Q1 2025 Federal Agricultural Mortgage Corp Earnings Call
Good morning, ladies and gentlemen and welcome to the former Mac at 2025 Ernie's results conference goal.
At this time, all lines are in listen only mode today.
Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you're requiring me to do the assistance, please press star zero for the operator This call is being recorded in Thursday, May 8th, 2025 I would now like to turn the conference over to Jalpa Nazareth, please go ahead [inaudible]
Speaker Change: Good morning, and thank you for joining us for our first quarter, 2025 Earnings Conference call. I'm Salpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at
Speaker Change: 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 [inaudible]
Speaker Change: and are subject to risks and uncertainties that could cause our actual results to different materially from those projected. Please refer to Farmer Max 2024 annual report and subsequent SEC filings for a full discussion of the company's risk factors.
Speaker Change: On today's call, we will also be discussing certain non-GAAP financial measures.
Speaker Change: Disclosures and Reconciliation of These Nongat Measures can be found in the most recent form 10Q and Earnings release posted on FarmerMax website, FarmerMax.com, under the Financial Information portion of the Investors section.
Speaker Change: Joining us for 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.
Speaker Change: 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, Brad.
Speaker Change: Thanks, Jalpa. Good morning, everyone, and thank you for joining us.
Speaker Change: I'm very pleased to share that we've achieved another outstanding quarter with record quarterly revenue, net effective spread, and court earnings.
Speaker Change: Our capital-based remain strong, bolstered by strong earnings, disciplined asset liability management, and a consistent access to capital markets.
Speaker Change: These strengths support our long-term strategic growth objectives and provide a buffer against market volatility and shifting credit conditions.
Speaker Change: These results underscore the robustness of our business model and the effectiveness of our strategic initiatives of mission-based profitable growth.
Speaker Change: We continue to fulfill our mission to rule America even as we navigate broader market uncertainties stemming from interest rates, regulatory shifts, policy changes, and government action.
Speaker Change: In the first quarter of 2025, we achieved high single-digit growth in total revenue, net effective spread and core earnings.
Speaker Change: We achieved $1.8 billion in gross new business volume during the first quarter. We reflected growth across the infrastructure finance, line of business, and healthy loan purchase volume in the farm and ranch in corporate egg finance segments.
Speaker Change: After repayments and maturities, our outstanding business volume grew by $232 million, ending the quarter at $29.8 billion.
Speaker Change: This growth highlights the benefits of our proactive strategy, the diverse fire portfolio, and great opportunities and all interest rate environments.
Speaker Change: The infrastructure-financed land-of-business grew by approximately $750 million in the first quarter of 2025, continuing the strong growth momentum from 2024.
Speaker Change: During the quarter, we successfully closed a $300 million ag-vantage security in the Power and Utility segment with a long-standing counterparty, and we added $134 million in net new loan purchases.
Speaker Change: A broadband infrastructure segment grew 22% since your end, reaching nearly $1 billion as up the end of the first quarter, 2025.
Speaker Change: 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.
Speaker Change: These developments are crucial for rural economic growth and the connectivity needs for rural America.
Speaker Change: A renewable energy segment grew by nearly $200 million in first quarter 2025, a 14% increase since year end.
Speaker Change: Over the past five years, we've seen strong growth in the segment and believe that the near-term pipeline remains strong.
Speaker Change: Growing business volume in our infrastructure finance segments 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.
Operator: Good morning, ladies and gentlemen, and welcome to the Farmer Mac 2025 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. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, 8 May 2025. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.
Speaker Change: Despite the significantly large number of scheduled repayments, we typically see in the January 1st payment date on the majority of farm and ranch loans. We saw a net increase of $86 million in farm and ranch loan purchases in the first quarter
Speaker Change: 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.
Jalpa Nazareth: Good morning and thank you for joining us for our Q1 2025 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 2024 annual report 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.
and ongoing inflationary inputs.
Speaker Change: Offsetting Farm and Ranch loan purchase growth as quarter was a $500 million in scheduled of maturities with two large, egg-vantage counter parties.
Speaker Change: As previously noted, a managed security bond can be lumpy. It can be volatile due to the large transaction sizes and the schedule of the charities aligned with our counterparty specific
Speaker Change: During the first quarter, we closed a new $900-dollar facility with a large agricultural finance counterparty, supporting future advantage funding opportunities, and demonstrating the continued interest in this product.
Speaker Change: I would note that that $900 million facility is not yet drawn.
Jalpa Nazareth: 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 investor section. Joining us from management this morning is our President and Chief Executive Officer, Bradford Nordholm, who will discuss Q1 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, Bradford Nordholm. Brad?
Speaker Change: We are looking ahead to partnering with this new counterparty for their future funding needs.
Speaker Change: Looking ahead, we believe that we will continue to be a key partner for refinancing and incremental borrowing for all of our egg vantage counterparties.
as they navigate a volatile interest rate and economic environment.
Speaker Change: The farmer ranch segment is core to our mission and we remain committed to bringing our customers products and solutions that provide capital and risk management solutions as well as support their borrowers financial needs.
