Le Lézard
Classified in: Business, Covid-19 virus
Subjects: ERN, ERP

Farmer Mac Reports Second Quarter 2022 Results


 - Outstanding Business Volume of $24.5 Billion -

WASHINGTON, Aug. 8, 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 June 30, 2022.

Second Quarter 2022 Highlights

"Farmer Mac delivered another quarter of strong results, generating record core earnings and demonstrating the consistency of our fundamental business model as we continue to successfully execute against our multi-year growth plan," said President & Chief Executive Officer, Brad Nordholm. "These results are again noteworthy given the current economic and market backdrop, where inflationary pressures have created heightened uncertainty across credit markets and high volatility across a broad range of prices, including key agricultural commodities. Our continued strong credit quality, solid capital position, and growing execution capability has enabled Farmer Mac to consistently deliver on our mission to bring even greater efficiencies, and lower costs, in providing financing to lenders for the benefit of their farm and ranch, agribusiness, and rural infrastructure customers. We remain confident in our ability to navigate the current environment and make the necessary investments in our infrastructure to pursue strategic growth opportunities."

_______________
1 Non-GAAP Measure

$ in thousands, except per share amounts

Quarter Ended

Jun. 30, 2022

Mar. 31, 2022

Jun. 30, 2021

Sequential
% Change

YoY
% Change

Net Change in Business Volume

$235,981

$628,947

$334,630

N/A

N/A

Net Interest Income (GAAP)

$69,402

$61,875

$55,129

12 %

26 %

Net Effective Spread (Non-GAAP)

$60,946

$57,839

$56,551

5 %

8 %

Diluted EPS (GAAP)

$3.60

$3.77

$2.35

(5) %

53 %

Core EPS (Non-GAAP)

$2.83

$2.37

$2.77

19 %

2 %

Second Quarter 2022 Results

Spreads

Net interest income for second quarter 2022 was $69.4 million, a $14.3 million increase compared to $55.1 million in the prior-year period, primarily due to a $7.8 million increase in the fair value of designated financial derivatives, a $4.3 million increase from net new business volume, and a $2.5 million decrease in funding costs. Net interest yield was 1.09% in second quarter 2022 compared to 0.94% in the prior-year period.

Net effective spread, a non-GAAP measure, for second quarter 2022 was $60.9 million, a $4.4 million increase from $56.6 million in the prior-year period. The $4.4 million year-over-year increase in net effective spread was primarily due to a $4.8 million increase from net new business volume, a $0.9 million increase in net coupon yields related to the acquisition of loan servicing rights, and a $0.4 million increase in cash-basis interest income. These factors were partially offset by a $1.4 million increase in non-GAAP funding costs. In percentage terms, net effective spread was 0.99% in second quarter 2022, compared to 1.01% in the prior-year period. 

Earnings

Farmer Mac's net income attributable to common stockholders for second quarter 2022 was $39.1 million ($3.60 per diluted common share), compared to $25.4 million ($2.35 per diluted common share) in the prior-year period. The $13.7 million year-over-year increase in net income attributable to common stockholders was due to a $11.3 million after-tax increase in net interest income, a $5.1 million after-tax increase in the fair value of undesignated financial derivatives, and an increase in our release of credit losses of $0.4 million after tax. These factors were partially offset by a $2.5 million after-tax increase in operating expenses and a $0.9 million increase in preferred stock dividends. 

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 second quarter 2022 were $30.7 million ($2.83 per diluted common share), compared to $30.0 million ($2.77 per diluted common share) in second quarter 2021. The $0.8 million year-over-year increase in core earnings was due to a $3.5 million after-tax increase in net effective spread and an increase in our release of credit losses of $0.4 million after tax. These factors were partially offset by a $2.5 million after-tax increase in operating expenses and a $0.9 million increase in preferred stock dividends.   

Business Volume

Farmer Mac's outstanding business volume was $24.5 billion as of June 30, 2022, a net increase of $0.2 billion from March 31, 2022 after taking into account all new business, maturities, sales, and paydowns on existing assets. The net increase was primarily attributable to net increases of $193.0 million in the Rural Infrastructure Finance line of business and $43.0 million in the Agricultural Finance line of business.

