Federal Agricultural Mortgage's 2025 Q3 Earnings Call: Contradictions Revealed on Loan Loss Provisions, Tariff-Impacted Soybean Prices, Spread Outlook, Renewable Tax Credits, and Share Repurchases

Guidance:

• Planning a second prime securitization in Q4 2025 similar to prior deal
• Expect continued growth in renewable energy, broadband and infrastructure finance over the next 12 months
• Anticipate continued loan demand (Farm & Ranch and new-money loans) as rates moderate
• Will continue evaluating renewable energy tax-credit opportunities and securitization/risk-transfer capital tools
• Continue disciplined expense management and capital optimization (preferred issuance, securitization, buybacks)
• CFO appointment likely within Q4 2025

Business Commentary:

• Record Financial Performance:
• Farmer Mac reported record net effective spread of $97.8 million and core earnings of $49.6 million for Q3 2025.

• The growth was driven by higher average loan balances and a shift to higher spread business, along with effective asset liability management and funding execution.

• Portfolio Diversification and Infrastructure Finance Growth:

• Total outstanding business volume surpassed $31 billion, with significant growth in the infrastructure finance segment, particularly in renewable energy and broadband infrastructure.

• This diversification is attributed to strategic investments in newer lines of business that leverage Farmer Mac's competitive advantages in funding and risk analytics.

• Strong Capital Management and Balance Sheet:

• Farmer Mac's core capital increased by $131 million to $1.7 billion, exceeding statutory requirements by $723 million.

• The increase was driven by a successful issuance of $100 million in Series H preferred stock, enhancing the Tier 1 capital ratio to 13.9%.

• Credit Performance and Risk Management:

• The net provision to the total allowance for losses was $7.4 million, reflecting episodic credit events like losses on certain Ag storage assets and specific properties in California.
• Farmer Mac's strong risk management practices and prudent underwriting approach helped maintain portfolio quality despite minor fluctuations in delinquencies.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a "record net effective spread of $97.8 million" and "core earnings of $49.6 million," reported total outstanding business volume surpassing $31 billion, noted a core ROE around 17%, and emphasized strengthened capital via a $100M preferred issuance and continued buybacks — framing an optimistic, growth-oriented tone.

Q&A:

• Question from Bose George (Keefe, Bruyette, & Woods, Inc., Research Division): Can you talk about the outlook for spreads given mix and the forward curve (Fed cuts expected)?
  Response: ALM/match-funding makes NES largely neutral to Fed cuts; NES growth driven by mix shift into higher-spread infrastructure (broadband, renewable) with stable-to-accretive spreads there, while Farm & Ranch saw a slight seasonal drag from nonaccruals.

• Question from Bose George (Keefe, Bruyette, & Woods, Inc., Research Division): With other business lines growing, is the current provision level a reasonable steady state or will it be sporadic based on portfolio?
  Response: The provision is very small in absolute terms, episodic rather than systemic; management sees no sector-wide risk today and does not expect a large jump next quarter although isolated events may continue.

• Question from William Ryan (Seaport Research Partners): Which crops are most impacted by tariffs and have market stabilization payments started?
  Response: Tariffs pressure soybeans, corn, cotton and wheat but recent price moves (soybeans +10% in ~2.5 weeks) and other crop strength (e.g., almonds) temper the picture; management expects ~$10–$12B in market facilitation payments to flow soon and notes portfolio diversification mitigates headline-driven risk.

• Question from William Ryan (Seaport Research Partners): Is Farm & Ranch outstandings accelerating and has loan structure/mix changed (fixed vs variable)?
  Response: Yes—significant increase in loan applications and approvals with broad-based new-money growth across 100+ commodities; majority of 2025 growth is new-money loans and management expects continued growth as rates moderate; loan structures remain varied to match borrower needs.

• Question from Brendan Michael McCarthy (Sidoti & Company, LLC): How are prepayment expectations looking ahead?
  Response: Prepayment speeds are expected to remain lower than 2020–2021 levels because many borrowers locked long-term low rates then, and a modest rate decline today is unlikely to trigger widespread refinancing.

• Question from Brendan Michael McCarthy (Sidoti & Company, LLC): The net effective spread rose to ~1.2%—was that surprising and why?
  Response: NES is higher than prior commentary primarily due to rapid growth in accretive rural infrastructure segments; mix effects (less AgVantage, more broadband/renewable) elevated NES above prior expectations.

