Federal Agricultural Mortgage Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2025

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the former MAC twenty twenty five Earnings Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. Please press 0 for the operator. This call is being recorded on Thursday, 05/08/2025.

Operator

I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Speaker 1

Good morning, and thank you for joining us for our first quarter twenty twenty five earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Farmer Mac. As we begin, please note that the information provided during this call may contain forward looking statements about the company's business, strategies, and prospects, which are based on management's current expectations and assumptions. These statements are not a guarantee of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Farmer Mac's twenty twenty four annual report and subsequent SEC filings for a full discussion of the company's risk factors.

Speaker 1

On today's call, we will also be discussing certain non GAAP financial measures. Disclosures and reconciliations of these non GAAP measures can be found in the most recent Form 10 Q and earnings release posted on Farmer Mac's website, farmermac.com, under the Financial Information portion of the Investors section. Joining us from management this morning is our President and Chief Executive Officer, Brad Nordholm, who will discuss first quarter business and financial highlights and strategic objectives, and Chief Financial Officer, Aparna Ramesh, who will provide greater detail on our financial performance. Select members of our management team will also be joining us for the question and answer period. At this time, I'll turn the call over to President and CEO Brad Nordholm.

Speaker 1

Brad?

Speaker 2

Thanks, Jalpa. Good morning, everyone, and thank you for joining us. I'm very pleased to share that we've achieved another outstanding quarter with record quarterly revenue, net effective spread and core earnings. Our capital base remains strong, bolstered by strong earnings, disciplined asset liability management and consistent access to capital markets. These strengths support our long term strategic growth objectives and provide a buffer against market volatility and shifting credit conditions.

Speaker 2

These results underscore the robustness of our business model and the effectiveness of our strategic initiatives of mission based profitable growth. We continue to fulfill our mission to rural America even as we navigate broader market uncertainties stemming from interest rates, regulatory shifts, policy changes, and government action. In the first quarter twenty twenty five, we achieved high single digit growth in total revenue, net effective spread, and core earnings. We achieved $1,800,000,000 in gross new business volume during the first quarter, reflecting growth across the infrastructure finance line of business and healthy loan purchase volume in the farm and ranch and corporate ag finance segments. After repayments and maturities, our outstanding business volume grew by $232,000,000 ending the quarter at $29,800,000,000 This growth highlights the benefits of our proactive strategy to diversify our portfolio and create opportunities in all interest rate environments.

Speaker 2

The infrastructure finance line of business grew by approximately $750,000,000 in the first quarter of twenty twenty five, continuing the strong growth momentum from 2024. During the quarter, successfully closed a $300,000,000 AgVantage security in the power and utility segment with a long standing counterparty and we added a 34,000,000 in net new loan purchases. Our broadband infrastructure segment grew 22% since year end, reaching nearly $1,000,000,000 as of the end of the first quarter twenty twenty five. We anticipate increased financing opportunities for rural telecommunication providers driven by fiber line expansion, wireless broadband deployment, data processing center build out, industry consolidation, and mergers and acquisitions. These developments are crucial for rural economic growth and the connectivity needs for rural America.

Speaker 2

Our renewable energy segment grew by nearly $200,000,000 in first quarter two thousand twenty five, a 14 increase since year end. Over the past five years, we've seen strong growth in this segment and believe that the near term pipeline remains strong. Growing business volume in our infrastructure finance segment remains an opportunity and we will continue to focus on strategic investments and talent acquisition in these areas to build our expertise and capacity as market opportunities arise. Despite the seasonally large number of scheduled repayments we typically see in the January 1 payment date on the majority of farm and ranch loans, we saw a net increase of $86,000,000 in farm and ranch loan purchases in the first quarter twenty twenty five. We believe that we will see continued growth in the foreseeable future due to continuing agricultural economic tightening, a potential for increased tariffs and trade policy changes, and ongoing inflationary inputs.

Speaker 2

Offsetting farm and ranch loan purchase growth this quarter was a $500,000,000 in scheduled maturities with two large AgVantage counterparties. As previously noted, AgVantage security volume can be lumpy. It can be volatile due to the large transaction sizes and the scheduled maturities aligned with our counterparty specific financing needs. During the first quarter, we closed a new $900,000,000 facility with a large agricultural finance counterparty supporting future egg advantage funding opportunities and demonstrating the continued interest in this product. I would note that that $900,000,000 facility is not yet drawn.