The $16.4 million net increase in Farm & Ranch during second quarter 2022 resulted from $1.4 billion of new purchases, commitments, and guarantees, mostly offset by $1.4 billion of scheduled maturities and repayments. Farmer Mac purchased a total of $432.6 million in loans, which was primarily driven by improved borrower economics as well as a competitive, albeit an increasing interest rate environment resulting in demand for intermediate and long-term financing solutions. The $432.6 million in gross Farm & Ranch loan purchases was partially offset by $153.8 million in scheduled maturities and repayments. 

Farmer Mac also purchased a total of $0.8 billion in Farm & Ranch AgVantage Securities during second 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 $0.8 billion in gross purchases was more than offset by $1.0 billion in scheduled maturities. Approximately $0.3 billion of the total $0.8 billion in gross purchases reflected purchases that refinanced maturing AgVantage securities and were issued at short-term tenors, which may create some volatility in AgVantage volumes throughout the year.

The $26.6 million net increase in Corporate AgFinance during second quarter 2022 resulted from $107.9 million of new loan purchases, which was offset by $81.4 million of scheduled maturities, repayments, and sales. Farmer Mac purchased a total of $85.4 million in loans, which was offset by $44.3 million in scheduled maturities, repayments, and sales. 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 supply chain production.

The $165.6 million net increase in Rural Utilities during second quarter 2022 resulted from $326.9 million of new purchases, commitments, and guarantees, which was partially offset by $161.3 million of scheduled maturities and repayments. Farmer Mac purchased a total of $196.5 million in Rural Utilities loans; electric distribution and generation and transmission comprised $161.5 million and telecommunication comprised $35.0 million, which was fueled by a competitive but increasing interest rate environment resulting in demand for long-term financing solutions for planned maintenance and capital expenditures. The $196.5 million in loan purchases was partially offset by $24.4 million in scheduled maturities and repayments. 

The $27.4 million net increase in Renewable Energy during second quarter 2022 primarily reflects $35.3 million in loan purchases, partially offset by $7.9 million in repayments.

Credit

As of June 30, 2022, the total allowance for losses was $14.8 million, compared to $16.3 million as of March 31, 2022. The $1.5 million release from the total allowance for losses in second quarter 2022 was comprised of a $1.2 million release from the Rural Infrastructure Finance portfolio and a $0.3 million release from the allowance for the Agricultural Finance portfolio. The $1.2 million release from the allowance for the Rural Infrastructure portfolio was primarily attributable to updated credit loss model forecast assumptions and improvements in risk ratings. The $0.3 million release from the allowance for the Agricultural Finance mortgage loan portfolio was primarily due to a risk rating upgrade on an AgVantage counterparty.

As of June 30, 2022, Farmer Mac's 90-day delinquencies were $20.6 million (0.20% of the Agricultural Finance Mortgage Loan portfolio), compared to $63.1 million (0.70% of the Agricultural Finance Mortgage Loan portfolio) as of June 30, 2021. Across all of Farmer Mac's lines of business, 90-day delinquencies represented 0.08% of total outstanding business volume as of June 30, 2022, compared to 0.28% as of June 30, 2021.

Capital

As of June 30, 2022, Farmer Mac's core capital level was $1.3 billion, $506.3 million above the minimum capital level required by the company's statutory charter. Farmer Mac's Tier 1 capital ratio was 14.7% as of June 30, 2022.

Earnings Conference Call Information

The conference call to discuss Farmer Mac's second quarter 2022 financial results will be held beginning at 4:30 p.m. eastern time on Monday, August 8, 2022, 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 second quarter 2022 is in Farmer Mac's Quarterly Report on Form 10-Q for the quarter ended June 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:

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


June 30, 2022


December 31, 2021


(in thousands)

Assets:




Cash and cash equivalents

$                     909,430


$                     908,785

Investment securities:




Available-for-sale, at fair value (amortized cost of $4,354,855 and $3,834,714, respectively)

4,246,012


3,836,391

Held-to-maturity, at amortized cost

45,032


44,970

Other investments

1,537


1,229

Total Investment Securities

4,292,581


3,882,590

Farmer Mac Guaranteed Securities:




Available-for-sale, at fair value (amortized cost of $6,679,196 and $6,135,807, respectively)

6,450,212


6,328,559

Held-to-maturity, at amortized cost

1,689,469


2,033,239

Total Farmer Mac Guaranteed Securities

8,139,681


8,361,798

USDA Securities:




Trading, at fair value

2,275


4,401

Held-to-maturity, at amortized cost

2,430,830


2,436,331

Total USDA Securities

2,433,105


2,440,732

Loans:




