FEDERAL AGRICULTURAL MORTGAGE CORP 10-K Analysis & Summary – 2/21/2025

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Federal Agricultural Mortgage C

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Farmer Mac’s 2024 financial performance shows a slight increase in net income, driven by higher interest income and tax benefits, offset by increased expenses and provisions for credit losses. The company maintains a strong capital position and operates within regulatory requirements, but faces risks related to credit quality, interest rates, and market conditions.

ELI5:

Farmer Mac, a company that helps rural lenders, made a bit more money this year. They’re doing okay, but need to watch out for potential loan defaults and changes in interest rates.

Accession #:

0000845877-25-000033

Published on

March 16, 2025

Analyst Summary

Net income attributable to common stockholders increased slightly from $172.8 million in 2023 to $180.4 million in 2024.
Net Interest Margin increased slightly from 1.15% to 1.16%.
Tier 1 Capital Ratio decreased from 15.4% to 14.2%.
Total assets increased from $29.5 billion in 2023 to $31.3 billion in 2024.
Net cash provided by operating activities increased from $375.8 million in 2023 to $612.6 million in 2024.
Operating Profit Margin decreased from 72.34% to 71.92%.
Net Profit Margin decreased from 56.97% to 55.21%.
Return on Assets (ROA) decreased from 0.68% to 0.66%.
Return on Equity (ROE) is 12.12%.
Basic EPS increased from $15.97 to $16.59.
Diluted EPS increased from $15.81 to $16.44.
Current Ratio decreased from 2.22 to 1.69.
Quick Ratio decreased from 2.22 to 1.69.
Cash Ratio decreased from 0.11 to 0.10.
Debt-to-Equity Ratio increased from 19.91 to 20.04.
Debt-to-Assets Ratio remained constant at 0.95.
Interest Coverage Ratio decreased from 1.24 to 1.21.
Asset Turnover remained constant at 0.012.
Price-to-Earnings Ratio (P/E) is 12.54.
Price-to-Book Ratio (P/B) is 1.52.
Price-to-Sales Ratio (P/S) is 6.03.
Enterprise Value to EBITDA (EV/EBITDA) is 18.98.
Revenue Growth is 6.89%.
Net Income Growth is 3.60%.
EPS Growth is 3.88%.
Core Earnings increased from $171,156 (in thousands) to $171,630 (in thousands).
Net New Business Volume decreased from $2,548,942 (in thousands) to $1,052,006 (in thousands).

Opportunities and Risks

Credit Risk: Economic stress, weather-related events, and political factors could impair borrowers’ ability to repay loans.
Counterparty Risk: Concentration of AgVantage securities with a few counterparties increases the risk of losses if a counterparty defaults.
Interest Rate Risk: Changes in interest rates could negatively impact net interest income and capital levels.
Operational Risk: Inadequacy or failure of operational systems, cybersecurity program, or internal controls could disrupt business operations.
Regulatory Risk: Changes in laws and regulations could adversely affect Farmer Mac’s business model.
Product Diversification: Expanding product offerings and services to meet the evolving needs of rural America.
Market Expansion: Deepening relationships with eligible infrastructure counterparties and attracting institutional investors.
Strategic Acquisitions: Expanding loan servicing capabilities to enhance the value proposition for customers.

Potential Implications

Stock Price

Closely monitor credit quality trends, particularly in the permanent plantings and crops sectors.
Evaluate the impact of potential legislative and regulatory changes on Farmer Mac’s business model.
Continue to diversify the customer base and product offerings to mitigate concentration risk.

Executive Summary

This report analyzes Federal Agricultural Mortgage Corp’s (Farmer Mac) 2024 10-K filing. Key findings include a slight increase in net income, driven by higher interest income and tax benefits, offset by increased expenses and provisions for credit losses. The company maintains a strong capital position and continues to operate within regulatory requirements. The analysis highlights the importance of monitoring credit quality, managing interest rate risk, and adapting to evolving market conditions. Overall assessment: Hold. Recommendations: Closely monitor credit quality trends, particularly in the permanent plantings and crops sectors. Evaluate the impact of potential legislative and regulatory changes on Farmer Mac’s business model.

Company Overview

Federal Agricultural Mortgage Corporation (Farmer Mac) is a federally chartered corporation providing a secondary market for agricultural and rural infrastructure loans. It purchases eligible loans, guarantees securities backed by these loans, and issues long-term standby purchase commitments. Farmer Mac operates in the Agricultural Finance and Infrastructure Finance lines of business, serving Farm & Ranch, Corporate AgFinance, Power & Utilities, Broadband Infrastructure, and Renewable Energy segments.