Speaker 2

We are looking ahead to partnering with this new counterparty for their future funding needs. Looking ahead, we believe that we will continue to be a key partner for refinancing and incremental borrowing for all of our AgVantage counterparties as they navigate a volatile interest rate and economic environment. The farm and ranch segment is core to our mission and we remain committed to bringing our customers products and solutions to provide capital and risk management solutions, as well as support their borrowers financial needs. Our corporate ag finance segment was approximately $2,000,000,000 at quarter end, relatively flat compared to year end '20 '20 '4 as 200,000,000 in new volume this quarter was offset by scheduled payments and maturities. Although quarterly volume can be unpredictable, opportunities in this segment are generally more accretive to net effective spread.

Speaker 2

We're continuing our efforts to build relationships and modernize our internal infrastructure, anticipating increased credit demand to support larger, more complex agribusinesses in the coming quarters. Our overall credit profile remained strong through the first quarter of twenty twenty five. Despite heightened volatility and market uncertainty, our prudent underwriting approach emphasizing loan to value and cash flow metrics positions us well to withstand market cycles. We have not seen any impacts on our portfolio related to government actions or changes in policy and will continue to closely monitor industry credit conditions as new government policies are implemented, including specifically pending tariffs. While some credit losses are inherent in our lending, we believe that any losses in the current cycle will be moderated by the strength and diversity of our diversified portfolio.

Speaker 2

I'm pleased with our progress since the start of the year. We have strong momentum with our customers and a focused approach to fulfilling our mission efficiently and innovatively despite broader market uncertainties related to interest rates, regulation, policy changes, tariffs, and other government actions. Our resilient business model supported by diversified revenue streams and a strong capital position is a key differentiator. But it is our ability to access the markets coupled with our disciplined asset liability management that truly sets us apart. And with that, now I'd like to turn over to Aparna Ramesh, our Chief Financial Officer to discuss our financial results in more detail.

Speaker 2

Aparna.

Speaker 3

Thank you, Brad, and good morning, everyone. Our first quarter twenty twenty five results once again underscore our consistent financial and operational execution, proactive balance sheet management, strong credit quality, and resilience across market cycles. Our diversified revenue streams and disciplined asset liability management enable us to fulfill our mission and generate consistent shareholder returns aligned with our long term strategic initiatives. This consistency is a real differentiator for us as we navigate a volatile macro climate. We achieved $1,800,000,000 of gross business volume this quarter, primarily driven by new volume in our renewable energy, broadband infrastructure, and power and utility segments, as well as new farm and ranch loan purchases.

Speaker 3

After repayments and maturities, we grew $232,000,000 during the first quarter in our outstanding business volume, which speaks to the benefit of our strategic decisions to diversify our portfolio and create opportunities in all interest rate environments. Core earnings increased by 6% both sequentially and year over year to $46,000,000 in the first quarter of twenty twenty five, setting a record for Farmer Mac. Net effective spread also reached a record 90,000,000 or 117 basis points with sequential and year over year improvements of 2,500,000 and 6,900,000.0 respectively. This sequential improvement was driven by higher average loan balances, a decline in non accrual loans and modest improvements in floating rate funding levels relative to SOFR. The shift to higher spread business has been a key driver of the increase in net effective spread over the past several years, and we believe our pipeline and business composition will continue to position us well for the remainder of the year.

Speaker 3

Operating expenses increased 8% year over year as we continued to proactively invest in our infrastructure technology to support continued growth across our portfolios, including broadband infrastructure and renewable energy, as well as higher licensing fees and servicing advances. Operating efficiency was 29% for first quarter twenty twenty five, a modest improvement over fourth quarter twenty twenty four and in line with the same period last year. Our efficiency ratios remain in line with our long term strategic plan target and reflect our disciplined approach to expense management as we monitor and manage expense growth proactively against incoming revenue streams. We take pride in our focus on effective expense management as we continue to invest in people and continue to modernize our technology to support and enable our future growth. It enables our ability to innovate and also drive profitability.

