Federal Agricultural Mortgage Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Record second-quarter performance: Farmer Mac reported all-time highs in outstanding business volume of $37.2 billion, revenue of $125 million, and core earnings of $59 million, or $5.40 per diluted share. Return on equity was 18.9%.
  • Positive Sentiment: Broad-based volume growth continued across the business, including strong Farm & Ranch loan purchases, renewed AgVantage wholesale activity, and infrastructure demand tied to renewable energy, broadband, data centers, and electrification. Management expects further growth, supported by robust pipelines and limited AgVantage maturities in the second half.
  • Positive Sentiment: Management expects positive operating leverage as expense growth moderates, with a full-year operating efficiency ratio forecast at 27%–29%. The newly launched Farmer Mac Loan Exchange platform is intended to improve scalability, efficiency, and future product development.
  • Negative Sentiment: Credit provisioning increased to $7 million, including reserves tied to two deteriorating Farm & Ranch loans and broader credit migration. Executives also cited risks from agricultural-sector volatility, higher fuel and fertilizer costs, trade policy, global conflicts, interest rates, and potential data-center market headwinds.
  • Positive Sentiment: Core capital rose by $141 million to $1.9 billion after a successful $100 million preferred-stock issuance, leaving capital 64% above the statutory minimum. Farmer Mac also expects to introduce a credit-risk-transfer program in 2026 to improve capital efficiency and support additional growth.
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Earnings Conference Call
Federal Agricultural Mortgage Q2 2026
00:00 / 00:00

Transcript Sections

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Operator

Thank you for standing by. At this time, I would like to welcome everyone to the Farmer Mac second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. I would now like to turn the conference over to Jalpa Nazareth, Senior Director of Investor Relations. The floor is yours.

Jalpa Nazareth
Senior Director of Investor Relations at Farmer Mac

Good afternoon. Thank you for joining us for our second quarter 2026 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. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. All forward-looking statements are based on information available to Farmer Mac as of today. Farmer Mac assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

Jalpa Nazareth
Senior Director of Investor Relations at Farmer Mac

Please refer to Farmer Mac's 2025 annual report on Form 10-K and subsequent SEC filings for a full discussion of the company's risk factors. 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 company's most recent Form 10-Q and earnings release posted on Farmer Mac's website. Joining me today are our President and Chief Executive Officer, Zack Carpenter, and our Chief Financial Officer and Treasurer, Matt Pullins. At this time, I'll turn the call over to our CEO, Zack Carpenter. Zack?

Zack Carpenter
President and CEO at Farmer Mac

Thanks, Jalpa. Good afternoon, everyone. Thank you for joining us today. I'm pleased to report that Farmer Mac delivered record results in the second quarter, with volume, revenue, and core earnings reaching all-time highs, supported by the strength of our mission-driven franchise and the disciplined execution of our strategy across every aspect of our business. These results were powered by broad-based business volume growth as we continue to be a critical part of the financial ecosystem through providing liquidity in support of agriculture and rural infrastructure. We surpassed $37 billion in outstanding business volume and strengthened our already robust capital base through a very successful preferred stock issuance, further supporting our long-term growth objectives.

Zack Carpenter
President and CEO at Farmer Mac

A focus on expense management while simultaneously making strategic investments for growth resulted in our operating efficiency ratio remaining below our 30% strategic target, as we also provided over $4 billion of liquidity to critical sectors of the American economy in the second quarter. Outstanding business volume ended June at a record $37.2 billion, an increase of $2.4 billion in the second quarter after taking into account all new business volume, maturities, sales, and paydowns on existing assets. Our agricultural finance outstanding business volume grew $1.8 billion in the second quarter, primarily due to a $1.1 billion increase in our Farm & Ranch AgVantage wholesale finance securities portfolio. That growth was driven by new business volume from several counterparties, reflecting the strength of our growing relationships, including a $750 million issuance from a new counterparty.

Zack Carpenter
President and CEO at Farmer Mac

We continue to see strong interest in wholesale finance, reflecting the competitiveness of our product versus other funding alternatives and believe we are on track to see incremental net growth in the second half of the year due to minimal scheduled maturities as well as the relative value of this product provides our customers. Farm & Ranch loan purchase activity remained at elevated levels during the second quarter, building on the strong momentum that began in the fourth quarter of 2025 and continued throughout the first half of 2026. Specifically, we saw net growth of $867 million for the first half of the year, almost double the Farm & Ranch loan purchase net growth in the same period last year.

Zack Carpenter
President and CEO at Farmer Mac

We are operating at an elevated pace for new volume and expect loan purchase growth to continue as lenders seek liquidity driven by the need to diversify from high-cost deposits amid strong loan growth, a focus on capital efficiency and returns, and ongoing volatility that many sectors of the agricultural economy are experiencing. Our growth this quarter was also supported by the improvements that were made to our AgXpress product in 2025, reflecting our continued investment in improving our products, processes, and platforms. The product improvements resulted in wider engagement with a variety of lending institutions that serve all facets of the agricultural mortgage financing market.