Loans held for investment, at amortized cost

8,911,475


8,314,096

Loans held for investment in consolidated trusts, at amortized cost

834,941


948,623

Allowance for losses

(12,403)


(14,041)

Total loans, net of allowance

9,734,013


9,248,678

Financial derivatives, at fair value

30,011


19,139

Interest receivable (includes $7,664 and $10,418, respectively, related to consolidated trusts)

177,956


177,355

Guarantee and commitment fees receivable

44,388


45,538

Deferred tax asset, net

25,971


15,558

Prepaid expenses and other assets

129,267


45,318

Total Assets

$                 25,916,403


$                25,145,491





Liabilities and Equity:




Liabilities:




Notes payable

$                 23,474,095


$                22,716,156

Debt securities of consolidated trusts held by third parties

866,107


981,379

Financial derivatives, at fair value

127,983


34,248

Accrued interest payable (includes $6,753 and $9,619, respectively, related to consolidated trusts)

93,823


83,992

Guarantee and commitment obligation

42,990


43,926

Accounts payable and accrued expenses

97,380


79,427

Reserve for losses

1,677


1,950

Total Liabilities

24,704,055


23,941,078

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, 9,265,842 shares and 9,235,205 shares outstanding, respectively

9,266


9,235

Additional paid-in capital

127,569


125,993

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

(49,484)


3,853

Retained earnings

638,935


579,270

Total Equity

1,212,348


1,204,413

Total Liabilities and Equity

$                 25,916,403


$                25,145,491

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



For the Three Months Ended


For the Six Months Ended


June 30, 2022


June 30, 2021


June 30, 2022


June 30, 2021


(in thousands, except per share amounts)

Interest income:








Investments and cash equivalents

$             11,200


$               4,457


$             16,916


$               9,986

Farmer Mac Guaranteed Securities and USDA Securities

57,104


42,414


96,361


84,818

Loans

76,632


60,214


143,879


119,708

Total interest income

144,936


107,085


257,156


214,512

Total interest expense

75,534


51,956


125,879


106,132

Net interest income

69,402


55,129


131,277


108,380

Release of/(provision for) losses

1,372


761


1,316


(152)

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

70,774


55,890


132,593


108,228

Non-interest income/(expense):








Guarantee and commitment fees

3,213


2,997


6,908


6,027

Gains/(losses) on financial derivatives

3,418


(3,066)


19,492


1,227

Gains/(losses) on trading securities

29


(62)


(34)


(75)

Release of reserve for losses

163


222


273


1,166

Other income

479


435


1,154


1,018

Non-interest income

7,302


526


27,793


9,363

Operating expenses:








Compensation and employee benefits

11,715


9,779


25,013


21,574

General and administrative

7,520


6,349


14,798


12,685

Regulatory fees

813


750


1,625


1,500

Operating expenses

20,048


16,878


41,436


35,759

Income before income taxes

58,028


39,538


118,950


81,832

Income tax expense

12,132


8,252


25,217


17,319

Net income

45,896


31,286


93,733


64,513

Preferred stock dividends

(6,792)


(5,842)


(13,583)


(11,111)

Net income attributable to common stockholders

$             39,104


$             25,444


$             80,150


$             53,402









Earnings per common share:








Basic earnings per common share

$                 3.62


$                 2.36


$                 7.43


$                 4.96

Diluted earnings per common share

$                 3.60


$                 2.35


$                 7.37


$                 4.93

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


June 30, 2022


March 31, 2022


June 30, 2021


(in thousands, except per share amounts)

Net income attributable to common stockholders

$                   39,104


$                   41,046


$                   25,444

Less reconciling items:






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

2,473


1,698


(3,721)

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

5,916


2,024


(2,097)

Unrealized (losses)/gains on trading assets

(285)


94


(61)

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

(62)


20


20

Net effects of terminations or net settlements on financial derivatives

2,536


15,512


109

Income tax effect related to reconciling items

(2,222)


(4,063)


1,208

Sub-total

8,356


15,285


(4,542)

Core earnings

$                   30,748


$                   25,761


$                   29,986







Composition of Core Earnings:






Revenues:






Net effective spread(1)

$                   60,946


$                   57,839


$                   56,551

Guarantee and commitment fees(2)

4,709


4,557


4,334

Other(3)

307


514


301

Total revenues

65,962


62,910


61,186







Credit related expense (GAAP):