Speaker 3

We remain committed to bringing cutting edge technology to our secondary market. For the completion of a major infrastructure platform upgrade that we told you about, we now plan to turn our attention to new capabilities for our customers and are exploring options to build innovative systems that will accelerate growth by supporting the rollout of these new products. We are committed to closely monitoring our efficiency ratio and managing it such that we expect to remain at or below a long run average of 30% and also be disciplined in keeping our efficiency ratios in line with our group expectations. Turning now to credit. Our overall credit profile remains strong, which reflects our underwriting and credit disciplines that are both extremely consistent.

Speaker 3

We believe that our total portfolio is well diversified both by commodity and geography and that we are well positioned given our strong levels of capital. The fundamentals of our underwriting guidelines and credit policies enable us to continue to effectively navigate the current volatility and uncertainty in the agricultural cycle. Our total allowance for losses was $27,000,000 as of 03/31/2025, reflecting a $1,700,000 increase from year end 2024. The increase was primarily attributable to new volume in the renewable energy, power and utilities, and farm and ranch segments. Ninety day delinquencies were 54 basis points across our entire portfolio as of 03/31/2025, compared to 37 basis points at the December.

Speaker 3

The sequential increase reflects a seasonal pattern of Farmer Mac's ninety day delinquencies with higher levels generally observed at the end of the first and third quarters and lower levels generally observed at the end of the second and fourth quarters of each year. This seasonal pattern is due to the annual and semiannual payment dates on the majority of farm and ranch loans. Turning to capital. Farmer Mac's core capital of $1,500,000,000 exceeded our statutory requirement by six zero one million dollars or 65% as of 03/31/2025. The increase in core capital from the end of twenty twenty four was primarily due to higher retained earnings.

Speaker 3

Our Tier one capital ratio was 13.9% as of 03/31/2025, compared to 14.2% at year end twenty twenty four. The modest decline reflects growth in risk weighted assets. Our strong capital position has enabled us to grow and diversify revenue streams while remaining resilient in volatile credit environments. And we continue to offer low cost liquidity to our customers and borrowers even in challenging times. Our capital buffer is a source of strength and also allows us to be opportunistic.

Speaker 3

We expect to be in the market soon with another farm securitization transaction. The securitization program remains an important strategic initiative for Farmer Mac, as it allows us to enhance and optimize the balance sheet by the efficient deployment of capital, and it also enables our growth strategy by targeting new asset opportunities. We are very pleased with the tremendous support we've seen from our stakeholders for this program, and we remain committed to being a regular issuer in the market. As noted previously, we are exploring new structures that will allow us to expand our securitization offerings, and this will serve as another source of funding and capital management. Our liquidity and capital positions remain well in excess of all regulatory requirements.

Speaker 3

Our projections show minimal change in our profitability with limited exposure to movements in interest rates where the market rates go up or down. As of 03/31/2025, Farmer Mac had two eighty nine days of liquidity and we held approximately $1,000,000,000 in cash and other short term instruments in our investment portfolio. We expect to be well positioned in the medium term as we navigate potential interest rate volatility, and we're confident in our resilience against potential short and medium term market disruptions. So to summarize, our team once again delivered strong, consistent quarterly results, maintaining key metrics while adhering to our credit framework. During the first quarter, we achieved a 17% return on equity and an efficiency ratio of 29%.

Speaker 3

It is important in these uncertain times that we emphasize some of the safeguards that prepare us for macro uncertainty. Our balance sheet is strong. We've cultivated robust demand for farm and ranch assets in the securitization market. Even when bond markets were turbulent recently, we were able to access funding at all points on the curve. We also have enough liquidity to last nearly a year, and our portfolio is diversified by commodity and geography, making us less susceptible to uncontrollable headwinds.

Speaker 3

This stability allows us to consistently deliver strong financial performance and maintain or exceed our key metrics. And with that, Brad, let me turn it back to you.

Speaker 2

Thanks, Aparna. We are very pleased with our first quarter twenty twenty five results. We believe that we're well positioned to deliver on our multi year strategy with strong liquidity and capital levels, a diversified business mix, highly effective risk management practices, and most importantly, a dedicated team of professionals here at Farmer Mac. As I've mentioned on prior calls, as a publicly traded federally chartered financial services company, our mission is to increase the accessibility of financing to provide vital liquidity for American agriculture and rural infrastructure. Our initiatives strengthen the economic framework that supports rural America and enable families, businesses, and entire communities to thrive.