Zack Carpenter
President and CEO at Farmer Mac

We remain proactive in discussions with our customers to ensure we find the right solutions to support their funding and capital needs, as well as understanding their borrowers' liquidity needs in a challenging operating environment that is characterized by ongoing uncertainty and broader market volatility. I'm also pleased to announce the launch of Farmer Mac Loan Exchange, or FLX, our new Farm & Ranch loan platform, this past week. FLX introduces a unified digital platform for Farm & Ranch loans across all of our loan purchase products. The platform improves process efficiency, documentation management, and operational flexibility. FLX is a significant technology modernization initiative that creates a more efficient, scalable, and user-friendly experience across Farmer Mac's Farm & Ranch business, which we believe will serve as the foundational platform to launch future innovative products and customer solutions.

Zack Carpenter
President and CEO at Farmer Mac

FLX is the latest example of our commitment to incorporate innovation and technology modernization, which we expect will continue to differentiate Farmer Mac and transform the agricultural mortgage market, allowing us to provide liquidity in a more efficient and scalable way. The Corporate AgFinance segment grew modestly during the quarter to $2.1 billion in outstanding business volume. Deal flow activity in the broader agribusiness market has remained relatively muted during 2026, predominantly reflecting less mergers and acquisitions activity as companies continue to navigate a volatile market coupled with global tensions impacting trade and inflation. Looking ahead, we continue to expect modest growth in this segment and will remain disciplined in pursuing opportunities that meet our underwriting standards and support the food, fuel, and fiber supply chain.

Zack Carpenter
President and CEO at Farmer Mac

Turning to our Infrastructure Finance line of business, outstanding business volume increased $573 million sequentially to $13.1 billion as of quarter end, with all three segments contributing to net growth. This is a continuation of similar themes we saw in 2025, specifically the strong interest and investment in data center construction, broadband expansion, and the construction and completion of Renewable Energy projects, reflecting the overall need for significant energy generation and transmission capacity in rural America. Net growth in our power and utility segment this quarter was $291 million, largely attributable to strong loan purchase activity, which included the purchase of $197 million pool of loans from a single customer. This transaction underscores our secondary market track record of providing liquidity and product solutions to support our customers' balance sheet management initiatives.

Zack Carpenter
President and CEO at Farmer Mac

We continue to see a steady demand for capital in this segment as borrowers invest in system upgrades and modernization to support the significant increase in electrification demand. During the quarter, we provided $565 million in Renewable Energy loan purchases and commitments, reflecting the strength of our deal pipeline and accelerated project construction to meet deadlines included in H.R. 1. After scheduled maturities and repayments, which were elevated this quarter as this portfolio seasons as well as construction and tax equity loans mature, the overall segment grew $120 million to $3 billion as of quarter end. Looking ahead, we expect growth in this segment to continue well into next year as the substantial need for new power generation drives continued demand, more than offsetting the natural runoff from a seasoning portfolio.

Zack Carpenter
President and CEO at Farmer Mac

Currently, deal flow remains robust, with our pipeline approaching $1 billion, which allows us to be selective with our capital deployment in this sector to pursue deals that are appropriately structured with strong counterparties that underscores the strength of our reputation in the market. While the industry is adjusting to the phaseout of tax credit incentives and navigating supply chain dynamics, we project the growth demand for energy generation to position the industry for continued growth as the underlying economics of these projects remain highly competitive. Alternative generation capacity takes years to develop, and we have seen Renewable Energy projects, capital structures, and power purchase agreement pricing adjust as tax credit incentives phase out. Accordingly, we expect to continue participating in Renewable Energy transactions for both new projects and refinancings of existing projects.

Zack Carpenter
President and CEO at Farmer Mac

Beyond 2027, we anticipate continued growth in this segment that is more market-driven rather than policy-driven, as the underlying driver remains an increasing surge in power demand, requiring significant new power generation capacity. Broadband Infrastructure also posted another strong quarter with net growth of $162 million, ending the period at $1.9 billion. Given the robust demand for data center investments, 70% of new volume this quarter was data center-related business volume, a reflection of the ongoing expansion of artificial intelligence, cloud storage, and enterprise digitization. As of June 30th, our total data center-related business volume was approximately $1 billion, or roughly half of our total Broadband Infrastructure segment. While our data center exposure has grown substantially, we are highly attuned to market dynamics and take a disciplined, deliberate approach to how we manage the portfolio.

