FEDERAL AGRICULTURAL MORTGAGE CORP Q4 FY2024 earnings call

• Delivered strong financial results in 2024 with record net effective spread and core earnings, driven by consistent loan growth, effective asset liability management, and funding execution, along with well-managed operating expense control.
• Closed two $300 million farm securitization transactions in 2024, the first time completing two issuances in one year.
• Announced the 14th consecutive annual dividend increase, raising the quarterly common stock dividend to $1.50 per share starting Q1 2025.
• Introduced new segment reporting in Q4 2024, rebranded rural utility to power and utilities and added broadband infrastructure segment to better communicate core areas of focus.
• Recognized renewable energy investment tax credits of $2.6 million from two dairy renewable natural gas projects, and actively looking at renewable energy credit opportunities in 2025.

In 2024, total revenues improved to $362 million compared to $349 million in 2023, primarily due to higher net effective spread. Core earnings year to date reached $172 million, modestly exceeding the prior year record. In the fourth quarter of 2024, net volume growth was $1.1 billion, driven by strong loan purchase volume in farm and ranch, renewable energy, and broadband infrastructure segments. The farm and ranch segment closed over $1.5 billion of new loan purchases in 2024, up from $780 million in 2023. The broadband infrastructure segment grew over $300 million or 60% year over year. The renewable energy segment had nearly $1.5 billion in total volume by year-end 2024, with the segment introduced in 2020 and volume doubling each year since then. Corporate Ag Finance saw net growth of about $200 million in 2024.

• Plan to continue target deal sizes of approximately $300 million for securitization, exploring new securitization products and asset classes including renewable energy.
• Expect positive momentum to continue in 2025 with tightening bank liquidity and higher rate environment, and USDA's expected increase in cash farm income due to government support, while commodity price volatility expected to drive more loan volume.
• Confident in underlying business model, strong capital position, and uninterrupted access to debt capital markets to partner with customers and enhance shareholder value.

• Idiosyncratic credit issues, such as a single agricultural storage and processing borrower exposure and a renewable energy project with equipment failure.
• Volatility in AgVantage business volume due to changing needs of counterparties, pricing and availability of wholesale funding, and yield curve dynamics.
• Regulatory and policy changes, including potential impacts on renewable energy tax credits and agricultural financing.

Q: Could you provide an update on the transformational securitization product and its status, demand, interest level, and fee structure?

A: Exploration of securitizing loans like farm and ranch loans originated by others and renewable energy loans continues, with focus on notional profitability and return on allocated equity capital. No pending announcements.

Q: Could you unpack the elevated G&A expenses in Q4, including specific components and if it's a new level going forward?

A: Elevated G&A expenses in Q4 were due to entry into newer lines of business (telecom, renewable energy) with additional legal fees, and culmination of STARS program with one-time or lumpy expenses. Not expected to be an endemic level but some volatility possible.

Q: What's the outlook for spreads assuming rates find a range and the Fed is on hold?

A: Higher margin segments like renewable energy had growth, farm and ranch demand due to farmers needing liquidity in higher rate environment. Spreads expected to be influenced by funding strategies, hedging with fixed-rate callable instruments, and market dynamics; net effective spread projection could be flat if rates stay high.

Q: How does the move to higher product spread impact credit loss content?

A: Credit issues are idiosyncratic, like almond price rebound impact and renewable energy project equipment failure. Systemic or sector credit problems are difficult to project as situations are one asset at a time.

Q: Are there indications of changes in DC relative to renewable energy business and Inflation Reduction Act?

A: Projects financed are investment tax credit dependent, not grant dependent. Projects on books have locked-in credits. Take wait-and-see attitude on tax law changes, but remain disciplined in origination and will adjust accordingly if needed.

Q: Where do we go from here with the loan loss reserve given idiosyncratic issues?

A: Allowances are highly scrutinized, follow strict formulas aligned with loan classifications and models. Reserve increase was due to specific idiosyncratic issues; if situations reverse, reserve can decrease, and if new issues come, it can increase.