Speaker Change: Our Corporate Aid Finance segment was approximately $2 billion a quarter-end, relatively flat compared to year in 2024, as $200 million in new volume this quarter was offset by scheduled payments and
Bradford Nordholm: 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. 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 Q1 2025, we achieved high single-digit growth in total revenue, net effective spread, and core earnings.
Speaker Change: Although quarterly volume can be unpredictable, opportunities in this segment are generally more credo to that effect of spread.
Speaker Change: 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.
Speaker Change: Our overall credit profile remains strong through the first quarter of 2025.
Speaker Change: Despite heightened volatility and market uncertainty, our proven underwriting approach, emphasizing loan devalue and cash flow metrics, positions us well to withstand market cycles.
Speaker Change: We have not seen any impacts on our portfolio related to government actions or changes in policy, and we'll continue to closely monitor industry credit conditions as new government policies are implemented, including specifically pending tariffs.
Bradford Nordholm: We achieved $1.8 billion in gross new business volume during Q1, reflecting growth across the infrastructure finance line of business and healthy loan purchase volume in the Farm & Ranch and corporate ag finance segments. After repayments and maturities, our outstanding business volume grew by $232 million, ending the quarter at $29.8 billion. This growth highlights the benefits of our proactive strategy to diversify our portfolio and create opportunities in all interest rate environments. The infrastructure finance line of business grew by approximately $750 million in Q1 2025, continuing the strong growth momentum from 2024. During the quarter, we successfully closed a $300 million AgVantage security in the power and utility segment with a longstanding counterparty, and we added $134 million in net new loan purchases.
Speaker Change: 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
Speaker Change: Our Resilient Business Model, supported by diversified revenue streams and a strong capital position, is a key differentiator.
Speaker Change: But it is our ability to access the markets, coupled with our disciplined asset liability management, that truly sets us apart.
Speaker Change: 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. Aparna
Thank you, Brad, and good morning, everyone.
Aparna Ramesh: At first, quarter 2025 results, once again, underscore a consistent financial and operational execution, pro-active balance sheet management, strong credit quality, and resilience across market cycle.
Bradford Nordholm: Our broadband infrastructure segment grew 22% since year-end, reaching nearly $1 billion as of the end of Q1 2025. 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. Our renewable energy segment grew by nearly $200 million in Q1 2025, a 14% increase since year-end. Over the past 5 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 segments 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.
Aparna Ramesh: 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.
Aparna Ramesh: This consistency is a real differentiator for us as we navigate a volatile macro-planet.
Aparna Ramesh: We achieved $1.8 billion of gross business volume to squatter, primarily driven by new volume in our renewable energy, broadband infrastructure and power and utility segments, as well as new front-end branch loan purchases.
Aparna Ramesh: After repayment for maturities, we grew $232 million 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.
Bradford Nordholm: Despite the seasonally large number of scheduled repayments we typically see in the 1 January payment date on the majority of Farm & Ranch loans, we saw a net increase of $86 million in Farm & Ranch loan purchases in Q1 2025. 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. Offsetting Farm & Ranch loan purchase growth this quarter was a $500 million in scheduled maturities with two large AgVantage counterparties. As previously noted, AgVantage security bond can be lumpy. It can be volatile due to the large transaction sizes and the scheduled maturities aligned with our counterparty's specific financing needs.
Speaker Change: Core earnings increased by 6% both sequentially and year-over-year to 46 million in the first quarter of 2025, setting a record for Farmer Mac.
Speaker Change: Net effective spread also reached a record 90 million or 117 basis points with the sequential and year-over-year improvements of 2.5 million and 6.9 million respectively.
Speaker Change: This sequential improvement was driven by higher average loan balances, a decline in non-coral loans and modest improvements in floating rate funding levels relative to social.
Speaker Change: The shift to higher spread business has been a key driver of the increase in that effective spread over the past several years, and we believe our price rise and business composition will continue to position us well for the remainder of the year.
Bradford Nordholm: During Q1, we closed a new $900 million facility with a large agricultural finance counterparty, supporting future AgVantage funding opportunities and demonstrating the continued interest in this product. I would note that that $900 million facility is not yet drawn. 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 & Ranch segment is core to our mission, and we remain committed to bringing our customers products and solutions that provide capital and risk management solutions, as well as support their borrowers' financial needs.
Speaker Change: 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
Speaker Change: operating efficiency with 29% for first quarter 2025 in modest improvement over fourth quarter 2024 and in line with the same period last year.
Speaker Change: Our efficiency ratios remain in line with our long-term strategic plant target and reflect our discipline approach to expense management as the monitor and manage expense growth proactively against incoming revenue streams.
We take pride in our focus on the fact of an extensive management.
Speaker Change: 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 [inaudible]
Bradford Nordholm: Our corporate ag finance segment was approximately $2 billion at quarter end, relatively flat compared to year-end 2024, as $200 million 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. 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 Q1 2025. 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.