Zack Carpenter
President and CEO at Farmer Mac

Specifically, as this portfolio seasons, we have enhanced our focus on portfolio management, maintaining deliberate geographic and sponsor diversification, prioritizing well-capitalized investment-grade hyperscaler tenants, and pursuing a mix of funded products to keep our portfolio well-diversified and resilient against potential market headwinds that may arise. In total, we have provided $7.5 billion of liquidity and lending capacity to lenders serving rural America through the first half of this year, exceeding our previous first-half gross volume record in 2022 by more than 50%. That figure is the clearest expression of our company supporting our mission, expanding access to competitive liquidity for American agriculture and rural communities. With a robust pipeline and strong capital position heading into the third quarter, we enter into the second half of 2026 focused on disciplined execution that drives durable, high-quality earnings and the runway to keep growing.

Zack Carpenter
President and CEO at Farmer Mac

While we are mindful of the macro backdrop and uncertainty stemming from interest rates, trade policy, and regulatory shifts, our diversified portfolio, strong capital position, and disciplined underwriting give us confidence in our ability to continue delivering consistent results. We are also closely monitoring the spikes in global energy prices, which has pushed fuel and fertilizer costs higher. Regardless of how these dynamics unfold, we believe Farmer Mac is well-positioned to navigate the environment. With that, I'll turn it over to Matt Pullins, our Chief Financial Officer, to review our financial results in more detail. Matt?

Matt Pullins
CFO and Treasurer at Farmer Mac

Thank you, Zack. As Zack noted, second quarter results were record-setting by every measure. Over $37 billion in outstanding business volume, $125 million in revenue, and $59 million in core earnings, or $5.40 per diluted share. These record results generated a return on equity of 18.9%, among the strongest in our history. This quarter's record results were driven by several distinct financial performance factors, which I will walk through in more detail. net effective spread reached a record $117.4 million in second quarter 2026, a 25% increase over the prior year period, and a 15% increase from first quarter 2026, our prior quarterly record.

Matt Pullins
CFO and Treasurer at Farmer Mac

The year-over-year and sequential growth was driven by record business volume and the collection of $7.4 million of interest recognized in second quarter 2026 related to the recovery of interest on a large delinquent permanent planting exposure that has been non-accrual for an extended period of time. On a percentage basis, net effective spread was 126 basis points. This compares to 119 basis points in the year-ago period and 116 basis points in first quarter 2026. Excluding the one-time benefit from the collection of $7.4 million of interest, net effective spread in percentage terms was 118 basis points, which is relatively in line with prior periods, and as we have consistently discussed, is impacted by the mix of new business volume in our lines of business.

Matt Pullins
CFO and Treasurer at Farmer Mac

While incremental business volume is the primary driver of net effective spread growth, our net effective spread performance is further enhanced by the two core pillars of our funding strategy, a differentiated ability to access funding through the capital markets at highly attractive levels and a deliberate balance sheet structure designed to be minimally sensitive to interest rate changes. This combination enables us to generate highly efficient and consistent net effective spread across market cycles and conditions. The foundation of our approach is a largely rate-agnostic balance sheet supported by a very short duration profile and a robust interest rate risk management framework. At the same time, our funding advantage provides reliable access to liquidity at competitive levels, which enhances earnings efficiency and resilience. Within this discipline framework, we remain strategic and nimble, actively capturing opportunities to improve long-term economics when conditions are favorable.

Matt Pullins
CFO and Treasurer at Farmer Mac

Together with our ongoing use of innovative hedging strategies, these actions underscore our ability to effectively manage risk while consistently delivering strong net effective spread performance through changing market conditions. Partially offsetting strong revenue growth this quarter was an increase in compensation and benefits expense driven by increased headcount, higher incentive compensation accruals associated with strong financial performance, and the timing of compensation expense recognition within the year. Included in second quarter results was a $4 million true-up of performance-based incentive compensation reflecting our updated expectations for full-year performance. This expense was recognized in the quarter and is not expected to repeat in future quarters. As a result, compensation expense growth in the quarter was elevated relative to our expected full-year trend.

Matt Pullins
CFO and Treasurer at Farmer Mac

Looking ahead, we anticipate compensation expense growth to moderate in the second half of 2026, with full-year compensation expense projected to be consistent with our underlying operating trajectory and approximately 20%-22% higher than 2025. To provide additional perspective on our underlying operating performance, excluding the $7.4 million interest recovery benefit and the $4 million true-up of performance-based incentive compensation, core earnings for the quarter would have been approximately $56 million, or $5.15 per diluted share. We believe this normalized view more closely reflects the underlying earnings power of the franchise, which continues to benefit from record business volume, strong net effective spread generation, effective favorable credit performance, and disciplined expense management. Our strong operating performance resulted in an operating efficiency ratio of 28% for the quarter, below our long-term target of 30%. We anticipate full-year operating efficiency ratio in the 27%-29% range.

