if the derivatives are held to maturity, as is expected. Therefore, Farmer Mac uses core earnings, a non-GAAP measure that excludes the effects of fair value fluctuations, as a useful alternative measure to understand the business.

Farmer Mac's core earnings for third quarter 2022 were $33.4 million ($3.07 per diluted common share), compared to $27.6 million ($2.55 per diluted common share) in third quarter 2021. The $5.7 million year-over-year increase in core earnings was due to a $7.7 million after-tax increase in net effective spread, partially offset by a $1.8 million after-tax increase in operating expenses.   

Business Volume

Farmer Mac's outstanding business volume was $25.3 billion as of September 30, 2022, a net increase of $0.8 billion from June 30, 2022 after taking into account all new business, maturities, sales, and paydowns on existing assets. The increase in volume was driven by broad-based portfolio growth across most of Farmer Mac's products and segments.

The $607.3 million net increase in Farm & Ranch during third quarter 2022 resulted from $1.9 billion of new purchases, commitments, and guarantees, mostly offset by $1.3 billion of scheduled maturities and repayments. Farmer Mac purchased a total of $303.9 million in loans, which was primarily driven by improved borrower economics albeit navigating a substantially higher interest rate environment. The $303.9 million in gross Farm & Ranch loan purchases was partially offset by $166.8 million in scheduled maturities and repayments. 

Farmer Mac also purchased a total of $1.0 billion in Farm & Ranch AgVantage Securities during third quarter 2022, which primarily reflected the refinancing of maturing securities as well as financial counterparties seeking to add longer term AgVantage securities to manage their asset-liability maturity profile given recent increases in credit spreads and interest rates. The $1.0 billion in gross purchases was partially offset by $0.7 billion in scheduled maturities.

The $67.5 million net increase in Corporate AgFinance during third quarter 2022 resulted from $169.9 million of new purchases and commitments, which was offset by $102.5 million of scheduled maturities and repayments. Farmer Mac purchased a total of $136.0 million in loans, which was offset by $84.6 million in scheduled maturities and repayments. This net increase in loans was primarily due to Farmer Mac's continued focus to support loans to larger and more complex agribusinesses focused on food and fiber processing, and other food supply chain production.

The $124.2 million net increase in Rural Utilities during third quarter 2022 resulted from $547.1 million of new purchases, commitments, and guarantees, which was partially offset by $422.9 million of scheduled maturities and repayments. Farmer Mac purchased a total of $400.0 million in AgVantage Securities, $75.8 million in telecommunications loans and $60.0 million in electric distribution and generation and transmission loans. The $135.8 million in loan purchases was partially offset by $68.1 million in scheduled maturities and repayments. 

The $48.2 million net increase in Renewable Energy during third quarter 2022 primarily reflects $61.7 million in loan purchases, partially offset by $13.4 million in repayments.

Credit

As of September 30, 2022, the total allowance for losses was $15.2 million, compared to $14.8 million as of June 30, 2022. The $0.5 million provision to the total allowance for losses in third quarter 2022 was comprised of a $0.4 million provision to the Rural Infrastructure Finance portfolio and a $0.1 million provision to the allowance for the Agricultural Finance portfolio. The $0.4 million provision to the allowance for the Rural Infrastructure portfolio was primarily due to new volume. The $0.1 million provision to the allowance for the Agricultural Finance portfolio was primarily due to a single agricultural storage and processing loan.

As of September 30, 2022, Farmer Mac's 90-day delinquencies were $44.2 million (0.42% of the Agricultural Finance Mortgage Loan portfolio), compared to $54.8 million (0.58% of the Agricultural Finance Mortgage Loan portfolio) as of September 30, 2021. Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.17% of total outstanding business volume as of September 30, 2022, compared to 0.24% as of September 30, 2021.

Capital

As of September 30, 2022, Farmer Mac's core capital level was $1.3 billion, $513.9 million above the minimum capital level required by the company's statutory charter. Farmer Mac's Tier 1 capital ratio was 14.9% as of September 30, 2022.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's third quarter 2022 financial results will be held beginning at 4:30 p.m. eastern time on Monday, November 7, 2022, and can be accessed by telephone or live webcast as follows:

Telephone (Domestic): (888) 346-2616Telephone (International): (412) 902-4254Webcast: 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 2022 is in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 filed today with the SEC.