Financial Statement Analysis

Income Statement

Net income attributable to common stockholders increased slightly from $172.8 million in 2023 to $180.4 million in 2024. This increase was driven by higher net interest income and a tax benefit, but offset by higher operating expenses and provisions for credit losses.

Key Ratios

Ratio	2024	2023	Trend
Net Interest Margin	1.16%	1.15%	Slight Increase
Tier 1 Capital Ratio	14.2%	15.4%	Decrease

Balance Sheet

Total assets increased from $29.5 billion in 2023 to $31.3 billion in 2024, primarily due to increased loan volume and investment securities. Equity also increased, driven by retained earnings and accumulated other comprehensive income.

Cash Flow Statement

Net cash provided by operating activities increased from $375.8 million in 2023 to $612.6 million in 2024. Net cash used in investing activities decreased, and net cash provided by financing activities also decreased.

Management’s Discussion and Analysis (MD&A) Insights

Management highlights the company’s mission to increase access to financing for rural America. They emphasize the importance of managing credit risk, interest rate risk, and adapting to evolving market conditions. The MD&A also discusses the impact of weather-related events and potential legislative changes on the agricultural sector.

Red Flags and Uncommon Metrics

Increase in substandard assets, particularly in the permanent plantings and crops sectors, warrants close monitoring.
Concentration of AgVantage securities with a few counterparties creates counterparty risk.
Reliance on models for risk management requires careful validation and adaptation.

Risk and Opportunity Assessment

Risks

Credit Risk: Economic stress, weather-related events, and political factors could impair borrowers’ ability to repay loans.
Counterparty Risk: Concentration of AgVantage securities with a few counterparties increases the risk of losses if a counterparty defaults.
Interest Rate Risk: Changes in interest rates could negatively impact net interest income and capital levels.
Operational Risk: Inadequacy or failure of operational systems, cybersecurity program, or internal controls could disrupt business operations.
Regulatory Risk: Changes in laws and regulations could adversely affect Farmer Mac’s business model.

Opportunities

Product Diversification: Expanding product offerings and services to meet the evolving needs of rural America.
Market Expansion: Deepening relationships with eligible infrastructure counterparties and attracting institutional investors.
Strategic Acquisitions: Expanding loan servicing capabilities to enhance the value proposition for customers.

Conclusion and Actionable Insights

Farmer Mac’s financial performance in 2024 reflects a stable business model with moderate growth. However, the increase in substandard assets and concentration of AgVantage securities highlight the need for careful risk management. The company’s ability to adapt to evolving market conditions and capitalize on growth opportunities will be crucial for future success.

Overall Assessment: Hold.

Recommendations:

Closely monitor credit quality trends, particularly in the permanent plantings and crops sectors.
Evaluate the impact of potential legislative and regulatory changes on Farmer Mac’s business model.
Continue to diversify the customer base and product offerings to mitigate concentration risk.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin
- Ratio/Metric: Not applicable. Farmer Mac is a financial institution and does not have a cost of goods sold.
- Industry: Not applicable.
Operating Profit Margin
- Ratio/Metric: Operating Income / Total Revenue = (Net Interest Income + Non-Interest Income – Operating Expenses) / (Net Interest Income + Non-Interest Income) = (353,867 + 21,397 – 105,386) / (353,867 + 21,397) = 269,878 / 375,264 = 71.92%
- Trend: Previous year operating profit margin = (327,547 + 23,511 – 97,099) / (327,547 + 23,511) = 253,959 / 351,058 = 72.34%. Percentage change = (71.92 – 72.34) / 72.34 = -0.58%
- Industry: The operating margin for financial institutions varies widely. A well-managed financial institution typically has an operating margin between 30% and 50%. Farmer Mac’s operating margin is significantly higher than the industry average.
Net Profit Margin
- Ratio/Metric: Net Income / Total Revenue = 207,193 / 375,264 = 55.21%
- Trend: Previous year net profit margin = 200,003 / 351,058 = 56.97%. Percentage change = (55.21 – 56.97) / 56.97 = -3.09%
- Industry: The net profit margin for financial institutions varies widely. A well-managed financial institution typically has a net profit margin between 15% and 30%. Farmer Mac’s net profit margin is significantly higher than the industry average.
Return on Assets (ROA)
- Ratio/Metric: Net Income / Total Assets = 207,193 / 31,324,742 = 0.66%
- Trend: Previous year ROA = 200,003 / 29,524,382 = 0.68%. Percentage change = (0.66 – 0.68) / 0.68 = -2.94%
- Industry: The ROA for financial institutions typically ranges from 0.5% to 1.5%. Farmer Mac’s ROA is within this range.
Return on Equity (ROE)
- Ratio/Metric: Net Income Attributable to Common Stockholders / Total Equity = 180,428 / 1,489,026 = 12.12%
- Industry: The ROE for financial institutions typically ranges from 8% to 15%. Farmer Mac’s ROE is within this range.
Earnings Per Share (EPS) – Basic and Diluted
- Ratio/Metric: Basic EPS = Net Income Attributable to Common Stockholders / Weighted Average Shares Outstanding (Basic) = 180,428 / 10,874 = $16.59. Diluted EPS = Net Income Attributable to Common Stockholders / Weighted Average Shares Outstanding (Diluted) = 180,428 / 10,975 = $16.44
- Trend: Previous year Basic EPS = $15.97, Diluted EPS = $15.81. Percentage change Basic EPS = (16.59 – 15.97) / 15.97 = 3.88%. Percentage change Diluted EPS = (16.44 – 15.81) / 15.81 = 4.05%
- Industry: EPS varies significantly across the financial industry.

