Federal Agricultural Mortgage Corporation (NYSE:AGM) Q1 2025 Earnings Call Transcript

Federal Agricultural Mortgage Corporation (NYSE:AGM) Q1 2025 Earnings Call Transcript May 9, 2025

Federal Agricultural Mortgage Corporation beats earnings expectations. Reported EPS is $4.19, expectations were $4.

Jalpa Nazareth – Senior Director, IR & Finance Strategy:

Brad Nordholm – President & CEO:

Aparna Ramesh – EVP, CFO & Treasurer:

Zack Carpenter – EVP, Chief Business Officer:

Bill Ryan – Seaport Research Partners:

Bose George – KBW:

Brendan McCarthy – Sidoti:

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. [Operator Instructions] This call is being recorded on Thursday, May 8, 2025. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Jalpa Nazareth: Good morning, and thank you for joining us for our first quarter 2025 earnings conference call. I’m Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategies 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. 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 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. 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?

Brad 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 rule America, even as we navigate broader market uncertainties stemming from interest rates, regulatory shifts, policy changes, and government action.

In the first quarter of 2025, we achieved high single-digit growth in total revenue, net effective spread, and core earnings. We achieved $1.8 billion in gross new business volume during the first quarter, reflecting growth across the infrastructure finance line of business and healthy loan purchase volume in the Farm & 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 the first quarter of 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. Our broadband infrastructure segment grew 22% since year-end, reaching nearly $1 billion as of the end of the first quarter, 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 first quarter 2025, a 14% increase since year-end.

Over the past five years, we’ve seen strong growth in this segment and believe that the near-term pipeline remains strong. Growing business volume in our infrastructure finance segment remains an opportunity, and we will continue to focus on strategic investments and talent acquisition in these areas to build our expertise and capacity as market opportunities arise. Despite the seasonally large number of scheduled repayments we typically see in the January 1st payment date on the majority of Farm & Ranch loans, we saw a net increase of $86 million in farm and ranch loan purchases in the first quarter 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 counterparties’ specific financing needs. During the first quarter, 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. 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 creative 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 remains strong through the first quarter of 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. 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. 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.

A resilient business model supported by diversified revenue streams and a strong capital position is a key differentiator. But it is our ability to access the markets, coupled with our disciplined asset liability management that truly sets us apart. And with that, now I’d like to turn it over to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail. Aparna?

Aparna Ramesh : Thank you, Brad, and good morning, everyone. Our first quarter 2025 results once again underscore a 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 growth business volume this quarter, primarily driven by new volumes in our renewable energy, broadband infrastructure, and power and utility segments, as well as new Farm & Ranch loan purchases.

After repayments and 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. Core earnings increased by 6%, both sequentially and year-over-year, to $46 million in the first quarter of 2025, setting a record for Famer 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.

The shift to higher spread business has been a key driver of the increase in net effective spread over the past several years. And we believe our pipeline and business composition will continue to position us well for the remainder of the year. Operating expenses increased 8% year-over-year, as we continued to proactively invest in our infrastructure technology to support continued growth across our portfolios, including broadband infrastructure and renewable energy, as well as higher licensing fees and servicing advances. Operating efficiency was 29% for first quarter 2025, a modest improvement over fourth quarter 2024, and in line with the same period last year. Our efficiency ratio remains in line with our long-term strategic plan target and reflects our disciplined approach to expense management, as we monitor and manage expense growth proactively against incoming revenue streams.

We take pride in our focus on effective expense management, as we continue to invest in people and continue to modernize our technology to support and enable our future growth. It enables our ability to innovate and also drive profitability. We remain committed to bringing cutting-edge technology to our secondary market. With the completion of a major infrastructure platform upgrade that we told you about, we now plan to turn our attention to new capabilities for our customers and are exploring options to build innovative systems that will accelerate growth by supporting the rollout of these new products. We are committed to closely monitoring our efficiency ratio and managing it such that we expect to remain at or below a long-run average of 30% and also be disciplined in keeping our efficiency ratios in line with our growth expectations.

Turning now to credit, 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 March 31, 2025, reflecting a $1.7 million increase from year-end 2024. The increase was primarily attributable to new volume in the renewable energy, foreign utilities, and Farm & Ranch segments. 90-day delinquencies were 54 basis points across our entire portfolio as of March 31, 2025, compared to 37 basis points at the end of December.