Speaker 2

We strive to deliver on our mission throughout agriculture and macroeconomic cycles and our loan pipeline and capital base are strong and growing. Our revenue is well diversified, providing capacity for further growth and creating more opportunities for us to enhance shareholder value. We're optimistic about the future and we'll maintain our singular focus on fulfilling our mission efficiently and innovatively as we navigate the backdrop of a broader market uncertainty attributable to interest rates, regulation, policy changes, tariffs, and other government actions. This is how we believe we can continue to differentiate ourselves and to deliver to our customers and end borrowers in Rural America. And now operator, I'd like to see if we have any questions from anyone on the line today.

Operator

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press followed by the number one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. Your first question comes from the line of Bill Ryan from Seaport Research Partners.

Operator

Please ask your question.

Speaker 4

Morning and nice results for the quarter. I'll start off with a macro question and then also another micro question. But the macro question, just kind of looking at the tariffs, I mean, there's obviously been some disruption in the month of April and into early May with ag shipments, to China. Could you maybe give us some indication of what happened, what the administration did last time in terms of supporting the ag community and sort of what exactly happened in twenty seventeen-twenty eighteen.

Speaker 2

Yeah, good morning Bill and thank you very much for joining us. Certainly, let's go back to the first Trump administration when there were tariffs and other trade restrictions imposed on China and what happened in American agriculture. At that time there were programs for voluntary payments to US Farmers who were deemed to be impacted by that. You may recall they were called market facilitation payments and they had the effect of kind of closing a significant part of the net income gap attributable to that. We're actually seeing a bit of a repeat of that right now, while certainly the 145% tariffs that are currently imposed upon China are resulting in a shift of trade particularly to Mexico right now.

Speaker 2

Know ultimately a lot of these agricultural commodities are fungible they can transfer across the world with relatively little friction, but we're seeing a shift to Mexico. Mexico and Canada are positively protected by reference to the prior trade agreements. You saw yesterday the announcement of an agreement at least in principle with The UK and notably that included a call out on specific targets for American agriculture products including ethanol. But what's underway right now about a month and a half ago, Secretary of Agriculture announced a $10,000,000,000 program, that applications were open for that. I think there have been about six, seven billion of applications so far I believe, something like that.

Speaker 2

And then there is considerable discussion about an additional voluntary subsidy program to American producers in consideration of these tariff actions that might be in the 20 to $25,000,000,000 range. That's you know looking out the next couple of months. USDA has kind of baked that into their net income projections for the year and remarkably the current projection for net farm income for this year is projected to be about the third highest. So this is something in which we're keeping a very very close eye because high sustained tariffs will have the dampening effect of prices that will negatively impact many producers. We're also looking at how any kind of subsidy programs as well as tariffs are applied and impact different crops, different producers.

Speaker 2

So for example, we're seeing reasonably strong focus on negative impacts to row crop producers, corn and soybeans for example right now. We're keenly interested in any programs that would benefit permanent crop producers in California, almonds, pistachios for example, where we are seeing some of our credit stress, that's really the pocket where it is today.

Speaker 4

Okay, thanks for that Brad, very helpful. Second question, a little bit more micro, but obviously the net effective spread moved up a basis point in the quarter, continuing to the trend line it's been on for quite a while, but there were some movement among the various business lines, farm and ranch being up, corporate ag being up, broadband and renewable energy down, could you maybe talk a little bit about the microdynamics of the NES for the business lines?

Speaker 2

Absolutely and I'm going to turn to Zach Carpenter to provide additional detail on that, but let me just make the point at the outset that at Farmer Mac we are not allocators to business segments as we see margin opportunity, we are opportunistic and responsive to the market opportunity and that's really how we fulfill our mission. So what you see is really a reflection of where are we seeing demand where we can also satisfy our credit and earnings objectives. But Zach, can you provide some additional color on that?

Speaker 5

Yeah happy to. I mean starting with Farm and Ranch, I think this is heavily volume driven. We had a very strong fourth quarter last year and continued strong loan activity in the first quarter. Clearly, given the tightness of the ag economy, but also with liquidity and capital relief needs at banks, definitely looking to utilize the secondary market to enhance their capital and liquidity needs. So a lot of the farm and ranch is heavily volume driven, and we see a very strong pipeline heading into the second quarter.