Use of Non-GAAP Measures

In the accompanying analysis of its financial information, 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 principally differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding 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.

Core earnings and core earnings per share also differ from net income attributable to common stockholders and earnings per common share, respectively, by excluding specified infrequent or unusual transactions that Farmer Mac believes are not indicative of future operating results and that may not reflect the trends and economic financial performance of Farmer Mac's core business. For example, we have excluded from core earnings losses on retirement of preferred stock and the re-measurement of the deferred tax asset.

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. Net effective spread differs from net interest income and net interest yield because it excludes: (1) the amortization of premiums and discounts on assets consolidated at fair value that are amortized as adjustments to yield in interest income over the contractual or estimated remaining lives of the underlying assets; (2) interest income and interest expense related to consolidated trusts with beneficial interests owned by third parties, which are presented on Farmer Mac's consolidated balance sheets as "Loans held for investment in consolidated trusts, at amortized cost"; and (3) the fair value changes of financial derivatives and the corresponding assets or liabilities designated in a fair value hedge accounting relationship. 

Net effective spread also principally differs from net interest income and net interest yield because it includes: (1) 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"); and (2) the net effects of terminations or net settlements on financial derivatives. 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, 2021, filed February 28, 2022 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 utilities indebtedness;
  • the effect of economic conditions and geopolitics on agricultural mortgage or rural utilities lending, borrower repayment capacity, or collateral values, including fluctuations in interest rates, changes in U.S. trade policies, fluctuations in export demand for U.S. agricultural products, supply chain disruptions, increases in input costs, labor availability, volatility in commodity prices, and the effects of the conflict between Russia and Ukraine;
  • 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;
  • other factors that could hinder agricultural mortgage lending or borrower repayment capacity, including the effects of severe weather and drought, climate change, or fluctuations in agricultural real estate values; and
  • the duration, mitigation efforts, spread, severity, and social and economic disruption of the COVID-19 pandemic and its effects on the business operations of agricultural and rural borrowers, the capital markets, and Farmer Mac's business operations.

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, 2021, as filed with the SEC on February 28, 2022. 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, 2022

December 31, 2021

(in thousands)

Assets:

Cash and cash equivalents

$                     868,234

$                     908,785

Investment securities:

Available-for-sale, at fair value (amortized cost of $4,590,696 and $3,834,714, respectively)

4,401,879

3,836,391

Held-to-maturity, at amortized cost

45,032

44,970

Other investments

2,106

1,229

Total Investment Securities

4,449,017

3,882,590

Farmer Mac Guaranteed Securities:

Available-for-sale, at fair value (amortized cost of $7,421,595 and $6,135,807, respectively)

6,974,002

6,328,559

Held-to-maturity, at amortized cost

1,328,039

2,033,239

Total Farmer Mac Guaranteed Securities

8,302,041

8,361,798

USDA Securities:

Trading, at fair value

1,851

4,401

Held-to-maturity, at amortized cost

2,428,638

2,436,331

Total USDA Securities

2,430,489

2,440,732

Loans:

Loans held for investment, at amortized cost

8,817,783

8,314,096

Loans held for investment in consolidated trusts, at amortized cost

1,120,403

948,623

Allowance for losses

(13,002)

(14,041)

Total loans, net of allowance

9,925,184

9,248,678

Financial derivatives, at fair value

49,968

6,081

Accrued interest receivable (includes $7,798 and $10,418, respectively, related to consolidated trusts)

167,962

165,604

Guarantee and commitment fees receivable

46,347

45,538

Deferred tax asset, net

18,978

15,869

Prepaid expenses and other assets

183,368

45,334

Total Assets

$                 26,441,588

$                25,121,009

Liabilities and Equity:

Liabilities:

Notes payable

$                 23,500,657

$                22,713,771

Debt securities of consolidated trusts held by third parties

1,090,539

981,379

Financial derivatives, at fair value

184,554

35,554

Accrued interest payable (includes $5,547 and $9,619, respectively, related to consolidated trusts)

90,821

59,003

Guarantee and commitment obligation

45,726

43,926

Accounts payable and accrued expenses

295,758

71,726

Reserve for losses

1,510

1,950

Total Liabilities

25,209,565

23,907,309

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, 9,269,367 shares and 9,235,205

shares outstanding, respectively

9,269

9,235

Additional paid-in capital

128,117

125,993

Accumulated other comprehensive (loss)/income, net of tax

(63,589)