Matt Pullins
CFO and Treasurer at Farmer Mac

Operating at this level of efficiency provides us with the flexibility to invest strategically in the continued growth and scalability of our franchise while delivering strong returns for shareholders. Looking ahead, we will remain focused on making targeted investments in talent, business development, operations, and technology while preserving our disciplined approach to expense management and operating within our long-term efficiency ratio target. Also contributing to our second quarter 2026 core earnings was a $2 million income tax benefit from the purchase of $21.4 million of Renewable Energy investment tax credits, which was fully recognized in the quarter. These investments support our mission by providing capital to Renewable Energy projects, electric facilities, and biofuel sectors while also generating attractive financial returns. As of quarter end, we substantially utilized our remaining carryback capacity. Going forward, we will evaluate tax credit purchase opportunities on a current year basis.

Matt Pullins
CFO and Treasurer at Farmer Mac

We remain active in the tax credit market and will selectively pursue opportunities where pricing and economics are attractive and expected to enhance overall financial performance. Turning to credit and asset quality results, the $7 million provision for credit loss expense in the second quarter of 2026 reflects $3.6 million attributed to new business volume growth across all our segments, with the balance related to credit migration trends. The primary driver of credit migration this quarter was the deterioration of two collateral-dependent Farm & Ranch loans that accounted for approximately $3 million of provision expense. Upon initiating foreclosure proceedings related to these two loans, updated appraisals identified property-specific factors that reduced collateral values and resulted in valuation shortfalls that required incremental credit reserves.

Matt Pullins
CFO and Treasurer at Farmer Mac

Allowance for losses was $47.4 million as of June 30th, 2026, reflecting a $7.2 million increase from first quarter 2026 and $17.2 million increase from the same year-ago period. The sequential increase primarily reflects the cumulative impact of portfolio growth and select credit migration. As of quarter end, the total allowance represented 19.7% of total nonaccrual assets, compared to 15.4% as of March 31, 2026, and 16.9% as of the year-ago period, reflecting the increase in allowance for losses and the decrease in nonaccrual assets due to the resolution of the previously mentioned delinquent permanent planting exposure. 90-day delinquencies were 37 basis points at quarter end, a 15 basis point improvement from first quarter 2026, and four basis point improvement from the year-ago period.

Matt Pullins
CFO and Treasurer at Farmer Mac

The sequential improvement is consistent with the seasonal pattern we have historically observed in our portfolio, where delinquency levels tend to be higher at the end of the first and third quarters, reflecting the annual and semiannual payment dates on the majority of Farm & Ranch loans. Total substandard assets as a percentage of our entire portfolio were 1.71% this quarter, an improvement from 1.87% as of March 31, 2026, due to positive credit migrations across both lines of business and the resolution of the delinquent permanent planting exposure in the quarter. Turning to capital, Farmer Mac's core capital increased by $141 million during the second quarter of 2026 to $1.9 billion, driven by the successful issuance of $100 million of Series I preferred stock, continued earnings generation, and the retention of approximately $42 million of retained net income after returning $25 million to shareholders through dividends.

Matt Pullins
CFO and Treasurer at Farmer Mac

As a result, core capital exceeded our statutory minimum requirement by $731 million, or 64%, at quarter end. Our Tier 1 capital ratio was 13.2% as of June 30th, 2026, compared to 13.0% at March 31, 2026, positioning us comfortably within our target range of 12%-14%. The increase reflects the benefit of the preferred stock issuance and retained earnings, partially offset by higher risk-weighted assets, which primarily resulted from record volume growth across our mission-focused businesses. The successful preferred stock issuance demonstrates our ability to efficiently access capital to support our growing customer demand for liquidity across the agricultural and rural infrastructure sectors. Our ability to secure capital on attractive terms reflects investor confidence in our business model, credit profile, and long-term growth strategy. This expanded capital position strengthens our ability to meet growing demand for liquidity and support rural America through market and credit cycles.

Matt Pullins
CFO and Treasurer at Farmer Mac

We remain committed to maintaining a balanced and disciplined capital management strategy. We expect to return capital to shareholders primarily through our dividend program, while simultaneously supporting our mission and customer needs by redeploying capital into high-quality assets across our agricultural finance and Infrastructure Finance lines of business. Our objective remains consistent: prudently allocate capital in ways that advance our mission, generate attractive risk-adjusted returns, and create long-term shareholder value. Looking ahead, customer demand for mission-related liquidity is expected to drive portfolio expansion. To meet this demand, we plan to incorporate risk transfer solutions as a complementary source of capital capacity, which reflects the evolution of our successful farm securitization initiative. Risk transfer leverages third-party capital to enhance capital efficiency, increase balance sheet flexibility, and support sustainable growth while strengthening our ability to deliver on our mission.