Speaker Change: 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 our exploring options to build innovative systems that will accelerate growth by supporting the rollout of these new products.
Speaker Change: 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 percent and also be disciplined in keeping our efficiency ratio in line with our group expectation.
Speaker Change: Sonny Nam to Credit, our overall credit profile remains strong, which respects our underwriting and credit disciplines that are both extremely consistent.
Speaker Change: 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.
Bradford Nordholm: 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. 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. It is our ability to access the markets, coupled with our disciplined asset liability management, that truly sets us apart.
Speaker Change: 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.
Speaker Change: A total allowance for losses was $27 million as of March 31, 2025, reflecting a $1.7 million increase from year-end 2024.
Speaker Change: The increase was primarily attributable to new volumes in the renewable energy, foreign utilities, and farm and
Speaker Change: Mind today the linkancies were 54 basis points across our entire portfolio, as of March 31, 2025, compared to 37 basis points at the end of December .
Speaker Change: The sequential increase reflects a seasonal pattern of phalanx-90-dapal inconsistency 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.
Speaker Change: This seasonal pattern is due to the annual and semi-annual payment dates on the maturity of
Bradford Nordholm: With that, now I'd like to turn over to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail. Aparna?
Pauline Ticapelo
Speaker Change: found on a score capital of $1.5 billion, exceeded a statutory requirement by $601 million or 65% as of March 31, 2025.
Aparna Ramesh: Thank you, Brad, and good morning, everyone. Our Q1 2025 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 $1.8 billion 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 & Ranch loan purchases.
Speaker Change: The increase in court capital from the end of 2024 was primarily due to higher retained earnings.
Speaker Change: Our Tier 1 Capital Ratio was 13.9% as of March 31, 2025, compared to 14.2% at year-end 2024.
Speaker Change: A strong capital position has enabled us to grow and diversify revenue streams of remaining resilient and volatile credit environments, and we continue to offer low-cost liquidity to our customers and borrowers, even in challenging times.
Speaker Change: Our capital buffer is a source of strength and also allows us to be opportunistic.
Speaker Change: We expect to be in the market soon with another Farm Securitization Transaction
Speaker Change: The Securitization Program remains an important strategic initiative for Salmon Mac, as it allows us to enhance and optimize the balance sheet by the efficient deployment of capital, and it also enables our group strategy by targeting new asset opportunities.
Aparna Ramesh: After repayments and maturities, we grew $232 million during Q1 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 million in Q1 of 2025, setting a record for Farmer Mac. net effective spread also reached a record $90 million or 117 basis points, with sequential and year-over-year improvements of $2.5 million and $6.9 million, 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.
Speaker Change: We are very pleased with the tremendous support we've seen from our stakeholder service program and we remain committed to being a regular issuer in the market.
Speaker Change: 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.
Speaker Change: Out of the quiddity and tactical positions remain well in excess of all regulatory requirements.
Speaker Change: Our projections show minimal change in our profitability with limited exposure to movements and infrastructures where the marketplace go up or down.
Speaker Change: As of March 31, 2025, power math had 289 days of liquidity, and we held approximately $1 billion in cash and other short-term instruments in our investment portfolio.
Aparna Ramesh: The shift to higher spread business has been a key driver of the increase in net effective spread over the past several years. We believe our pipeline and business composition will continue to position us well for the remainder of the year. 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 Q1 2025, a modest improvement over Q4 2024 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.
Speaker Change: 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 disruption.
Speaker Change: So to summarize, our team once again delivered strong, consistent, quarterly results, maintaining key metrics while adhering to our credit framework.
Speaker Change: During the first quarter, we achieved a 17% return on equity and an efficiency ratio of 29%.
Speaker Change: It is important in these uncertain times that we emphasize some of the safeguards that prepare us for macro uncertainty.
Speaker Change: Our balance sheet is strong. We've cultivated robust amount of farm and ranch assets in the securitization market.
Speaker Change: Even when bond markets were turbulent recently, we were able to access funding at all points from the curve.
Aparna Ramesh: 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. We remain committed to bringing cutting-edge technology to our secondary market. With the completion of a major infrastructure platform upgrade that we've 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 growth expectations. Turning now to credit.
Speaker Change: This ability allows us to consistently deliver strong financial performance and maintain or exceed a key metric.
Brad Nordholm: and with that, Brad, let me turn it back to you.
Brad Nordholm: Thanks, Aparna. We are very pleased with our first quarter 2025 results.
Speaker Change: 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.
Speaker Change: As I've mentioned on prior calls, as a publicly created, federally chartered financial services company, our mission is to increase the accessibility of financing to provide vital liquidity for American agriculture and rural infrastructure.
Speaker Change: Our initiative strengthens the economic framework that supports rural America and enable families, businesses and entire communities to thrive.
Aparna Ramesh: Our overall credit profile remains strong, which reflects our underwriting and credit disciplines that are both extremely consistent. 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 million as of 31 March 2025, reflecting a $1.7 million increase from year-end 2024. The increase was primarily attributable to new volume in the renewable energy, storage and utilities, and Farm & Ranch segments. 90-day delinquencies were 54 basis points across our entire portfolio as of 31 March 2025, compared to 37 basis points at the end of December.