The sequential increase reflects a seasonal pattern of Farm & Ranch 90-day delinquencies, with higher levels generally observed at the end of the first and third quarters, and lower levels generally observed at the end of the second and fourth quarters of each year. This seasonal pattern is due to the annual and semi-annual payment dates on the majority of Farm & Ranch loans. Turning to capital, Farm & Ranch’s core capital of $1.5 billion exceeded our statutory requirement by $601 million, or 65%, as of March 31, 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 March 31, 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 by remaining resilient in volatile credit environments. And we continue to offer low-cost liquidity to our customers and borrowers, even in challenging times. Our capital buffer is a source of strength and also allows us to be opportunistic. We expect to be in the market soon with another farm securitization transaction. The securitization program remains an important strategic initiative for Farmer Mac, as it allows us to enhance and optimize the balance sheet by the efficient deployment of capital. And it also enables our growth strategy by targeting new asset opportunities. We are very pleased with the tremendous support we’ve seen from our stakeholders for this program, and we remain committed to being a regular issuer in the market.

As noted previously, we are exploring new structures that will allow us to expand our securitization offerings, and this will serve as another source of funding and capital management. Our liquidity and capital positions remain well in excess of all regulatory requirements. 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 March 31, 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. And we’re confident in our resilience against potential short- and medium-term market disruption.

So to summarize, our team once again delivered strong, consistent quarterly results, maintaining key metrics while adhering to our credit framework. During the first quarter, we achieved a 17% return on equity and an efficiency ratio of 29%. 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. 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, and 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. 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 attributable to interest rates, regulation, policy changes, tariffs, and other government actions. This is how we believe we can continue to differentiate ourselves and to deliver to our customers and end-borrowers in rural America. And now, operator, I’d like to see if we have any questions from anyone on the line today.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Bill Ryan from Seaport Research Partners. Please ask your question.

Q&A Session

Bill Ryan: Good morning and nice results for the quarter. I’ll start off with a macro question and then also another micro question. But the macro question, just kind of looking at the tariffs, I mean, there’s obviously been some disruption in the month of April and into early May with ag shipments, 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 what exactly happened in 2017-2018?

Brad 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 in American agriculture? At that time, there were programs for voluntary payments to U.S. farmers who were deemed to be impacted by that. You may recall they were called market facilitation payments. And they had the effect of kind of closing a significant part of the net income gap attributable to that. We’re actually seeing a bit of a repeat of that right now. While certainly the 145% tariffs that are currently imposed upon China are resulting in a shift of trade, particularly to Mexico right now. Ultimately, a lot of these agricultural commodities are fungible.

They can transfer across the world with relatively little friction, but we’re seeing a shift to Mexico. Mexico and Canada are positively protected by reference to the prior trade agreements. You saw yesterday the announcement of an agreement at least in principle, with the UK. And notably, that included a callout on specific targets for American agricultural products, including ethanol. But 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 billion, 7 billion of applications so far, I believe, something like that. And then there is considerable discussion about an additional voluntary subsidy program to American producers in consideration of these tariff actions that might be in the $20 billion to $25 billion range.

That’s looking out the next couple of months. USDA has kind of baked that into their net income projections for the year. And remarkably, the current projection for net farm income for this year is projected to be about the third highest. So this is something in which we’re keeping a very, very close eye. Because high sustained tariffs will have a damaging effect to 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. So for example, we’re seeing reasonably strong focus on negative impacts to row crop producers, corn and soybeans for example, right now. We’re keenly interested in any programs that would benefit permanent crop producers in California, almonds, pistachios, for example, where we are seeing some of our credit stress.

That’s really the pocket where it is today.

Bill Ryan: Okay. Thanks for that, Brad. Very helpful. Second question, a little bit more micro, but obviously the net effective spread 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, Farm & 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 line?

Brad Nordholm : 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, that at Farmer Mac, we are not allocators to business segments as we see margin opportunity. We are opportunistic and responsive to the market opportunity. And that’s really how we fulfill our mission. So what you see is really a reflection of where are we seeing demand where we can also satisfy our credit and earnings objectives. But Zach, can you provide some additional color on that?

Zach Carpenter : Yeah, happy to. Starting with Farm & Ranch, I think this is heavily volume driven. We had a very strong fourth quarter last year and continued strong loan activity in the first quarter, clearly given the tightness of the ag economy, but also with liquidity and capital relief needs at banks. They’re definitely looking to utilize the secondary market to enhance their capital and liquidity needs. So a lot of the Farm & Ranch is heavily volume driven. And we see a very strong pipeline heading into the second quarter. In fact, we’re looking at loan approvals, which significantly convert to purchases typically in similar range to 2021 and 2022 when we had record levels. Corporate ag is a very similar story, a very strong fourth quarter.

And what we saw in the fourth quarter was fairly high credit spreads for these loans we purchased. And so now you’re seeing kind of the impact of that in the first quarter where we had record net effective spread and record net effective spread percentage. We had a strong first quarter and we see some near term pipelines that are relatively strong. But I think the borrowers and the later rangers are kind of navigating the market in terms of what Brad highlighted earlier. Broadband infrastructure, you noted that 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 the first quarter were data center related. And those are construction loans.