Liquidity

Current Ratio
- Ratio/Metric: Current Assets / Current Liabilities = (Cash and cash equivalents + Investment securities + Farmer Mac Guaranteed Securities + USDA Securities) / Notes payable due within one year = (1,024,007 + 5,973,301 + 8,232,234 + 2,371,352) / 10,437,623 = 17,600,894 / 10,437,623 = 1.69
- Trend: Previous year Current Ratio = (888,707 + 4,979,504 + 9,745,548 + 2,355,412) / 8,087,168 = 17,969,171 / 8,087,168 = 2.22. Percentage change = (1.69 – 2.22) / 2.22 = -23.87%
- Industry: A current ratio of 1.0 or greater is generally considered acceptable for financial institutions. Farmer Mac’s current ratio is above this threshold.
Quick Ratio (Acid-Test Ratio)
- Ratio/Metric: (Current Assets – Inventory) / Current Liabilities = (Cash and cash equivalents + Investment securities + Farmer Mac Guaranteed Securities + USDA Securities) / Notes payable due within one year = (1,024,007 + 5,973,301 + 8,232,234 + 2,371,352) / 10,437,623 = 17,600,894 / 10,437,623 = 1.69
- Trend: Previous year Quick Ratio = (888,707 + 4,979,504 + 9,745,548 + 2,355,412) / 8,087,168 = 17,969,171 / 8,087,168 = 2.22. Percentage change = (1.69 – 2.22) / 2.22 = -23.87%
- Industry: A quick ratio of 1.0 or greater is generally considered acceptable for financial institutions. Farmer Mac’s quick ratio is above this threshold.
Cash Ratio
- Ratio/Metric: Cash and Cash Equivalents / Current Liabilities = 1,024,007 / 10,437,623 = 0.10
- Trend: Previous year Cash Ratio = 888,707 / 8,087,168 = 0.11. Percentage change = (0.10 – 0.11) / 0.11 = -9.09%
- Industry: The cash ratio for financial institutions varies. Farmer Mac’s cash ratio is relatively low, but adequate given its access to other funding sources.

Solvency/Leverage

Debt-to-Equity Ratio
- Ratio/Metric: Total Liabilities / Total Equity = 29,835,716 / 1,489,026 = 20.04
- Trend: Previous year Debt-to-Equity Ratio = 28,112,519 / 1,411,863 = 19.91. Percentage change = (20.04 – 19.91) / 19.91 = 0.65%
- Industry: The debt-to-equity ratio for financial institutions varies. Farmer Mac’s debt-to-equity ratio is relatively high, reflecting its business model.
Debt-to-Assets Ratio
- Ratio/Metric: Total Liabilities / Total Assets = 29,835,716 / 31,324,742 = 0.95
- Trend: Previous year Debt-to-Assets Ratio = 28,112,519 / 29,524,382 = 0.95. Percentage change = (0.95 – 0.95) / 0.95 = 0.00%
- Industry: The debt-to-assets ratio for financial institutions typically ranges from 0.8 to 0.95. Farmer Mac’s debt-to-assets ratio is within this range.
Interest Coverage Ratio (Times Interest Earned)
- Ratio/Metric: EBIT / Interest Expense = (Net Income + Income Tax Expense + Interest Expense) / Interest Expense = (207,193 + 50,910 + 1,249,649) / 1,249,649 = 1,507,752 / 1,249,649 = 1.21
- Trend: Previous year Interest Coverage Ratio = (200,003 + 53,098 + 1,064,741) / 1,064,741 = 1,317,842 / 1,064,741 = 1.24. Percentage change = (1.21 – 1.24) / 1.24 = -2.42%
- Industry: An interest coverage ratio of 1.5 or greater is generally considered acceptable. Farmer Mac’s interest coverage ratio is below this threshold, indicating a higher reliance on debt.