Speaker Change: We strive to deliver on our missions throughout agriculture and macroeconomic cycles and our lone pipeline and capital-based are strong and growing.
Speaker Change: Our revenues well-diversified, providing capacity for further growth, and creating more opportunities for us to enhance shareholder value.
Speaker Change: We're optimistic about the future and will maintain our singular focus on fulfilling our mission efficiently and innovatively, as we navigate the backdrop of a broader market uncertainty, a trivial interest rates.
Regulation.
Policy, Changes, Carrots, and other government actions.
Speaker Change: This is how we believe we can continue to differentiate ourselves and deliver to our customers and end-bours in rural America.
Speaker Change: And now, operator, I'd like to see if we have any questions from anyone on the line today.
Aparna Ramesh: The sequential increase reflects a seasonal pattern of Farmer Mac's 90-day delinquencies, with higher levels generally observed at the end of Q1 and Q3 and lower levels generally observed at the end of Q2 and Q4 of each year. This seasonal pattern is due to the annual and semiannual payment dates on the majority of Farm & Ranch loans. Turning to capital. Farmer Mac's core capital of $1.5 billion exceeded our statutory requirement by $601 million, or 65%, as of 31 March 2025. The increase in core capital from the end of 2024 was primarily due to higher retained earnings. Our Tier 1 capital ratio was 13.9% as of 31 March 2025, compared to 14.2% at year-end 2024. 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.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press tar 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 tar followed by the number two. If you are using a speaker phone, please make sure to lift your handset before pressing any
Speaker Change: Your first question comes from the line of Bill Ryan from Seaport Research Partners.
Burning and a nice result for the quarter.
Speaker Change: Start off with a macro question and then also another micro question, but the macro question.
Speaker Change: Just kind of looking at the tariffs. I mean, there's obviously been some disruption in the month of April and into early May.
Speaker Change: with AG shipments, particularly 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, you know, what exactly happened in 2017-2018?
Aparna Ramesh: 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. 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. 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. This will serve as another source of funding and capital management.
Speaker Change: Yeah, good morning, Bill, and thank you very much for joining us.
Speaker Change: 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.
Speaker Change: 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...
Speaker Change: Certainly, the 145% tariffs that are currently imposed upon China are resulting in a shift.
Aparna Ramesh: Our liquidity and capital positions remain well in excess of all regulatory requirements. 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 31 March 2025, Farmer Mac had 289 days of liquidity, and we held approximately $1 billion 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. We're confident in our resilience against potential short and medium-term market disruptions. To summarize, our team once again delivered strong, consistent quarterly results, maintaining key metrics while adhering to our credit framework. During Q1, we achieved a 17% return on equity and an efficiency ratio of 29%.
Speaker Change: of trade, particularly to Mexico right now. 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.
Speaker Change: Mexico and Canada are positively protected by reference to the prior trade agreements. We saw yesterday the announcement of an agreement, at least in principle, with the UK, and notably that included a call out on specific
Speaker Change: 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 billion program.
that applications were open for that.
Speaker Change: I think there have been about $6.7 billion of applications so far, I believe something like that.
Aparna Ramesh: 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 & 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. This stability allows us to consistently deliver strong financial performance and maintain or exceed our key metrics. With that, Brad, let me turn it back to you.
and then there is considerable discussion about an additional voluntary...
Speaker Change: Subcity Program to American Producers in consideration of these tariff actions that might be in the 20s or 25 billion dollar range.
That's, you know, looking out the next couple of months.
Speaker Change: USDA has kind of based that into their net income projections for the year and remarkably it's a current projection for net firm income for this year is projected to be about the third highest.
Speaker Change: So, this is something in which we're keeping a very, very close eye [inaudible]
Bradford Nordholm: Thanks, Aparna. We are very pleased with our Q1 2025 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. 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.
Speaker Change: because high sustained tariffs will have the dampening effective prices that will negatively impact many producers. We're also looking at how any kind of subsidy programs as well tariffs are applied and impact different crops, different producers.
So, for example, we're seeing...
Recently, strong focus on negative impacts to-
Speaker Change: Roboproducers, Horned Soybeans, for example, right now. We're keenly interested in any programs that would benefit prone to crop producers in California, almonds, pistachos, for example, where we are seeing some of our credit stress. That's really the pocket where it is today.
Speaker Change: Okay, thanks for that, Brad. Very helpful. Second question, a little bit more micro, but obviously the net effect is spread and moved up the basis point in the quarter. Continuing to the trend line, it's been on for quite a while, but there was some movement among the various business lines, farming, ranch being up, corporate ag being up, broadband and renewable energy down. Could you maybe talk a little bit about the micro dynamics of the NES for the business
Bradford Nordholm: 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. Now, operator, I'd like to see if we have any questions from anyone on the line today.