Speaker 5

In fact, we're looking at loan approvals, significantly convert to purchases typically in a similar range to 2021 and 2022 when we had record levels. Corporate ag is a very similar story, a very strong fourth quarter. And what we saw in the fourth quarter was fairly high credit spreads for these loans we purchased. And so now you're seeing kind of the impact of that in the first quarter where we had record net effective spread and record net effective spread percentage. We had a strong first quarter and we see some near term pipelines that are relatively strong, but I think the borrowers and the later rangers navigating the market terms of what Brad highlighted earlier.

Speaker 5

Broadband infrastructure, noted net effective spread was slightly down to one percentage perspective. The one thing I would note in this space is the significant amount of loan purchases that we saw during the first quarter, were data center related, and those are construction loans. So a lot of those, commitments are unfunded commitments. And as those convert, as these centers are being, constructed, you'll see that funded volume increase and accrete more in a net effective spread perspective. You know, similar to renewable energy, there's construction component there, but, it's it's definitely a market dynamic.

Speaker 5

We we look to try to find strong transactions in the market with very strongly rated off takers with, strong power purchase agreements. And given the strength of those counterparties, you'll see credit spreads, you know, be somewhat volatile. But given their, you know, investment grade rated performance, they're going to be a little bit tighter in certain times. But this will ebb and flow based on market dynamics. But the one thing I would note with renewable energy is more than doubled the net effective spread dollars year over year.

Speaker 5

So we're excited to see this portfolio grow. And at least for the second quarter, still see a strong market, related to solar and battery storage.

Speaker 4

Okay. Thanks, Zach. And thanks, everybody, for taking my questions.

Operator

Your next question is from the line of Bose Zorj from KBW. Please go ahead.

Speaker 6

Hey, everyone. Good morning. Just wanted to follow-up on the spread question. When I look at the on page 10 where you have that breakout, so your spread on farm and ranch went up a couple of basis points, but the ROE was up 5%. So is there some other piece in there like credit or lower capital allocation?

Speaker 6

Because it seems like a relatively big move in ROE relative to the spread move.

Speaker 2

Oparna, can you shed some light on that?

Speaker 3

Yeah. So these components have to do with the fact that we have My apologies. I think there was a little bit of noise there. Can you hear me okay right I

Speaker 6

can hear you now. Yes.

Speaker 3

Okay, terrific. So, a big part of the driver of what you're seeing in terms of shift in ROE within that ag segment has to do with the fact that we had a reduction in non accrual activity quarter over quarter. So that was really the big driver of it. A lot of the hit that we took in terms of non accruals happened in the prior quarter and didn't have that happening now, and so you see a little bit of a denominator pop right there.

Speaker 6

Okay. Perfect. That makes sense. Thanks. And then, yeah, Perna, you talked about the market volatility and the continued access, etcetera, but has there been anything in terms of the funding cost side that is worth highlighting?

Speaker 6

And you noted the securitization you guys are going to come to market with. The economics there, do you anticipate it'll be similar to what you did on the last transaction?

Speaker 3

Yeah. It's hard to sort of predict what will happen, and we do intend to come forward with another transaction hopefully before the second quarter is up, and I'll just touch upon that in a minute. But, to your first question just around funding dynamics, I do want to note, that funding, actually improved quite dramatically from Q4 to Q1. This again sort of highlights our very opportunistic strategy when we see an opportunity in the market where credit spreads are narrower. We try to take advantage of that, and that's exactly what our treasury team did in the first quarter.

Speaker 3

We saw an opportunity to really, buy into narrowing SOFR spreads. I'm really glad that we did that. You saw the benefit of that come through in our overall funding as well as in how it contributed to an increase in our net effective spread quarter over quarter. Net effective spread just in basis points went up about one basis point. But when you look at the second quarter, and with all of the activity and volatility as a result of, the bond markets reacting to the tariffs being announced on Liberation Day, we didn't see a SOFR widening.