Release of losses

(1,535)


(54)


(983)

Total credit related expense

(1,535)


(54)


(983)







Operating expenses (GAAP):






Compensation and employee benefits

11,715


13,298


9,779

General and administrative

7,520


7,278


6,349

Regulatory fees

813


812


750

Total operating expenses

20,048


21,388


16,878







Net earnings

47,449


41,576


45,291

Income tax expense(4)

9,909


9,024


9,463

Preferred stock dividends (GAAP)

6,792


6,791


5,842

Core earnings

$                   30,748


$                   25,761


$                   29,986







Core earnings per share:






  Basic

$                       2.85


$                       2.39


$                       2.79

  Diluted

$                       2.83


$                       2.37


$                       2.77


(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 Six Months Ended


June 30, 2022


June 30, 2021


(in thousands, except per share amounts)

Net income attributable to common stockholders

$                   80,150


$                   53,402

Less reconciling items:




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

4,171


(2,026)

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

7,940


(2,368)

Unrealized losses on trading assets

(191)


(75)

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

(42)


36

Net effects of terminations or net settlements on financial derivatives

18,048


1,274

Income tax effect related to reconciling items

(6,285)


664

Sub-total

23,641


(2,495)

Core earnings

$                   56,509


$                   55,897





Composition of Core Earnings:




Revenues:




Net effective spread(1)

$                 118,785


$                 110,410

Guarantee and commitment fees(2)

9,266


8,574

Other(3)

821


752

Total revenues

128,872


119,736





Credit related expense (GAAP):




Release of losses

(1,589)


(1,014)

Total credit related expense

(1,589)


(1,014)





Operating expenses (GAAP):




Compensation and employee benefits

25,013


21,574

General and administrative

14,798


12,685

Regulatory fees

1,625


1,500

Total operating expenses

41,436


35,759





Net earnings

89,025


84,991

Income tax expense(4)

18,933


17,983

Preferred stock dividends (GAAP)

13,583


11,111

Core earnings

$                   56,509


$                   55,897





Core earnings per share:




  Basic

$                       5.24


$                       5.20

  Diluted

$                       5.20


$                       5.16


(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 Six Months Ended


June 30,
2022


March 31,
2022


June 30,
2021


June 30,
2022


June 30,
2021


(in thousands, except per share amounts)

GAAP - Basic EPS

$           3.62


$           3.81


$           2.36


$           7.43


$           4.96

Less reconciling items:










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

0.23


0.16


(0.35)


0.39


(0.19)

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

0.55


0.19


(0.19)


0.74


(0.22)

Unrealized (losses)/gains on trading securities

(0.03)


0.01


(0.01)


(0.02)


(0.01)

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

0.24


1.44


0.01


1.67


0.12

Income tax effect related to reconciling items

(0.21)


(0.38)


0.11


(0.59)


0.06

Sub-total

0.77


1.42


(0.43)


2.19


(0.24)

Core Earnings - Basic EPS

$           2.85


$           2.39


$           2.79


$           5.24


$           5.20











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

10,796


10,767


10,763


10,782


10,751



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


For the Three Months Ended


For the Six Months Ended


June 30,
2022


March 31,
2022


June 30,
2021


June 30,
2022


June 30,
2021


(in thousands, except per share amounts)

GAAP - Diluted EPS

$           3.60


$           3.77


$           2.35


$           7.37


$           4.93

Less reconciling items:










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

0.23


0.16


(0.34)


0.38


(0.18)

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

0.55


0.19


(0.19)


0.73


(0.22)

Unrealized (losses)/gains on trading securities

(0.03)


0.01


(0.01)


(0.02)


(0.01)

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

0.23


1.42


0.01


1.66


0.12

Income tax effect related to reconciling items

(0.20)


(0.38)


0.11


(0.58)


0.06

Sub-total

0.77


1.40


(0.42)


2.17


(0.23)

Core Earnings - Diluted EPS

$           2.83


$           2.37


$           2.77


$           5.20


$           5.16











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

10,864


10,887


10,838


10,876


10,829

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 Six Months Ended


June 30, 2022


March 31, 2022


June 30, 2021


June 30, 2022


June 30, 2021


Dollars


Yield


Dollars


Yield


Dollars


Yield


Dollars


Yield


Dollars


Yield


(dollars in thousands)