Speaker Change: Absolutely, and I'm going to turn to Zach Carpenter to provide additional details on that. But let me just make the point at the outset.
The Farmer Mac, we are not allocators.
Speaker Change: 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 the man where we can also satisfy our credit and out and earning subtractors, but that can you provide some additional color on that.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of William Ryan from Seaport Research Partners. Please ask your question.
Zach Carpenter: Oh, yeah, happy to. I mean, starting with Farman Ramesh, I think this is heavily volume driven. We had a very strong fourth quarter last year and continue strong on activity in the first quarter, you know, clearly given the tightness of the ag economy, but also with liquidity and
Zach Carpenter: Cal will release needs at banks. They're definitely looking to utilize the secondary market to enhance.
Zach Carpenter: They're capital and liquidity you need. So a lot of the farmer in the ranch is heavily volume driven and we see a very strong type line heading to the second quarter home
William Ryan: Morning. Nice results for the quarter. Start off with a macro question and then also another micro question. The macro question, just kind of looking at the tariffs, there's obviously been some disruption in the month of April and into early May with ag shipments, particularly 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 what exactly happened in 2017, 2018?
Zach Carpenter: We're looking at loan approvals which significantly convert to purchases typically in a similar range to 2021 and 2022 when we had record levels.
Zach Carpenter: Corporate Ag is a very similar story, a very strong fourth quarter. And what we saw on the fourth quarter was fairly high credit spreads for these loans to be 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. [inaudible]
Speaker Change: 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 are kind of navigating the market in terms of what Brad highlighted earlier. Broadband infrastructure you noted, net effective spread was slightly down to a percentage perspective. You know, the one thing I would note in this space is,
Bradford Nordholm: 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 to 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 farm 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. Ultimately, a lot of these agricultural commodities are fungible. They can transfer across the world with relatively little friction. We're seeing a shift to Mexico.
Speaker Change: The significant amount of loan purchases that we saw during their 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 a creep more than that effective spread perspective.
Speaker Change: 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.
Speaker Change: They're going to be a little bit tighter in certain times, but that this will have been a flow based on market dynamics, but the one thing I would know with renewable energy is [inaudible]
Bradford Nordholm: 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 agricultural products, including ethanol. What's underway right now, about a month and a half ago, the Secretary of Agriculture announced a $10 billion program. The applications were open for that. I think there have been about $6, 7 billion of applications so far, I believe, something like that. 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 billion range. That's looking out the next couple of months.
Speaker Change: More than double the effect of spread dollars year over year, so we're excited to see this portfolio grow and at least for the second quarter still see a strong market, especially related to solar and battery storage.
Speaker Change: Your next question is from the line of Bose George from KBW. Please go ahead.
Bose Zorge: 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, because it seemed like a relatively big move in ROE relative to the spread move?
Yeah, Aparna, can you shed some light on that?
Bose Zorge: So we've been convoling with that, so we've had to do with the fact that he had.
Bradford Nordholm: 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. This is something in which we're keeping a 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. For example, we're seeing reasonably strong focus on negative impacts to row crop producers, corn, 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 Change: My apologies. I think there was a little bit of noise there. Can you feel me? Okay, right now? I can hear you now. Yes, thank you.
Speaker Change: 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 the non-native soft right there.
Okay, perfect. That makes sense. Thanks.
Aparna Ramesh: And then, yeah, Perna, you talked about the market volatility and the continued access, etc. But has there been anything in terms of the funding cost side that?
Speaker Change: is worth highlighting and you noted the securization you guys are going to come to market with. The economics there, do you anticipate it will be similar to what you did on the last transaction?
William Ryan: Okay. Thanks for that, Brad. Very helpful. Second question, a little bit more micro, obviously the net effective spread moved up 1 basis point in the quarter, continuing with the trend line it's been on for quite a while. There was some movement among the various business lines, Farm & 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?
Bradford Nordholm: Absolutely. I'm going to turn to Zachary Carpenter to provide some additional detail on that. 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. What you see is really a reflection of where are we seeing demand, where we can also satisfy our credit and earnings objectives. Zach, can you provide some additional color on that?
Speaker Change: with all of the activity and volatility as a result of the bond markets reacting to the tariffs being announced on Liberation Day. We did see a social widening. 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.
Zachary Carpenter: Yeah, happy to. Starting with Farm & Ranch, I think this is heavily volume-driven. We had a very strong Q4 last year and continued strong loan activity in the Q1. Clearly, given the tightness of the ag economy, but also with liquidity and capital release needs at banks, they're definitely looking to utilize the secondary market to enhance their capital and liquidity needs. A lot of the Farm & Ranch is heavily volume-driven. We see a very strong pipeline heading into the Q2. In fact, we're looking at loan approvals, which 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 Q4, and what we saw in the Q4 was fairly high credit spreads for these loans we purchased.
at least very favorably for us in the first quarter.
Speaker Change: The second part of your question, just in terms of securitization, let's wait and see.