3,853

Retained earnings

672,164

588,557

Total Equity

1,232,023

1,213,700

Total Liabilities and Equity

$                 26,441,588

$                25,121,009

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

For the Three Months Ended

For the Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

(in thousands, except per share amounts)

Interest income:

Investments and cash equivalents

$             21,581

$               4,121

$             38,497

$             14,107

Farmer Mac Guaranteed Securities and USDA Securities

74,695

42,339

169,231

127,976

Loans

97,514

61,923

241,393

181,631

Total interest income

193,790

108,383

449,121

323,714

Total interest expense

125,937

49,467

251,816

155,599

Net interest income

67,853

58,916

197,305

168,115

(Provision for)/release of losses

(617)

(366)

699

(518)

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

67,236

58,550

198,004

167,597

Non-interest income/(expense):

Guarantee and commitment fees

2,643

3,155

9,551

9,182

Gains/(losses) on financial derivatives

772

(888)

21,551

2,581

(Losses)/gains on trading securities

(41)

37

(75)

(38)

Gains on sale of available-for-sale investment securities

—

253

—

253

Release of reserve for losses

167

111

440

1,277

Other income

651

582

1,805

1,600

Non-interest income

4,192

3,250

33,272

14,855

Operating expenses:

Compensation and employee benefits

11,648

10,027

36,661

31,601

General and administrative

6,919

6,330

21,717

19,015

Regulatory fees

812

750

2,437

2,250

Operating expenses

19,379

17,107

60,815

52,866

Income before income taxes

52,049

44,693

170,461

129,586

Income tax expense

10,631

9,388

35,735

27,350

Net income

41,418

35,305

134,726

102,236

Preferred stock dividends

(6,791)

(6,774)

(20,374)

(17,885)

Net income attributable to common stockholders

$             34,627

$             28,531

$           114,352

$             84,351

Earnings per common share:

Basic earnings per common share

$                 3.21

$                 2.65

$               10.61

$                 7.84

Diluted earnings per common share

$                 3.18

$                 2.63

$               10.51

$                 7.79

 

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, 2022

June 30, 2022

September 30, 2021

(in thousands, except per share amounts)

Net income attributable to common stockholders

$                   34,627

$                   35,063

$                   28,531

Less reconciling items:

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

6,441

2,846

(405)

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

(624)

428

1,818

Unrealized (losses)/gains on trading assets

(757)

(285)

36

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

24

(62)

23

Net effects of terminations or net settlements on financial derivatives

(3,522)

2,536

(351)

Income tax effect related to reconciling items

(327)

(1,148)

(236)

Sub-total

1,235

4,315

885

Core earnings

$                   33,392

$                   30,748

$                   27,646

Composition of Core Earnings:

Revenues:

Net effective spread(1)

$                   65,641

$                   60,946

$                   55,925

Guarantee and commitment fees(2)

4,201

4,709

4,322

Other(3)

473

307

687

Total revenues

70,315

65,962

60,934

Credit related expense (GAAP):

Provision for/(release of) losses

450

(1,535)

255

Total credit related expense

450

(1,535)

255

Operating expenses (GAAP):

Compensation and employee benefits

11,648

11,715

10,027

General and administrative

6,919

7,520

6,330

Regulatory fees

812

813

750

Total operating expenses

19,379

20,048

17,107

Net earnings

50,486

47,449

43,572

Income tax expense(4)

10,303

9,909

9,152

Preferred stock dividends (GAAP)

6,791

6,792

6,774

Core earnings

$                   33,392

$                   30,748

$                   27,646

Core earnings per share:

  Basic

$                       3.09

$                       2.85

$                       2.57

  Diluted

$                       3.07

$                       2.83

$                       2.55

(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, 2022

September 30, 2021

(in thousands, except per share amounts)

Net income attributable to common stockholders

$                 114,352

$                   84,351

Less reconciling items:

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

11,899

(189)

Gains on hedging activities due to fair value changes

5,491

269

Unrealized losses on trading assets

(948)

(39)

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

(18)

59

Net effects of terminations or net settlements on financial derivatives

14,526

923

Income tax effect related to reconciling items

(6,499)