Matt Pullins
CFO and Treasurer at Farmer Mac

We continue to make progress on the development of a new credit risk transfer program that we expect to bring to market in 2026. We believe Farmer Mac's underwriting expertise, portfolio management capabilities, and demonstrated credit performance, combined with strong investor interest in gaining exposure to agriculture and infrastructure asset classes, position us well for successful market reception. Over time, we expect these transactions will enhance our ability to support customer demand and broaden market participation in sectors critical to rural America while maintaining prudent capital levels. In closing, this quarter's strong performance underscores both the effective execution of our strategy and the enduring strength of our franchise. By expanding our capacity to support growing liquidity needs across a dynamic rural economy, we are advancing our mission, deepening our impact in the markets we serve, while driving sustainable earnings growth and long-term shareholder value.

Matt Pullins
CFO and Treasurer at Farmer Mac

I would like to turn the call back over to Zack.

Zack Carpenter
President and CEO at Farmer Mac

Thanks, Matt. Our results were exceptional this quarter. We are extremely proud of our continued focus on providing liquidity to support American agriculture and rural communities, and excited about what lies ahead for the balance of 2026. We are dedicated to broadening the pursuit of our mission in response to the evolving economic landscape in rural America, and this proactive business diversification continues to deliver meaningful benefits to the communities and industries we serve, as evidenced by the strong growth across all our portfolios. We will continue to invest thoughtfully in our people, technology, and infrastructure to efficiently scale our business and ultimately capitalize on the significant opportunities in front of us. Lastly, I want to thank our Farmer Mac employees for all their dedication and effort in support of our mission to achieve these exceptional results.

Zack Carpenter
President and CEO at Farmer Mac

We have an extremely talented team here at Farmer Mac, and these results are a testament to their focus, execution, and the strength of the relationships they have all developed with our customers and stakeholders. Now, operator, I'd like to see if we have any questions from anyone on the line today.

Operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from Bose George with KBW. Your line is open.

Bose George
Bose George
Analyst at KBW

Hey, everyone. Actually, first, just a question on spreads. In the broadband segment, does the data centers have a higher spread than the other assets in there? Secondly, on the Corporate AgFinance, that was obviously higher, but is that purely just that reversal of that one credit you discussed?

Zack Carpenter
President and CEO at Farmer Mac

Hi, Bose. As it pertains to spreads in Broadband Infrastructure, I think the majority of the spreads you see in the quarter reflect the growth in the broadband, or excuse me, the data center portfolio. Those credit spreads are relatively in line with the other assets in that portfolio. I would note, again, we look at risk-adjusted returns and make sure that regardless of credit spreads, that the return is appropriate for our capital deployment. There's not a significant amount of volatility between spreads across the different sectors in that portfolio. In Corporate AgFinance, yes, the biggest impact that quarter as it pertains to net effective spread is the collection of that interest from the non-accrual loan. If you back that out, you would see net effective spread percentage be relatively flat quarter-over-quarter.

Bose George
Bose George
Analyst at KBW

Okay, thanks. Great. The risk transfer solution that you discussed, is that going to be beneficial to ROEs, or is it really just a way to broaden your access to capital? The structures, are they going to look similar to sort of the Fannie Freddie risk-sharing structures?

Matt Pullins
CFO and Treasurer at Farmer Mac

Bose, this is Matt. In terms of the use of risk transfer tools, we are very much looking at those as a form of capital. To that end, the risk transfer tools are attractive to us because they are a more efficient, more flexible, and generally speaking, a cheaper form of capital than other tools that we have available to us, including issuing capital. Playing that forward and directly responding to your question about return on equity, the short answer is yes, we do expect the use of credit risk transfer tools to benefit return on equity over the course of time.

Bose George
Bose George
Analyst at KBW

Okay, great. Thanks.

Operator

Your next question comes from Bill Ryan with Seaport Research Partners. Your line is open.

Bill Ryan
Bill Ryan
Analyst at Seaport Research Partners

Thanks, good afternoon. I have to say congratulations. I think I was the high on the Street, and you managed to exceed my numbers quite handily. First question, just following up on Bose's question about the NES margin. Going across the various segments, you did have expansion. I think even if I did my calculations right, Corporate AgFinance is up about five basis points, even taking out the $7.4 million adjustment. You've been reluctant to kind of give some outlook on the margin, and I understand that's kind of reflecting of unsure about the product mix going forward, specifically in Farm & Ranch. Maybe if you could talk about how you see it playing out in the next couple of quarters, perhaps into 2027, both in Farm & Ranch and also the other businesses. Then I do have one follow-up question as well.