Speaker Change: I think we're going to time, you can never really sort of time these things up perfectly, but we're seeing a little bit of settling down. We're not going to go into the market when we think that there is interest activity, 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 and the first quarter, we see continued strong appetite and demand for this particular asset class, so it's very, very encouraging.
Zachary Carpenter: Now you're seeing kind of the impact of that in Q1, where we had record net effective spread and record net effective spread percentage. We had a strong Q1, and we see some near-term pipelines that are relatively strong. I think the borrowers and the later arrangers are kind of navigating the market in terms of what Brad highlighted earlier. broadband infrastructure, you noted net effective spread was slightly down from a percentage perspective. The one thing I would note in this space is the significant amount of loan purchases that we saw during Q1 were data center related, and those are construction loans. A lot of those commitments are unfunded commitments. 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.
Speaker Change: Your next question is from the line of Brandon McCarthy from Cedodin. Please ask your question.
Great good morning everybody, thanks for taking my questions here.
I just want to start off
Speaker Change: 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. Was there any similar activity in the first quarter of 2025 and maybe you could talk about your outlook there for the rest of the year?
Speaker Change: Yeah, 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.
Zachary Carpenter: Similar to renewable energy, there's a construction component there, but it's definitely a market dynamic. We look to try to find strong transactions in the market with very strongly rated offtakers with strong power purchase agreements. Given the strength of those counterparties, you'll see credit spreads be somewhat volatile. Given their investment grade rated performance, they're going to be a little bit tighter in certain times. This will ebb and flow based on market dynamics. The one thing I would note with renewable energy is more than double the net effective spread dollars year over year. We're excited to see this portfolio grow. At least for Q2, still see a strong market, especially related to solar and battery storage.
Understood. Thank you.
Speaker Change: I'll just add Brandon, we did actually see a benefit quarter and quarter and operating expenses because we have the 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 office as a result of that.
William Ryan: Okay. Thanks, Zach, and thanks everybody for taking my questions.
Operator: Your next question is from the line of Bose George from KBW. Please go ahead.
Speaker Change: Yeah, I think, well, Aparna mentioned, you know, the notacles going accrued, and that is this great back of additional interest, which you would see showing up there. But Zach, maybe you can talk about kind of the forward expectations on farmer ranch and
Bose George: Everyone, good morning. Just wanted to follow up on the spread question. When I look at on page 10 where you have that breakout. Your spread on Farm & Ranch went up a couple of basis points, but the ROE was up 5%. Is there some other piece in there, like credit or lower capital allocation? Because it seemed like a relatively big move in ROE relative to the spread.
especially the seasonality that we experienced in the first quarter.
Speaker Change: Yeah, I'm happy to do it. We, about 550 million of new business volume and farmer ranching 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, continued focus to liquidity and working capital needs for the farmers and ranchers and capital efficiency.
Bradford Nordholm: Yeah. Aparna, can you shed some light on that?
Aparna Ramesh: Yeah. A big component of that really has to do with the fact that. My apologies. I think there was a little bit of noise there. Can you hear me okay right now?
Bose George: I can hear you now. Yes. Thanks, Aparna.
Aparna Ramesh: Okay. Terrific. 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. 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. You see a little bit of a denominator pop right there.
Banking Community, just giving everything that's going on.
Speaker Change: Looking forward, as I noted, our pipeline for farm and rancher loan purchases in the second quarter appears very strong. Like I mentioned, loan approvals which typically convert to a purchase are at almost record highs.
continue to see a significant amount of loan submissions.
Brad Nordholm: from sellers across the country. And, you know, just given everything going on, I mean, we already had an ag economy that was tightening. There's a lot of volatility out there, as Brad mentioned, pertaining to tariffs 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 in the second quarter now. [inaudible]
Bose George: Okay, perfect. That makes sense. Thanks. Then, yeah, Aparna, you talked about the market volatility and the continued access, et cetera, but has there been anything in terms of the funding cost side that is worth highlighting? You noted the securitization you guys are going to come to market with.
Aparna Ramesh: Yes.
Bose George: The economics there, do you anticipate it'll be similar to what you did on the last transaction?
Brad Nordholm: 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 end of the environment that we're seeing.
Aparna Ramesh: Yeah. It's hard to predict what will happen. We do intend to come forward with another transaction, hopefully before the Q2 is up, and I'll just touch upon that in a minute. 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. That's exactly what our treasury team did in the Q1. 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.
Speaker Change: Got it, that's helpful. Thanks, Zach. I appreciate the insight. One more question for me just on the Treasury segment. Looking at that effect, the spread revenue there.
Aparna Ramesh: Net effective spread, just in basis points, went up about 1 basis point. When you look at Q2, 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 did see a SOFR widening. What does that mean for us, Bose, 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 Q1. That is a dynamic and it plays very favorably for us in Q1.
Brad Nordholm: A lot of.
Speaker Change: Try it and being very opportunistic so when rates are.
Speaker Change: Lending in our credit spreads are coming in within a particular segment.
Speaker Change: <unk> tried to opportunistically issue into that so we saw a narrowing of our Sofia spreads quarter over quarter. So that's really created a fairly nice benefit overall in fact.