(215)

Sub-total

24,451

808

Core earnings

$                   89,901

$                   83,543

Composition of Core Earnings:

Revenues:

Net effective spread(1)

$                 184,426

$                 166,335

Guarantee and commitment fees(2)

13,467

12,896

Other(3)

1,294

1,439

Total revenues

199,187

180,670

Credit related expense (GAAP):

Release of losses

(1,139)

(759)

Total credit related expense

(1,139)

(759)

Operating expenses (GAAP):

Compensation and employee benefits

36,661

31,601

General and administrative

21,717

19,015

Regulatory fees

2,437

2,250

Total operating expenses

60,815

52,866

Net earnings

139,511

128,563

Income tax expense(4)

29,236

27,135

Preferred stock dividends (GAAP)

20,374

17,885

Core earnings

$                   89,901

$                   83,543

Core earnings per share:

  Basic

$                       8.33

$                       7.77

  Diluted

$                       8.27

$                       7.71

(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 30,2022

June 30,2022

September 30,

2021

September 30,

2022

September 30,

2021

(in thousands, except per share amounts)

GAAP - Basic EPS

$          3.21

$          3.25

$          2.65

$          10.61

$           7.84

Less reconciling items:

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

0.60

0.26

(0.04)

1.10

(0.02)

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

(0.06)

0.04

0.17

0.51

0.02

Unrealized losses on trading securities

(0.07)

(0.03)

—

(0.09)

—

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

—

(0.01)

—

—

0.01

Net effects of terminations or net settlements on financial derivatives

(0.32)

0.24

(0.03)

1.36

0.08

Income tax effect related to reconciling items

(0.03)

(0.10)

(0.02)

(0.60)

(0.02)

Sub-total

0.12

0.40

0.08

2.28

0.07

Core Earnings - Basic EPS

$          3.09

$          2.85

$          2.57

$            8.33

$           7.77

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

10,799

10,796

10,766

10,787

10,756

 

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 30,2022

June 30,

2022

September 30,

2021

September 30,

2022

September 30,

2021

(in thousands, except per share amounts)

GAAP - Diluted EPS

$          3.18

$          3.23

$          2.63

$          10.51

$           7.79

Less reconciling items:

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

0.59

0.26

(0.04)

1.09

(0.02)

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

(0.06)

0.04

0.17

0.50

0.02

Unrealized losses on trading securities

(0.07)

(0.03)

—

(0.09)

—

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

—

(0.01)

—

—

0.01

Net effects of terminations or net settlements on financial derivatives

(0.32)

0.23

(0.03)

1.34

0.09

Income tax effect related to reconciling items

(0.03)

(0.09)

(0.02)

(0.60)

(0.02)

Sub-total

0.11

0.40

0.08

2.24

0.08

Core Earnings - Diluted EPS

$          3.07

$          2.83

$          2.55

$            8.27

$           7.71

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

10,874

10,864

10,842

10,875

10,834

 

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,

2022

June 30,

2022

September 30,

2021

September 30,2022

September 30,2021

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

(dollars in thousands)

Net interest income/yield

$  67,853

1.04 %

$  63,914

1.00 %

$  58,916

1.00 %

$  197,305

1.03 %

$  168,115

0.96 %

Net effects of consolidated trusts

(843)

0.02 %

(1,183)

0.02 %

(1,167)

0.02 %

(3,044)

0.02 %

(3,713)

0.02 %

Expense related to undesignatedfinancial derivatives

(2,613)

(0.05) %

(2,026)

(0.03) %

117

— %

(5,633)

(0.03) %

3,154

0.02 %

Amortization of premiums/discounts

on assets consolidated at fair value

(21)

— %

65

— %

(15)

— %

28

— %

(36)

— %

Amortization of losses due to terminationsor net settlements on financialderivatives

640

0.01 %

725

0.01 %

65

— %

1,723

0.01 %

246

— %

Fair value changes on fair valuehedge relationships

625

0.01 %

(549)

(0.01) %

(1,991)

(0.03) %

(5,953)

(0.03) %

(1,431)

(0.01) %

Net effective spread

$  65,641

1.03 %

$  60,946

0.99 %

$  55,925

0.99 %

$  184,426

1.00 %

$  166,335

0.99 %

 

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, 2022:

