Federal Agricultural Mortgage Corporation Q2 FY2025 earnings call

• Record core earnings of $47.4 million and record net effective spread of $93.9 million were achieved.
• Growth in spreads was driven by higher average loan balances and shift to higher spread business.
• Purchased $35.6 million of renewable energy investment tax credits with a $3.2 million benefit.
• Operating expenses increased due to headcount, technology investments, and legal fees related to new business.
• Efficiency ratio remained in line with the long-term strategic target of 30%.
• Credit expense factors included $2.8 million charge-off, downgrades in infrastructure finance loans, and higher allowances for new volume growth in new segments.
• Strong capital position with core capital at $1.6 billion as of June 30, 2025, exceeding statutory requirement by $602 million.
• Tier 1 capital ratio modestly declined to 13.6% due to growth in assets in newer segments.
• Passage of HR1 with potential impacts on Farmer Mac and stakeholders, including updates to crop insurance and tax benefits.
• Customer and market developments with $800 million of net new business volume and growth across all segments.

During the second quarter of 2025, Farmer Mac achieved record results. Core earnings grew 19% year-over-year. Net effective spread increased over 12% compared to the same period last year, and total outstanding business volume surpassed $30 billion for the first time. Infrastructure Finance line of business grew by $644 million in the second quarter to $10.4 billion as of quarter end, with the Renewable Energy segment growing $332 million to nearly $2 billion, Broadband Infrastructure growing $200 million to $1.2 billion, and Power and Utilities growing $112 million. Agricultural Finance volume increased by $188 million in the second quarter to $20.2 billion as of quarter end, with the Farm & Ranch segment growing $123 million to $18.2 billion and Corporate Ag Finance growing $64 million to $2 billion. Revenue contribution % wasn't explicitly stated in absolute terms but segments showed significant growth in volume.

• Continue to evaluate all capital management tools to optimize overall capital position.
• Optimistic about the future with strong liquidity and capital levels, diversified business mix, and effective risk management practices.
• Well-positioned to deliver on multiyear strategy with a talented team.

• Credit losses from new segments like broadband, infrastructure, and renewable energy with different risk rates.
• Impact of declining economic forecast on new volume growth in new segments.
• Policy changes such as from HR1 and tariffs with potential impacts on the business.
• Legal fees related to new business transactions in new segments.
• Regulatory shifts that could affect the industries served.

Q: Bose George at KBW asked about the spread outlook and Farm & Ranch spreads.

A: Zack Carpenter mentioned the strong mix in Farm & Ranch with strong loan purchase growth outpacing maturities, and Brad Nordholm discussed the diversity of the portfolio and the contest between growth in new segments and potential paydown of AgVantage bonds.

Q: Bill Ryan at Seaport Research Partners asked about HR1, tax benefits, and tariffs.

A: Bradford Todd Nordholm and Zack Carpenter discussed the tax benefits from HR1, impacts of tariffs on different crops and exports, and the $33 billion disaster relief for farmers.

Q: Brendan McCarthy at Sidoti asked about renewable energy tax credits, credit provision, and share repurchase authorization.

A: Bradford Todd Nordholm and others discussed the timing of renewable energy tax credit phase-out, details of the $7.8 million credit provision, and how share repurchases fit into capital allocation priorities, including being opportunistic when the stock price is attractive.