Speaker Change: Substantially down quarter over quarter, we've also taken advantage.
Speaker Change: As we see.
Speaker Change: The yield curve.
Speaker Change: Oh.
Speaker Change: Steepening.
Speaker Change: We'll start to call.
Speaker Change: Issuances and decided to do that in the back half of the X and you start to see some of those benefits all come into play as well in terms, it's just our overall.
Bradford Nordholm: Okay.
Aparna Ramesh: To the second part of your question, just in terms of securitization, let's wait and see. I think you can never really sort of time these things perfectly, but we're seeing a little bit of settling down. 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. Just based on our recent investor outreach in the Q1, we see a continued strong appetite and demand for this particular asset class. It's very, very encouraging.
Speaker Change: Hedging strategy, when we think about.
Speaker Change: When rates are headed but those are the primary dynamics the sofa funding being definitely the larger of the two.
Speaker Change: Great. Thanks, that's all for me thanks, everybody.
Speaker Change: Your last question is from the line of Gary Gordon Private Investor. Please ask your question.
Bose George: Okay, great. Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Two things in our changing world.
Operator: Your next question is from the line of Brendan McCarthy from Sidoti. Please ask your question.
Speaker Change: Also just a number of discussions about the changing energy policy anything going on that you think are your.
Brendan McCarthy: 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, we had talked about there were certain tax credits that you purchased during the year, during 2024 that is, that ultimately benefited the Q4. Was there any similar activity in the Q1 of 2025? Maybe you could talk about your outlook there for the rest of the year.
<unk>.
Speaker Change: Anticipating.
Speaker Change: It could have an impact on your infrastructure.
Speaker Change: Infrastructure business.
Speaker Change: And I'll get them both in now.
Speaker Change: The change is AI.
Speaker Change: What are your thoughts at the moment about applications of AI for farmer Mac.
Speaker Change: Yeah, Hey, Gary Thanks.
Speaker Change: For being on with us today.
Speaker Change: As it relates to renewable energy.
Bradford Nordholm: Yeah. No, there wasn't activity in Q1. It probably remains an opportunity later this year, and we're monitoring the markets. No activity in Q1.
Speaker Change: Projects.
Speaker Change: The investment tax credit is really embedded in the inflation reduction Act.
Speaker Change: It's been very interesting to watch the debate in Washington, because continuation of those credits enjoys.
Brendan McCarthy: Understood. Thanks, Brad.
Aparna Ramesh: I'll just add-
Brendan McCarthy: Oh.
Aparna Ramesh: I'll just add, Brendan, we did actually see a benefit quarter-over-quarter in operating expenses because we had some legal fees that were associated with the Investment Tax Credits in Q4. We saw a fairly material decline in legal fees. You saw an improvement in our OPEX as a result of that.
Speaker Change: Some really good bipartisan support.
Speaker Change: We don't take that for granted however, and we are.
Speaker Change: Very.
Speaker Change: I think.
Speaker Change: Satisfied with our position because when we commit to a project financing for a renewable energy project solar or solar plus battery.
Brendan McCarthy: Understood. Thanks for the clarification there. Looking at Farm & Ranch, I know you mentioned there was a sequential decline in volume there. On a sequential basis, it looks like Farm & Ranch really drove the bulk of the increase in net effective spread revenue, if I'm looking at that correctly. Just wondering if you can dissect that change there and how we can kind of think about that trend?
Speaker Change: Wind.
Speaker Change: Renewable natural gas for example, when we commit to that project.
Speaker Change: Really the entire.
Speaker Change: Network.
Speaker Change: Web of contracts associated with that project.
Speaker Change: Construction contract the offtake.
Speaker Change: Purchase or.
Speaker Change: Fuels.
Speaker Change: Purchase contract, the operating and maintenance contracts the land leases.
Bradford Nordholm: Yeah. I think, well, Aparna mentioned the non-accruals going accrued, and that is a scrapeback of additional interest which you would see showing up there. Zach, maybe you can talk about kind of the forward expectations on Farm & Ranch and especially the seasonality that we experienced in Q1.
Speaker Change: And the commitment for the tax credits those are really all in place at the time of the funding.
Speaker Change: So we don't really where risk associated with the change in tax law on the projects as they're currently structured.
Speaker Change: So we're keeping a close eye on it we're cautiously optimistic that they'll continue keep in mind that the economic viability of many of these projects is extremely high and some of them would continue.
Zachary Carpenter: Yeah, happy to do it. About $550 million of new business volume in Farm & Ranch, a significant majority of that, Brendan, as you noted, was loan purchase volume. This is a continued trend we've seen that really picked up in the Q4 of last year. Again, very similar to the themes that we saw in 2024 with continued tightening of the ag economy, a continued focus on liquidity and working capital needs for the farmers and ranchers and capital efficiency at the banking community, just given everything that's going on. Looking forward, as I noted, our pipeline for Farm & Ranch loan purchases in the Q2 appears very strong. Like I mentioned, loan approvals which typically convert to a purchase are at almost record highs. Continue to see a significant amount of loan submissions from sellers across the country.