Core Earnings by Business Segment

For the Three Months Ended September 30, 2022

Agricultural Finance

Rural Infrastructure

Treasury

Corporate

Farm &Ranch

CorporateAgFinance

Rural 

Utilities

RenewableEnergy

Funding

Investments

Reconciling

Adjustments

ConsolidatedNet Income

(in thousands)

Net interest income

$      34,173

$      7,600

$      4,253

$        705

$    23,913

$      (2,791)

$         —

$             —

$       67,853

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

(830)

—

(33)

—

(1,349)

—

—

2,212

—

Net effective spread

33,343

7,600

4,220

705

22,564

(2,791)

—

2,212

—

Guarantee and commitment fees

3,833

46

309

13

—

—

—

(1,558)

2,643

Other income/(expense)(3)

469

4

—

—

—

—

—

909

1,382

Total revenues

37,645

7,650

4,529

718

22,564

(2,791)

—

1,563

71,878

Release of/(provision for) losses

93

(333)

(414)

26

—

11

—

—

(617)

Release of reserve for losses

139

—

28

—

—

—

—

—

167

Operating expenses

—

—

—

—

—

—

(19,379)

—

(19,379)

Total non-interest expense

139

—

28

—

—

—

(19,379)

—

(19,212)

Core earnings before income taxes

37,877

7,317

4,143

744

22,564

(2,780)

(19,379)

1,563

(4)

52,049

Income tax (expense)/benefit

(7,953)

(1,536)

(869)

(156)

(4,739)

584

4,366

(328)

(10,631)

Core earnings before preferredstock dividends

29,924

5,781

3,274

588

17,825

(2,196)

(15,013)

1,235

(4)

41,418

Preferred stock dividends

—

—

—

—

—

—

(6,791)

—

(6,791)

Segment core earnings/(losses)

$      29,924

$      5,781

$      3,274

$        588

$    17,825

$      (2,196)

$ (21,804)

$        1,235

(4)

$       34,627

Total Assets

$  14,113,686

$  1,558,139

$  5,779,300

$  186,832

$          —

$ 4,608,868

$ 194,763

$             —

$ 26,441,588

Total on- and off-balance sheetprogram assets at principal balance

$  17,199,347

$  1,634,786

$  6,296,263

$  196,242

$          —

$            —

$         —

$             —

$ 25,326,638

(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/(losses) 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, 2022

As of December 31, 2021

(in thousands)

Agricultural Finance:

Farm & Ranch:

Loans

On-balance sheet

$                         5,053,707

$                       4,775,070

Loans held in consolidated trusts:

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

On-balance sheet

823,106

948,623

Beneficial interests owned by third-party investors(Structured)

On-balance sheet

297,298

—

IO-FMGS(1)

On-balance sheet

11,092

12,297

USDA Securities

On-balance sheet

2,427,258

2,445,806

AgVantage Securities

On-balance sheet

5,305,000

4,725,000

LTSPCs and unfunded commitments

Off-balance sheet

2,752,373

2,587,154

Farmer Mac Guaranteed Securities

Off-balance sheet

509,114

578,358

Loans serviced for others

Off-balance sheet

20,399

22,331

Total Farm & Ranch

$                       17,199,347

$                     16,094,639

Corporate AgFinance:

Loans

On-balance sheet

$                         1,201,047

$                       1,123,300

AgVantage Securities

On-balance sheet

348,686

367,464

Unfunded Loan Commitments

Off-balance sheet

85,053

47,070

Total Corporate AgFinance

$                         1,634,786

$                       1,537,834

Total Agricultural Finance

$                       18,834,133

$                     17,632,473

Rural Infrastructure Finance:

Rural Utilities:

Loans

On-balance sheet

$                         2,699,415

$                       2,302,373

AgVantage Securities

On-balance sheet

3,062,829

3,033,262

LTSPCs and Unfunded Loan Commitments

Off-balance sheet

531,264

556,837

Farmer Mac Guaranteed Securities

Off-balance sheet

2,755

2,755

Total Rural Utilities

$                         6,296,263

$                       5,895,227

Renewable Energy:

Loans

On-balance sheet

$                            186,278

$                            86,763

Unfunded Loan Commitments

Off-balance sheet

9,964

—

Total Renewable Energy

$                            196,242

$                            86,763

Total Rural Infrastructure Finance

$                         6,492,505

$                       5,981,990

Total

$                       25,326,638

$                     23,614,463

(1)