Zack Carpenter
President and CEO at Farmer Mac

Thanks, Bill. This is Zack. As it pertains to margin, I think if you look over the last four quarters, especially across Corporate AgFinance, Broadband, and Renewable Energy and kind of look at a trailing 12 months NES percentage, they're relatively consistent. Broadband is typically in the 225%-235% range. Renewable Energy, 165%-175%, and Corporate AgFinance a little bit north of 2%. What we see in the market, I don't envision much delta outside of those ranges. The transactions that we're seeing and the credit profiles that we focus on within our underwriting criteria seem to fall within that range. As we look out over at least the pipeline that we see as well as the transactions that we look at in the market, I would say they're probably going to fall within those ranges.

Zack Carpenter
President and CEO at Farmer Mac

Clearly, that's market dependent and anything pertaining to volatility that could impact the market may shift those. From what we see today, I would say they're probably relatively consistent. On Farm & Ranch, I think the biggest potential change there is really product mix. We saw a little bit of compression this quarter, given the significant growth we saw in AgVantage. Depending on those opportunities, which are quite lumpy, could move that Farm & Ranch NES percentage up and down a few basis points here or there. We feel pretty good on the Farm & Ranch loan purchase side in terms of the stability of our NES percentage, given the volume that's coming into the door. I would say the mix in AgVantage and the size of any issuances that we have in the future could cause a little bit of compression in the Farm & Ranch space.

Bill Ryan
Bill Ryan
Analyst at Seaport Research Partners

Okay.

Matt Pullins
CFO and Treasurer at Farmer Mac

Bill, if I can add on-

Bill Ryan
Bill Ryan
Analyst at Seaport Research Partners

Sure.

Matt Pullins
CFO and Treasurer at Farmer Mac

To the points that Zack offered. I would like to note the fact that in a quarter where we had exceptionally strong growth of new business volume, $2.4 billion net of incremental business volume in the quarter, we are able to maintain the spreads in our business. That is indicative of the fact that while business is robust and new volume coming in is robust, we are not conceding spread to generate that new volume. That manifests itself in two ways in terms of our financial performance. First is being able to have consistent net effective spread over the course of time, notwithstanding the impact of mix, also to be able to have consistent risk-adjusted returns and returns on equity because we are not conceding margin to drive volume.

Bill Ryan
Bill Ryan
Analyst at Seaport Research Partners

Okay. Thanks for the follow-up explanation on that. Second question was just on operating leverage. I was trying to quickly back out the one-time revenues and the one-time expenses, it looks like revenues, excluding the $7.4 million, were up about 17%, expenses up about 9%-10%. Maybe if you could talk about how you are thinking about operating leverage potential going forward at this point, given your acceleration of volume. Do you have the infrastructure really built out at this point to handle everything that is coming on?

Matt Pullins
CFO and Treasurer at Farmer Mac

Yeah. The short answer is yes. We do expect to generate positive operating leverage going forward. We expect to see the growth rate on the expense side moderate relative to the performance in the second quarter. Because of the strong volume in new business in the second quarter, that is going to further enhance top-line benefit in the third quarter and beyond. To your question about build-out of infrastructure, yes, we're very confident that we can continue to scale the business based on the infrastructure of the platform that we have today.

Matt Pullins
CFO and Treasurer at Farmer Mac

As I mentioned in my prepared remarks, one of the luxuries of our business and being able to operate at the level of efficiency that we do, and to experience the growth that we have experienced and anticipate to continue to experience in the future, is that does give us the flexibility to continue to invest in enhancements of our platform. That's people, technology, process, et cetera. You can expect to see continued investments. We do anticipate maintaining positive operating leverage going forward and actually expanding that operating leverage in the back half of the year on account of slower expense growth.

Zack Carpenter
President and CEO at Farmer Mac

Bill, the only thing I would add on to that is we announced in our prepared remarks the launch of Farmer Mac Loan Exchange. That's, as we've talked about, our focus on creating a more efficient and scalable platform. That's the major first step. This allows us to really think about technology and solutions going forward that can bolt onto a very advantageous infrastructure platform, and create a more scalable opportunity set going forward for our customers. The last thing I would mention is that as we think about investment in technology and people, we're going to be very methodical in terms of the timing and the return that we have based on our investment.

Bill Ryan
Bill Ryan
Analyst at Seaport Research Partners

Okay. Thanks for taking my questions. I'll jump back. Thank you.

Operator

Your next question comes from Brendan McCarthy with Sidoti. Your line is open.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti

Great. Good afternoon, everybody. Congratulations on the results, and thanks for taking my questions here. I just wanted to start off on the Farm & Ranch segment. The pace of volume growth there has really accelerated this year. I know there's some lumpy wholesale volume in there that's benefited volume in Q2 and Q1, do you primarily attribute growth to just borrower demand? Are lenders becoming more capital constrained? I'm just curious as what the key demand drivers are there.