• Question from Brendan Michael McCarthy (Sidoti & Company, LLC): The $7.4M provision this quarter—was the $6.8M in Ag Finance driven more by volume growth or California groundwater regulations?
  Response: It was a mix: CECL-model-driven allowance for volume growth plus specific allowances tied to groundwater-related credits in California and three specific problem loans—characterized as episodic.

• Question from Brendan Michael McCarthy (Sidoti & Company, LLC): The $4.4M charge-off related to three borrowers—was that previously provisioned?
  Response: No; they were three small loans and not previously singled out as charge-offs.

• Question from Brendan Michael McCarthy (Sidoti & Company, LLC): Were you active in the share repurchase program discussed last quarter?
  Response: Yes; subsequent to quarter-end Farmer Mac repurchased ~30,000 Class C shares for about $5 million.

Contradiction Point 1

Provision for Loan Losses

It involves the explanation of the provision for loan losses, which is crucial for understanding the company's financial health and risk management.

Is the current provision level for the past two quarters reasonable given the growth in other business lines? - Bose George (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: The provision is very low compared to other financial institutions. It reflects current conditions and is not systemic or sector-wide. We see no significant increase in the provision needed due to current conditions. - Bradford Nordholm(CEO)

Does the increase in loan loss reserves reflect a catch-up or revised expectations of credit issues? - Unidentified Analyst

2024Q4: The allowance increase was due to specific loans, not a catch-up. The increase was due to three instances: a Farm & Ranch loan provision in Q2, another in Q3, and a renewable energy loan in Q4. The remainder was due to volume growth in new segments. The provisions are driven by specific situations and not systemic issues. - Marc Crady(CFO)

Contradiction Point 2

Impact of Tariffs on Soybean Prices

It reflects differing perspectives on the impact of tariffs on the agriculture industry, which can influence financial projections and strategic decisions.

What crops are most affected by tariffs, and what is the current status of market stabilization payments to farmers? - William Ryan (Seaport Research Partners)

2025Q3: Soybean prices have increased 10% in the last 2.5 weeks. - Bradford Nordholm(CEO)

How have recent issues affected your rural lending business? - Unknown Analyst

2024Q4: Soybean and corn prices are near record lows. - Zachary Carpenter(COO)

Contradiction Point 3

Outlook for Spreads

It involves the company's expectations and strategies regarding spread outlook, which impacts financial projections and investor expectations.

Can you discuss the outlook for spreads considering the expected mix and forward curve, along with the Fed’s expected three rate cuts by next summer? - Bose George (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q3: Our asset liability management strategy neutralizes changes in interest rates, so a cut in rates should have no impact on net effective spread. The growth in spreads is driven by higher average loan balances and a shift to higher spread business. Infrastructure finance segments, like broadband and renewable energy, carry more accretive spreads than core Farm & Ranch. - Bradford Nordholm(CEO)

If rates remain range-bound, do you expect a similar earnings profile? - Bose George (KBW)

2024Q3: If we were to see a kind of range-bound interest rate environment, I think that we would still see very similar earnings profile, given the business composition that's happening, the proactive management of our debt issuances and the proactive management of our migrations to more accretive yields. - Aparna Ramesh(CFO)

Contradiction Point 4

Renewable Energy Tax Credits and Strategy

It involves the company's strategy regarding renewable energy tax credits, which impact its financial performance and risk profile.

Was the 1.2% net effective spread increase unusual? - Brendan Michael McCarthy (Sidoti & Company, LLC)

2025Q3: We've been opportunistically pursuing tax credits. Their low risk and in line with our strategy, and we'll continue to pursue those as we have in the past. - Bradford Nordholm(CEO)

Will the quarterly run rate of renewable energy tax credits remain consistent following their phase-out? Can you provide details on the $7.8 million credit provision and the $2.8 million provision from the two loans? - Brendan Michael McCarthy (Sidoti & Company, LLC)

2025Q2: These tax credits aren't a fundamental part of our strategy. They are opportunistic. We will continue to opportunistically pursue them. - Bradford Todd Nordholm(CEO)

Contradiction Point 5

Share Repurchasing Program

It involves the company's commitment to and execution of a share repurchasing program, which directly impacts shareholder value.

Were you active in the share repurchasing program last quarter? - Brendan Michael McCarthy (Sidoti & Company, LLC)

2025Q3: We repurchased approximately 30,000 shares for about $5 million in the fourth quarter. - Bradford Nordholm(CEO)

Is a 70% or higher capital ratio sufficient to consider further preferred buybacks? - Gary Gordon (Analyst)

2024Q3: We plan to continue opportunistic share repurchases as a part of our overall capital management strategy. - Aparna Ramesh(CFO)