Speaker 3

What does that mean for us? Both is that we can actually stay very comfortably out of the market as needed because we've loaded up on funding costs when it was much narrower in the first quarter. So, that is a dynamic and it plays very favorably for us in the first quarter. The second part of your question, just in terms of securitization, let's wait and see. I think we're going to time you can never really sort of time these things perfectly, but we're seeing a little bit of settling down.

Speaker 3

We're not going to go into the market when we think that there isn't receptivity but there's a lot of cash sitting on the sidelines, I think we're very well positioned to take advantage of that. And just based on our recent investor outreach in the first quarter, we see continued strong appetite and demand for this particular asset class. So, it's very, very encouraging.

Speaker 6

Okay. Great. Thank you.

Operator

Your next question is from the line of Brandon McCarthy from Sidoti. Please ask your question.

Speaker 7

Great. Good morning, everybody. Thanks for taking my questions here. I just want to start off in the renewable energy line of business. I think last quarter, you know, we had talked about there were certain tax credits that you purchased during the year during 2024 that is that ultimately benefited the fourth quarter.

Speaker 7

Was there any similar activity in the first quarter twenty twenty five? And maybe you could talk about your outlook there for the rest of the year.

Speaker 2

Yeah. No. No. There wasn't activity in the first quarter. It probably remains an opportunity later this year, and we're monitoring the markets, but no activity in the first quarter.

Speaker 7

Understood. Thanks, Brad.

Speaker 3

I'll just add, Brandon, we did actually see a benefit quarter over quarter in operating expenses because we have some legal fees that were associated with the tax credits in the fourth quarter. So, we saw a fairly material decline in legal fees. So, you saw an improvement in our OpEx as a result of that.

Speaker 7

Understood. Thanks for the clarification there. And then looking at Farm and Ranch, I know it looks like there you mentioned there was a sequential decline in volume there. But on a sequential basis, it looks like Farm and Ranch really drove the the bulk of the increase in in that effective spread revenue, if I'm looking at that correctly. Just wondering if you can dissect that change there and and how we can kinda think about that trend.

Speaker 2

Yeah. I I think well, our partner mentioned, you know, the non accruals going accrued and that is a scrape back of additional interest which you would see showing up there, but Zach maybe you can talk about kind of the forward expectations on farm and ranch and especially the seasonality that we experienced in the first quarter.

Speaker 5

Yeah happy to do it. We about $550,000,000 of new business volume in Farm and Ranch and the significant majority of that you know Brendan as you notice was loan purchase volume. This is a continued trend we've seen that really picked up in the fourth quarter of last year. And, again, very similar to the themes that we saw in 2024 with continued tightening of the ag economy, a continued focus on liquidity and and working capital needs for the farmers and ranchers, and, you know, capital efficiency at the banking community just given everything that's going on. Looking forward, as I noted, our pipeline for farm and ranch loan purchases in the second quarter appears very strong.

Speaker 5

You know, like I mentioned, loan approvals, typically convert to a purchase are at almost record highs, continue to see a significant amount of loan submissions, from sellers across the country. And, you know, just given everything going on, I mean, we already had ag economy that was tightening. There's a lot of volatility out there, as Brad mentioned, pertaining to tariffs and and what the impact may be. So as these farmers and ranchers need to support the liquidity and working capital needs through the cycle, we anticipate this to continue, especially into the second quarter. Now I think government payments will be a critical component to further aid and support the farmers and ranchers through the near term at least, but we don't anticipate at least heading into the second and possibly a third quarter this momentum to slow down just given the the environment that we're seeing.

Speaker 7

Got it. That's helpful. Thanks, Zach. I appreciate the insight. One more question for me just on the treasury segment.

Speaker 7

I'm looking at net effective spread revenue there. It see it seems like it's been, you know, maybe regaining steam and and increasing from the back half of twenty twenty four with funding net effective spread revenue increasing and then, you know, investment side, you're up a little bit from late twenty twenty four as well. Can you walk us through the the dynamics there? And I know the funding strategy is is, you know, match funding, but can you walk us through the dynamics there on on what's kinda driving that momentum?

Speaker 3

Yeah, sure. As I mentioned, we try to take a lot of pride in being very opportunistic. So, when rates are trending in or credit spreads are coming in within a particular segment, we try to opportunistically issue into that. So, we saw a narrowing of our SOFA spreads quarter over quarter, so that really created a fairly nice benefit overall, in fact, substantially down quarter over quarter. We've also taken advantage as we see the yield curve sort of steepening.