Zack Carpenter
President and CEO at Farmer Mac

Yeah. Hi, Brendan. This is Zack. I'd say we think about it in three different prongs. There's a component there that there are certain sectors of the ag economy that are experiencing stress, and the under-levered component of their land allows them to tap into that equity to potentially support working capital and liquidity to kind of get through the volatility that they're experiencing in the agricultural economy. The other component I think that's important is, we are a secondary market, and our customers are financial institutions that originate these loans. As we've seen, they see tremendous loan growth in their markets, and they need to balance capital return and other sources of funding, such as deposits, which are exceedingly high in this environment.

Zack Carpenter
President and CEO at Farmer Mac

As they navigate this environment, they're leveraging the secondary market to balance their balance sheet management initiatives, which is further driving more growth to Farmer Mac. Lastly, and we've been talking about this for some time, is borrowers want liquidity quick. The more we can make our platform efficient and scalable and get the dollars out the door, they're going to benefit and leverage the secondary market in a more scalable fashion. We've seen that over the last six to eight months as we've improved our products and our processes and focused on our infrastructure. We're getting dollars out the door quicker, and that's driving more looks to Farmer Mac, and that's why we're seeing an increased velocity coming through Farm & Ranch loan purchase.

Matt Pullins
CFO and Treasurer at Farmer Mac

If I could add onto that, Zack, for the benefit of those of you on the call, one market factor that we're watching very closely and impacts Farm & Ranch volume is credit spreads. It really impacts us in a couple different ways. The dynamic is that our funding costs, our ability to access liquidity in the market tends to be less sensitive to credit spreads than the banks or other sources of liquidity that are available to borrowers. That potentially benefits us in two ways. One is that at the margin, it makes our AgVantage securities product more attractive as a source of wholesale funding for banks or other institutions that are holding mortgages. Additionally, that also makes the cost of a bank or another institution to hold the mortgage on balance sheet incrementally higher relative to what we can offer.

Matt Pullins
CFO and Treasurer at Farmer Mac

That can incentivize more loan purchase activity in the Farm & Ranch space for our business. While credit spreads are still relatively benign, they have moved up here in recent weeks, is something that we're monitoring very closely, and that is a factor that could be meaningful in terms of driving Farm & Ranch purchase volume as well as AgVantage volume in the future.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti

That's great. I appreciate the detail there. As you look out for the remainder of the year, are you a little bit more bullish on the AgVantage, or I'm sorry, the wholesale volume? Or is it more purchase volume that you're more bullish on?

Zack Carpenter
President and CEO at Farmer Mac

Yeah, I think when we see the tailwinds of the sectors that we serve, clearly we feel there's a lot of tailwinds in our loan purchase products. We've talked a lot about infrastructure and the need for electrification and data centers, and we just talked about Farm & Ranch. We see continued growth and velocity in our loan purchase. We talked in last year that we felt the fourth quarter of 2025 was kind of the bottom of what we saw in the AgVantage or wholesale runoff, and we've experienced two back-to-back quarters of strong growth. It's a little bit more lumpy. I think there's a component of both counterparties and the need for liquidity. What's transpiring, as Matt said, in the credit spread market in terms of our product's relative value versus other funding alternatives.

Zack Carpenter
President and CEO at Farmer Mac

A little bit harder to predict in terms of what the future growth is. I would highlight, we have pretty minimal scheduled maturities in our Farm & Ranch AgVantage portfolio in the second half of this year, which, if we do see some more interest in utilization of the wholesale product in the Farm & Ranch side, would be pretty much an increase in net growth there versus refinancing maturing securities. We still see tremendous interest from new counterparties in this product, so we're continuing to market and have those conversations and look forward to getting new counterparties set up with that product. A little lumpy and hard to predict.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti

Got it. Thanks, Zack. Appreciate the color there. On the Farmer Mac Loan Exchange platform, what early adoption are you seeing from this exchange platform? It sounds like it's really aimed at driving scale or volume scale, does this also flow through to perhaps a lower efficiency ratio for you guys?

Zack Carpenter
President and CEO at Farmer Mac

Yeah. A little too early to tell on the utilization. We did launch it Monday, we're right in the thick of it. For all intents and purposes, it's been very well received in the market we'll continue to monitor that going forward. Yes, I think our ultimate goal here is linking back to our Investor Day presentation. Create a faster, easier, and competitive platform where borrowers can access liquidity as quickly as possible. This is the first big step. As we think about different innovative technologies and bolting it onto the FLX platform, we do anticipate increasing scale, which ultimately will help with operating leverage and efficiency ratio.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti

Got it. One last question from me. I know we're a little bit more than halfway through the year. What at this point would cause year-end results to kind of come in maybe out of line of your expectations?