Activity/Efficiency

Asset Turnover
- Ratio/Metric: Total Revenue / Total Assets = 375,264 / 31,324,742 = 0.012
- Trend: Previous year Asset Turnover = 351,058 / 29,524,382 = 0.012. Percentage change = (0.012 – 0.012) / 0.012 = 0.00%
- Industry: Asset turnover varies widely across the financial industry. Farmer Mac’s asset turnover is relatively low, reflecting its business model.

Valuation

Price-to-Earnings Ratio (P/E)
- Ratio/Metric: Market Cap / Net Income Attributable to Common Stockholders = (208.09 * 10,874) / 180,428 = 2,262,797 / 180,428 = 12.54
- Industry: The P/E ratio for financial institutions varies. Farmer Mac’s P/E ratio is within the range of other financial institutions.
Price-to-Book Ratio (P/B)
- Ratio/Metric: Market Cap / Total Equity = (208.09 * 10,874) / 1,489,026 = 2,262,797 / 1,489,026 = 1.52
- Industry: The P/B ratio for financial institutions typically ranges from 1 to 3. Farmer Mac’s P/B ratio is within this range.
Price-to-Sales Ratio (P/S)
- Ratio/Metric: Market Cap / Total Revenue = (208.09 * 10,874) / 375,264 = 2,262,797 / 375,264 = 6.03
- Industry: The P/S ratio for financial institutions varies. Farmer Mac’s P/S ratio is within the range of other financial institutions.
Enterprise Value to EBITDA (EV/EBITDA)
- Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA = (2,262,797 + 27,371,174 – 1,024,007) / (Net Income + Interest Expense + Income Tax Expense) = (28,609,964) / (207,193 + 1,249,649 + 50,910) = 28,609,964 / 1,507,752 = 18.98
- Industry: The EV/EBITDA ratio for financial institutions varies. Farmer Mac’s EV/EBITDA ratio is within the range of other financial institutions.

Growth Rates

Revenue Growth
- Ratio/Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = (375,264 – 351,058) / 351,058 = 6.89%
Net Income Growth
- Ratio/Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = (207,193 – 200,003) / 200,003 = 3.60%
EPS Growth
- Ratio/Metric: (Current Year Basic EPS – Previous Year Basic EPS) / Previous Year Basic EPS = (16.59 – 15.97) / 15.97 = 3.88%

Other Relevant Metrics

Core Earnings
- Description: Core earnings is a non-GAAP measure that Farmer Mac uses to assess its financial performance. It is calculated by adjusting net income attributable to common stockholders for certain items, such as gains/losses on derivatives, hedging activities, and trading securities.
- Ratio/Metric: Core Earnings = $171,630 (in thousands)
- Trend: Previous year Core Earnings = $171,156 (in thousands). Percentage change = (171,630 – 171,156) / 171,156 = 0.28%
- Significance: Farmer Mac believes that core earnings provides a more meaningful measure of its recurring operating performance.
- Assessment: The adjustments made to net income to arrive at core earnings appear reasonable, as they remove the impact of non-recurring or volatile items.
Net New Business Volume
- Description: Net new business volume represents the change in the outstanding business volume during the period.
- Ratio/Metric: Net New Business Volume = $1,052,006 (in thousands)
- Trend: Previous year Net New Business Volume = $2,548,942 (in thousands). Percentage change = (1,052,006 – 2,548,942) / 2,548,942 = -58.73%
- Significance: Farmer Mac uses net new business volume to measure its growth.

Commentary

Farmer Mac’s financial performance in 2024 shows a mixed picture. While net income and EPS increased, profitability margins and ROA decreased slightly. The company maintains strong liquidity and solvency, but its interest coverage ratio remains relatively low. Revenue growth was positive, but net new business volume decreased significantly compared to the previous year. Overall, Farmer Mac’s financial position is stable, but the decrease in net new business volume warrants attention.