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

 

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

CorporateAgFinance

Rural Utilities

RenewableEnergy

Funding

Investments

Net EffectiveSpread

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

Dollars

Yield

(dollars in thousands)

For the quarter ended:

September 30, 2022(2)

$  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(1)

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 %

June 30, 2021

29,163

1.06 %

6,676

1.65 %

1,759

0.14 %

378

1.80 %

18,449

0.33 %

126

0.01 %

56,551

1.01 %

March 31, 2021

26,461

0.98 %

6,921

1.67 %

1,720

0.14 %

249

1.28 %

18,394

0.33 %

114

0.01 %

53,859

0.97 %

December 31, 2020

25,596

0.95 %

6,237

1.53 %

1,838

0.15 %

123

1.20 %

20,585

0.37 %

143

0.01 %

54,522

0.98 %

September 30, 2020

23,735

0.89 %

5,786

1.45 %

2,022

0.16 %

75

1.19 %

20,034

0.37 %

150

0.01 %

51,802

0.96 %

(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, 2022.

 

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

Core Earnings by Quarter Ended

September2022

June2022

March

2022

December2021

September

2021

June

2021

March

2021

December

2020

September

2020

(in thousands)

Revenues:

Net effective spread

$   65,641

$  60,946

$  57,839

$   54,333

$   55,925

$  56,551

$  53,859

$   54,522

$   51,802

Guarantee and commitment fees

4,201

4,709

4,557

4,637

4,322

4,334

4,240

4,652

4,659

Gain on sale of mortgage loans

—

—

—

6,539

—

—

—

—

—

Other

473

307

514

241

687

301

451

512

453

Total revenues

70,315

65,962

62,910

65,750

60,934

61,186

58,550

59,686

56,914

Credit related expense/(income):

Provision for/(release of) losses

450

(1,535)

(54)

(1,428)

255

(983)

(31)

2,973

1,200

REO operating expenses

—

—

—

—

—

—

—

—

—

Losses on sale of REO

—

—

—

—

—

—

—

22

—

Total credit related expense/(income)

450

(1,535)

(54)

(1,428)

255

(983)

(31)

2,995

1,200

Operating expenses:

Compensation and employee benefits

11,648

11,715

13,298

11,246

10,027

9,779

11,795

9,497

8,791

General and administrative

6,919

7,520

7,278

8,492

6,330

6,349

6,336

6,274

5,044

Regulatory fees

812

813

812

812

750

750

750

750

725

Total operating expenses

19,379

20,048

21,388

20,550

17,107

16,878

18,881

16,521

14,560

Net earnings

50,486

47,449

41,576

46,628

43,572

45,291

39,700

40,170

41,154

Income tax expense

10,303

9,909

9,024

9,809

9,152

9,463

8,520

8,470

8,297

Preferred stock dividends

6,791

6,792

6,791

6,792

6,774

5,842

5,269

5,269

5,166

Core earnings

$   33,392

$  30,748

$  25,761

$   30,027

$   27,646

$  29,986

$  25,911

$   26,431

$   27,691

Reconciling items:

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

$     6,441

$    2,846

$    2,612

$    (1,242)

$      (405)

$  (3,020)

$   3,236

$   (3,005)

$    (4,286)

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

(624)

428

5,687

(2,079)

1,818

(5,866)

4,317

7,954

1,562

Unrealized (losses)/gains on trading assets

(757)

(285)

94

(76)

36

(61)

(14)

223

(258)

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

24

(62)

20

71

23

20

16

(77)

97

Net effects of terminations or net settlements on financial derivatives

(3,522)

2,536

15,512

(429)

(351)

109

1,165

1,583

233

Issuance costs on the retirement of preferred stock

—

—

—

—

—

—

—

—

(1,667)

Income tax effect related to reconciling items

(327)

(1,148)

(5,024)

789

(236)

1,852

(1,831)

(1,403)

556

Net income attributable to common stockholders

$   34,627

$  35,063

$  44,662

$   27,061

$   28,531

$  23,020

$  32,800

$   31,706

$   23,928

 

 

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/farmer-mac-reports-third-quarter-2022-results-301670635.html

SOURCE Farmer Mac


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