Speaker Change: If there was a reduction in investment tax credits. So we're keeping a close eye on it we do not see any.
Speaker Change: Media.
Speaker Change: Adverse.
Speaker Change: Let's see.
Speaker Change: From changes in tax legislation, but we will be monitoring closely.
Speaker Change: Yes.
Gary: And Gary the second part of your question.
Speaker Change: We're.
Speaker Change: Focused on what again could you remind me.
Speaker Change: Yes, it was related to AI.
Applications.
Speaker Change: Foreseeing.
Speaker Change: Yeah right now the internal focus is very much on process.
Speaker Change: How can we utilized AI to improve processes within farmer Mac.
Zachary Carpenter: Just given everything going on, I mean, we already had an ag economy that was tightening. There's a lot of volatility out there, as Brad mentioned, pertaining to tariffs and what the impact may be. As these farmers and ranchers need to support the liquidity and working capital needs through the cycle, we anticipate this to continue, especially into Q2. 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. We don't anticipate at least heading into Q2 and possibly our Q3 this momentum to slow down, just given the environment that we're seeing.
Speaker Change: Scraping of literally thousands of loan documents as an example for all of the pertinent information that goes into our loan file when those documents.
Speaker Change: One to another because of different systems segments and seller Servicers and other factors how can we use that to improve efficiency to reduce the labor.
Speaker Change: So the focus really for the time being is on process there'll be a time in the future when it may shift or.
Speaker Change: Or would be expanded to include decision, but right now it's a very very fertile.
Speaker Change: For us to apply to process.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you.
Brendan McCarthy: Got it. That's helpful. Thanks, Zach. I appreciate the insight. One more question from me, just on the treasury segment. Looking at net effective spread revenue there. It seems like it's been maybe regaining steam and increasing from H2 2024 with funding net effective spread revenue increasing and then investment side up a little bit from late 2024 as well. Can you walk us through the dynamics there? I know the funding strategy is match funding, but can you walk us through the dynamics there on what's kind of driving that momentum?
Speaker Change: Okay.
Speaker Change: There are no further questions at this time I'd like to turn the call over to Brad Nord home for closing comments Sir. Please go ahead.
Brad Nordholm: Thank you operator, and thank you everyone for being on this call with us today.
Speaker Change: These are times when it's.
Brad Nordholm: Relatively easy to get distracted.
Brad Nordholm: Hi, changes and potential changes and <unk>.
Brad Nordholm: Policy and economic conditions.
Speaker Change: Farmer Mac, we're heads down and 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.
Aparna Ramesh: Yeah, sure. As I mentioned, we try to take a lot of pride in being very opportunistic. When rates are trending in or credit spreads are coming in within a particular segment, we try to opportunistically issue into that. We saw a narrowing of our SOFR spreads quarter-over-quarter. 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. We will start to call issuances, and we started to do that in the back half of the year. 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. Those were the primary dynamics, the SOFR funding being definitely the larger of the two.
Brad Nordholm: Here at farmer Mac they share this commitment to.
Speaker Change: Focus on our mission and deliver results.
Speaker Change: And that's exactly what we have done.
Speaker Change: During this record quarter and what we expect to do going forward. So.
Speaker Change: Thank you very much for participating if you have questions falls the chopper otherwise we look forward to speaking again in this formal call.
Speaker Change: And.
Speaker Change: Following this end of the second quarter, thanks very much.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you very much for your participation you may now disconnect.
Speaker Change: [noise].
Brendan McCarthy: 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.
Gary Gordon: Okay. Thank you. Two things in our changing world. There's also just a number of discussions about the changing energy policy. Anything going on that you think would, or you're anticipating could have an impact on your rural infrastructure business? Again, on both and now in other changes, AI, what are your thoughts at the moment about applications of AI for Farmer Mac?
Bradford Nordholm: 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. 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, 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.
Bradford Nordholm: We don't really bear risk associated with the change in tax law on the projects as they're currently structured. We're keeping a close eye on it. We're cautiously optimistic that they'll continue. 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. We're keeping a close eye on it. We do not see any immediate adverse threats from changes in tax legislation, but we'll be monitoring closely. Gary, the second part of your question was focused on what again? Could you remind me?
Gary Gordon: Yes, it was related to AI.
Bradford Nordholm: Yeah.
Gary Gordon: What sort of applications are you foreseeing?
Bradford Nordholm: 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. How can we use that to improve efficiency to reduce the labor? 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. Right now, it's a very fertile field for us to apply to process.
Gary Gordon: Okay. Thank you.
Operator: There are no further questions at this time. I'd like to turn the call over to Bradford Nordholm for closing comments. Sir, please go ahead.
Bradford Nordholm: Good. Thank you, operator. Thank you, everyone, for being on this call with us today. These are times when it's relatively easy to get distracted by changes and 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 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 Q1 and what we expect to do going forward. 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 following this end of Q2. Thanks very much.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.