Speaker 3

We will start to call issuances, and we started to do that in the back half of the year. And you start to see some of those benefits come into play as well in terms of just our overall hedging strategy when we think about where rates are headed. But those were the primary dynamics, the SOFR funding being definitely the larger of the two.

Speaker 7

Great. Thanks, Aparna. That's all for me. Thanks, everybody.

Operator

Your last question is from the line of Gary Gordon, private investor. Please ask your question.

Speaker 2

Okay. Thank you. Two things in our changing world. There's also a number of discussions about changing energy policy. Anything going on that you think would or you're anticipating could have an impact on your rural infrastructure business?

Speaker 2

And again, both in now, another change is AI. What are your thoughts at the moment about applications of AI for Farmer Mac? Yeah, hey Gary, thank you for being on with us today. As it relates to our renewable energy projects, the investment tax credit is really embedded in the Inflation Reduction Act. It's been very interesting to watch the debate in Washington because continuation of those credits enjoys some pretty good bipartisan support.

Speaker 2

We don't take that for granted however and we are very, I think, satisfied with our position because when we commit to a project financing for a renewable energy project, a solar, solar plus battery, wind, renewable natural gas, for example, when we commit to that project, really the entire network of web of contracts associated with that project, the construction contract, the offtake power purchase or fuels purchase contract, the operating and maintenance contracts, the land leases and the commitment for the tax credits. Those are really all in place at the time of the funding. So we don't really wear risk associated with the change in tax law on the projects as they're currently structured. So we're keeping a close eye on it. We're cautiously optimistic that they'll continue.

Speaker 2

Keep in mind that the economic viability of many of these projects is extremely high and that some of them would continue if there was a reduction in investment tax credits. So we're keeping a close eye on it. We do not see any immediate adverse threats from changes in tax legislation, but we will be monitoring closely. Gary, the second part of your question was focused on what again? Could you remind me?

Speaker 2

Yes, it was related to AI. What sort of applications are you seeing? Yeah, right now the internal focus is very much on process. How can we utilize AI to improve processes within Farmer Mac? Scraping of literally thousands of loan documents as an example for all the pertinent information that goes into a loan file when those documents vary one to another because of differences in segments and seller servicers and other factors.

Speaker 2

How can we use that to improve the efficiency to reduce the labor? So the focus really for the time being is on process. There'll be a time in the future when it may shift or be expanded to include decisioning, but right now it's a very, very fertile field for us to apply to process. Okay, thank you.

Operator

There are no further questions at this time. I'd like to turn the call over to Brad Nordholm for closing comments. Sir, please go ahead.

Speaker 2

Thank you operator and thank you everyone for being on this call with us today. These are times when it's relatively easy to get distracted by changes in potential changes in policy and economic conditions. Here at Farmer Mac, we're heads down, we are focused on mission and what is a very very sustainable, resilient and well established business model that we have. We have a terrific team here at Farmer Mac, they share this commitment to focus on mission and deliver results and that's exactly what we have done during this record quarter and what we expect to do going forward. So thank you very much for participating, if you have questions follow-up with JALPA, otherwise we look forward to speaking again in this formal call in following this end of the second quarter.

Speaker 2

Thanks very much.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

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Key Takeaways

  • We achieved record quarterly revenue, a net effective spread of 117 basis points, and core earnings of $46 million in Q1 2025, each up 6% year over year.
  • Gross new business volume totaled $1.8 billion in Q1, driving an outstanding business volume increase of $232 million to end the quarter at $29.8 billion.
  • The infrastructure finance line grew by approximately $750 million, including a 22% expansion in the broadband infrastructure segment to nearly $1 billion and a 14% increase in the renewable energy portfolio since year end.
  • Credit quality remained strong with disciplined underwriting, stable non‐accrual levels, and no material impacts from recent policy changes, supporting consistent asset performance.
  • Capital and liquidity are robust with core capital of $1.5 billion (65% above regulatory requirements), a Tier 1 ratio of 13.9%, and 289 days of liquidity, and management plans another farm securitization to optimize funding.
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Earnings Conference Call
Federal Agricultural Mortgage Q1 2025
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