Net interest income/yield

$  69,402


1.09 %


$  61,875


1.00 %


$  55,129


0.94 %


$  131,277


1.04 %


$  108,380


0.93 %

Net effects of consolidated trusts

(1,183)


0.02 %


(1,018)


0.02 %


(1,337)


0.02 %


(2,201)


0.02 %


(2,547)


0.02 %

Expense related to undesignated financial derivatives

(2,026)


(0.03) %


(994)


(0.02) %


970


0.02 %


(3,020)


(0.02) %


3,038


0.03 %

Amortization of premiums/discounts on assets consolidated at fair value

65


? %


(16)


? %


(13)


? %


49


? %


(20)


? %

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

725


0.01 %


356


0.01 %


77


? %


1,083


0.01 %


180


? %

Fair value changes on fair value hedge relationships

(6,037)


(0.10) %


(2,364)


(0.04) %


1,725


0.03 %


(8,403)


(0.07) %


1,379


0.01 %

Net effective spread

$  60,946


0.99 %


$  57,839


0.97 %


$  56,551


1.01 %


$  118,785


0.98 %


$  110,410


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 June 30, 2022:

Core Earnings by Business Segment

For the Three Months Ended June 30, 2022


Agricultural Finance


Rural Infrastructure


Treasury


Corporate






Farm &
Ranch


Corporate
AgFinance


Rural 

Utilities


Renewable
Energy


Funding


Investments



Reconciling

Adjustments


Consolidated
Net Income


(in thousands)

Net interest income

$      33,670


$      6,929


$      3,772


$        468


$    25,845


$      (1,282)


$         ?


$            ?


$       69,402

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

(1,080)


?


(39)


?


(7,337)


?


?


8,456


?

Net effective spread

32,590


6,929


3,733


468


18,508


(1,282)


?


8,456


?

Guarantee and commitment fees

4,338


43


308


20


?


?


?


(1,496)


3,213

Other income/(expense)(3)

161


143


?


?


?


?


3


3,619


3,926

Total revenues

37,089


7,115


4,041


488


18,508


(1,282)


3


10,579


76,541



















Release of/(provision for) losses

857


(650)


1,172


(8)


?


1


?


?


1,372



















Release of reserve for losses

111


?


52


?


?


?


?


?


163

Operating expenses

?


?


?


?


?


?


(20,048)


?


(20,048)

Total non-interest expense

111


?


52


?


?


?


(20,048)


?


(19,885)

Core earnings before income taxes

38,057


6,465


5,265


480


18,508


(1,281)


(20,045)


10,579

(4)

58,028

Income tax (expense)/benefit

(7,991)


(1,357)


(1,105)


(101)


(3,887)


269


4,263


(2,223)


(12,132)

Core earnings before preferred stock dividends

30,066


5,108


4,160


379


14,621


(1,012)


(15,782)


8,356

(4)

45,896

Preferred stock dividends

?


?


?


?


?


?


(6,792)


?


(6,792)

Segment core earnings/(losses)

$      30,066


$      5,108


$      4,160


$        379


$    14,621


$      (1,012)


$  (22,574)


$        8,356

(4)

$       39,104



















Total Assets

$  13,686,589


$  1,521,102


$  5,632,551


$  126,513


$          ?


$ 4,802,159


$ 147,489


$            ?


25,916,403

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

$  16,591,999


$  1,567,311


$  6,172,063


$  148,018


$          ?


$             ?


$          ?


$            ?


24,479,391


(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 June 30, 2022


As of December 31, 2021





(in thousands)

Agricultural Finance:







Farm & Ranch:







Loans


On-balance sheet


$                      5,214,307


$                       4,775,070

Loans held in consolidated trusts:







Beneficial interests owned by third-party investors


On-balance sheet


834,941


948,623

IO-FMGS(1)


On-balance sheet


11,561


12,297

USDA Securities


On-balance sheet


2,429,407


2,445,806

AgVantage Securities


On-balance sheet


4,995,000


4,725,000

LTSPCs and unfunded commitments


Off-balance sheet


2,562,467


2,587,154

Farmer Mac Guaranteed Securities


Off-balance sheet


523,580


578,358

Loans serviced for others


Off-balance sheet


20,736


22,331

Total Farm & Ranch




$                    16,591,999


$                     16,094,639

Corporate AgFinance:







