Federal Agricultural Mortgage Corporation Q3 FY2025 earnings call

• Delivered record net effective spread of $97.8 million and core earnings of $49.6 million for the quarter; year-to-date net effective spread and core earnings were $287 million and $143 million respectively with double-digit growth.
• Diversified loan portfolio into newer lines of business like renewable energy, broadband infrastructure, and corporate Ag finance, which is benefiting from changing market cycles.
• Core capital increased by $131 million to $1.7 billion as of September 30, exceeding statutory requirements, with the issuance of $100 million of Series H preferred stock in August.
• Plan to work toward a second prime transaction in the fourth quarter of 2025, which is a key strategic initiative.
• Subsequent to quarter-end, repurchased approximately 30,000 shares of Class C common stock for about $5 million.

During the third quarter of 2025, Farmer Mac ended the quarter with a record net effective spread of $97.8 million and core earnings of $49.6 million. Year-to-date, net effective spread was $287 million and core earnings were $143 million, reflecting double-digit year-over-year growth. The growth in spreads was driven by higher average loan balances and the shift to higher spread business. The loan portfolio is diversified into newer lines of business such as renewable energy, broadband infrastructure, and corporate Ag finance. The infrastructure finance segment saw significant growth, with broadband infrastructure doubling year-over-year to $1.3 billion and renewable energy volume more than doubling to $2.3 billion. The Farm & Ranch loan purchase portfolio grew by $285 million in the third quarter, offsetting scheduled maturities. Revenue contribution from newer lines of business like infrastructure finance is increasing as they carry more accretive spreads compared to core Farm & Ranch business.

• Continue to evaluate all capital management tools to optimize overall capital position through organic capital generation and securitization opportunities.
• Work toward a second prime transaction in the fourth quarter of 2025.
• Leverage tools like dividends and buybacks to return capital to shareholders in a sustainable and value accretive manner.

• Volatility in the agricultural cycle which could impact credit losses.
• Political developments, government actions including shutdowns, and changes in policy which could affect the portfolio.
• Episodic credit events such as the increased loss estimate on certain Ag storage and processing and broadband substandard assets, and specific properties affected by groundwater regulation in California.

Q: Can you talk about the outlook for spreads given the Fed's expected rate cuts?

A: Farmer Mac is structured to be neutral to interest rate changes at short and long ends of the curve. Changes in market interest rates don't significantly impact profitability. Diversification into newer lines of business like broadband and renewable energy, which carry more accretive spreads, is driving spread growth.

Q: Should the provision level reported this quarter seem reasonable?

A: The provision is mid-high 7-figure, very low compared to other financial institutions. It reflects episodic events like a few loans in California affected by groundwater policy, and there's no systemic risk seen. Next quarter's numbers are not expected to jump out of this range.

Q: How are crops being impacted by tariffs and what about market stabilization payments?

A: Soybean prices are up 10% in the last 2.5 weeks, almond prices are up. There are financial pressures in major crops but farmers are adaptive. Discretionary payments are expected to flow in the next couple of weeks with possible additional payments later.

Q: How are prepayment expectations looking ahead?

A: Prepayment speeds are not expected to increase significantly as most borrowers locked in long-term fixed-rate mortgages at low rates which won't be refinanced, and rates aren't dropping to accelerated levels to entice refinancing.

Q: About the $7.4 million provision in the quarter, how was it weighted?

A: It was a mix of growth through CECL models and the groundwater regulations in California, along with 3 specific credits with special allowances, characterized as episodic.

Q: Were you active in the share repurchasing program?

A: Yes, Farmer Mac repurchased approximately 30,000 shares of Class C common stock for about $5 million in the fourth quarter.