Zack Carpenter
President and CEO at Farmer Mac

From a market perspective, again, we see positive tailwinds across all sectors. I think we're clearly continuing to monitor the agriculture environment and see what potential headwinds that could arise in the future pertaining to global conflicts and higher input costs, et cetera. That is going to be more visible as we head into the back part of this year. It remains to be seen. That could be positive in terms of increased loan demand. Just uncertainty at this point as things continue to move forward. As we noted in our prepared remarks, we continue to monitor kind of data centers and the tremendous growth that we've seen there. Again, we're focused very specifically on the top investment-grade hyperscalers with very appropriately structured projects, and we haven't really seen a slowdown in that.

Zack Carpenter
President and CEO at Farmer Mac

The capital markets are really eating up all the opportunities that are in the market. I think things that could really come up as we think about us being a financial organization is credit headwinds. We continue to monitor all our sectors, and we've seen some positive movement in substandards and 90-day delinquencies. If things evolve in the markets that can cause those to increase and see additional provisions, that could alter kind of our forecast that we see.

Brendan McCarthy
Brendan McCarthy
Analyst at Sidoti

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

Operator

Your next question comes from Gary Gordon, a private investor. Your line is open.

Gary Gordon
Shareholder at Private Investor

Hi. Thanks for taking my questions. Yeah, thanks for the detail on normalized earnings. Just maybe a follow-up on securitization. You've described that the cost of capital for securitization is lower. What are sort of your limitations on volume? Presumably, you'd like to issue a lot if it's a cheaper funding source.

Matt Pullins
CFO and Treasurer at Farmer Mac

Yes. Gary, this is Matt. Just one clarification is, historically, we've relied upon what's known in the marketplace as senior subordinate securitization structures as a form of credit risk transfer. We're evolving our product mix and approach to credit risk transfer to include other avenues of risk transfer, including synthetic securitization. That's one of the tools that we are looking at and are fairly commonly used by some of the other GSEs in the markets. In terms of capacity, the factors that we'll be most closely monitoring there are really twofold. One is the assets in portfolio that where we can get effective execution in terms of credit risk transfer. Specifically, looking at, as an example, we have a fairly robust history and market awareness and frankly, level of comfort in the Farm & Ranch space.

Matt Pullins
CFO and Treasurer at Farmer Mac

The market is comfortable with our underwriting standards and historical credit performance, that's generally viewed to attractively align with a risk transfer type of transaction. We'll be looking at specific components of our balance sheet, specific components of the portfolio where risk transfer will make sense from an execution standpoint. The second factor that we'll be needing to monitor would be the market appetite or market capacity for agricultural finance and rural Infrastructure Finance risk transfer. We don't believe at the moment that there are notable limitations in terms of the market capacity for that risk. That is certainly a factor over the long run that we'll have to monitor. If the market capacity is tapped out, we would have to look at other forms of capital as alternative ways of managing the balance sheet.

Gary Gordon
Shareholder at Private Investor

Okay. Would it be a goal or a potential that securitization could be materially higher two years from now?

Matt Pullins
CFO and Treasurer at Farmer Mac

In short, yes.

Gary Gordon
Shareholder at Private Investor

Are Infrastructure Finance loans, you think, have an opportunity, securitization?

Matt Pullins
CFO and Treasurer at Farmer Mac

What I would say there is the market, in our experience, has a demonstrated appetite and interest in the Farm & Ranch credits, and that's in part related to the historical experience that the market has with our asset credit performance, as demonstrated through the historical farm securitization transactions. That said, over the long run, we will absolutely be evaluating risk transfer opportunities in the infrastructure space, but that is not necessarily the priority in the early stages of these alternative risk transfer transactions that we're contemplating.

Gary Gordon
Shareholder at Private Investor

Okay. Thanks a lot.

Operator

That concludes our Q and A session. I will now turn the conference back over to Zack Carpenter for any closing remarks.

Zack Carpenter
President and CEO at Farmer Mac

I'd like to conclude by thanking everyone for joining us here today. We appreciate your continued interest in Farmer Mac and look forward to sharing our third quarter of 2026 results with you in the fall. As always is the case, if you have questions that you'd like to discuss with us, don't hesitate to reach out. With that, thank you very much and have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.

Analysts
    • Jalpa Nazareth
      Senior Director of Investor Relations at Farmer Mac
    • Zack Carpenter
      President and CEO at Farmer Mac
    • Matt Pullins
      CFO and Treasurer at Farmer Mac
    • Bose George
      Analyst at KBW
    • Bill Ryan
      Analyst at Seaport Research Partners
    • Brendan McCarthy
      Analyst at Sidoti
    • Gary Gordon
      Shareholder at Private Investor
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