Loans


On-balance sheet


$                      1,149,614


$                       1,123,300

AgVantage Securities


On-balance sheet


352,968


367,464

Unfunded Loan Commitments


Off-balance sheet


64,729


47,070

Total Corporate AgFinance




$                      1,567,311


$                       1,537,834

Total Agricultural Finance




$                    18,159,310


$                     17,632,473

Rural Infrastructure Finance:







Rural Utilities:







Loans


On-balance sheet


$                      2,631,694


$                       2,302,373

AgVantage Securities


On-balance sheet


2,986,404


3,033,262

LTSPCs and Unfunded Loan Commitments


Off-balance sheet


551,210


556,837

Farmer Mac Guaranteed Securities


Off-balance sheet


2,755


2,755

Total Rural Utilities




$                      6,172,063


$                       5,895,227

Renewable Energy:







Loans


On-balance sheet


$                         126,299


$                            86,763

Unfunded Loan Commitments


Off-balance sheet


21,719


?

Total Renewable Energy




$                         148,018


$                            86,763

Total Rural Infrastructure Finance




$                      6,320,081


$                       5,981,990

Total




$                    24,479,391


$                     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


Corporate
AgFinance


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:




























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 %

June 30, 2020

21,597


0.83 %


4,997


1.36 %


1,701


0.14 %


47


0.93 %


19,449


0.37 %


(1,322)


(0.13) %


46,469


0.89 %


(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 June 30, 2022.

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

Core Earnings by Quarter Ended


June
2022


March
2022


December
2021


September
2021


June
2021


March
2021


December
2020


September
2020


June
2020




(in thousands)

Revenues:


















Net effective spread

$  60,946


$   57,839


$   54,333


$   55,925


$  56,551


$   53,859


$   54,522


$   51,802


$  46,469

Guarantee and commitment fees

4,709


4,557


4,637


4,322


4,334


4,240


4,652


4,659


4,943

Gain on sale of mortgage loans

?


?


6,539


?


?


?


?


?


?

Other

307


514


241


687


301


451


512


453


1,048

Total revenues

65,962


62,910


65,750


60,934


61,186


58,550


59,686


56,914


52,460



















Credit related expense/(income):


















(Release of)/provision for losses

(1,535)


(54)


(1,428)


255


(983)


(31)


2,973


1,200


51

REO operating expenses

?


?


?


?


?


?


?


?


?

Losses/(gains) on sale of REO

?


?


?


?


?


?


22


?


?

Total credit related expense/(income)

(1,535)


(54)


(1,428)


255


(983)


(31)


2,995


1,200


51



















Operating expenses:


















Compensation and employee benefits

11,715


13,298


11,246


10,027


9,779


11,795


9,497


8,791


8,087

General and administrative

7,520


7,278


8,492


6,330


6,349


6,336


6,274


5,044


5,295

Regulatory fees

813


812


812


750


750


750


750


725


725

Total operating expenses

20,048


21,388


20,550


17,107


16,878


18,881


16,521


14,560


14,107



















Net earnings

47,449


41,576


46,628


43,572


45,291


39,700


40,170


41,154


38,302

Income tax expense

9,909


9,024


9,809


9,152


9,463


8,520


8,470


8,297


8,016

Preferred stock dividends

6,792


6,791


6,792


6,774


5,842


5,269


5,269


5,166


3,939

Core earnings

$  30,748


$   25,761


$   30,027


$   27,646


$  29,986


$   25,911


$   26,431


$   27,691


$  26,347



















Reconciling items:


















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

$    2,473


$     1,698


$    (1,213)


$    (1,864)


$   (3,721)


$    1,695


$   (1,758)


$    (4,149)


$   8,700

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

5,916


2,024


1,476


(2,093)


(2,097)


(271)


3,827


(5,245)


(2,676)

Unrealized gains/(losses) on trading assets

(285)


94


(76)


36


(61)


(14)


223


(258)


(20)

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

(62)


20


71


23


20


16


(77)


97


35

Net effects of terminations or net settlements on financial derivatives

2,536


15,512


(429)


(351)


109


1,165


1,583


233


720

Issuance costs on the retirement of preferred stock

?


?


?


?


?


?


?


(1,667)


?

Income tax effect related to reconciling items

(2,222)


(4,063)


36


892


1,208


(544)


(798)


1,957


(1,419)

Net income attributable to common stockholders

$  39,104


$   41,046


$   29,892


$   24,289


$  25,444


$   27,958


$   29,431


$   18,659


$  31,687

 

 

SOURCE Farmer Mac


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