So a lot of those commitments are unfunded commitments. And as those convert, as these centers are being constructed, you’ll see that funded volume increase and accrete more than that effective spread perspective. Similar to renewable energy, there’s 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. And given the strength of those counterparties, you’ll see credit spreads be somewhat volatile. But given their investment grade rated performance, they’re going to be a little bit tighter in certain times. But this will ebb and flow based on market dynamics. But the one thing I would note with renewable energy is more than double the net effective 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.

Bill Ryan: 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.

Bose George : 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 & 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.

Brad Nordholm : Yeah. Aparna, can you shed some light on that?

Aparna Ramesh : [Indiscernible] 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.

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

Bose George : Okay, perfect. That makes sense. Thanks. And then, yeah, Aparna, you talked about the market volatility and the compute access, et cetera. But has there been anything in terms of the funding cost side that is worth highlighting? And you noted the securitization you guys are going to come to market with. The economics there, do you anticipate it’ll be similar to what you did on the last transaction?

Aparna Ramesh : Yeah, it’s hard to sort of predict what will happen. And we do intend to come forward with another transaction hopefully before the second quarter is up. And I’ll just touch upon that in a minute. But to your first question just around funding dynamics. I do want to note that funding actually improved quite dramatically from Q4 to Q1. This again sort of highlights our very opportunistic strategy. When we see an opportunity in the market where credit spreads are narrower, we try to take advantage of that. And that’s exactly what our treasury team did in the first quarter. We saw an opportunity to really buy into narrowing SOFR spreads. I’m really glad that we did that. You saw the benefit of that come through in our overall funding as well as in how it contributed to an increase in our net effective spread quarter over quarter.

Net effective spread just in basis points went up about 1 basis point. But when you look at the second quarter and with all of the activity and volatility as a result of the bond markets reacting to the tariffs being announced on Liberation Day, we did see a SOFR 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 very favorably for us in the first quarter. The second part of your question, just in terms of securitization, let’s wait and see. I think we’re going to time, you can never really sort of time these things perfectly, but we’re seeing a little bit of settling down.

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

Bose George : Okay, great. Thank you.

Operator: Your next question is from the line of Brendan McCarthy from Sidoti. Please ask your question.

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 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.

Brad Nordholm : 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.

Brendan McCarthy: Understood —

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 a tax credit in the fourth quarter. So we saw a fairly material decline in legal fees. So you saw an improvement in our offsets as a result of that.

Brendan McCarthy: Understood. Thanks for the clarification there. And then looking at Farm & Ranch, I know it looks like you mentioned there was a sequential decline in volume there. But 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?

Brad Nordholm : Yeah, I think, well Aparna mentioned the non-accruals going accrued. And that is a scrape back of additional interest, which you would see showing up there. But, Zach, maybe you can talk about kind of the forward expectations on Farm & Ranch and especially the seasonality that we experienced in the first quarter.

Zach Carpenter : Yeah, happy to do it. About $550 million of new business volume in Farm & Ranch and 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 fourth quarter of last year. And again, very similar to the themes that we saw in 2024 with continued tightening of the ag economy, a continued focus on liquidity and 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 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 from sellers across the country. And 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 into the second quarter. Now, I think government payments will be a critical component to further aid and support the farmers and ranchers through the near term, at least. But we don’t anticipate at least heading into the second and possibly a third quarter this momentum to slow down, just given the environment that we’re seeing.

Brendan McCarthy: Got it. That’s helpful. Thanks, Zach. I appreciate the insight. One more question for 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 the back half of 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? And 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?

Aparna Ramesh : Yeah, sure. As I mentioned, we try to take a lot of pride in being very opportunistic. So when rates are trending in or credit spreads are coming in within a particular segment, we try to opportunistically issue into that. So we saw a narrowing of our surface spreads quarter over quarter. So that really created a fairly nice benefit overall. In fact, substantially down quarter over quarter. We’ve also taken advantage as we see the yield curve sort of steepening. We will start to call issuances. And we started to do that in the back half of the year. And you start to see some of those benefits come into play as well in terms of just our overall hedging strategy when we think about where rates are headed. But those were the primary dynamics, the SOFR funding being definitely the larger of the two.

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.

Unidentified Analyst: 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? And again, both in now and other changes, AI, what are your thoughts at the moment about applications of AI for Farmer Mac?

Brad Nordholm : Yeah. Hey, Gary. Thank you for being on with us today. As it relates to 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, solar plus battery, wind, renewable natural gas, for example. When we commit to that project, really the entire network of web of contracts associated with that project, the construction contract, the offtake power purchase or fuels purchase contract, the operating and maintenance contracts, the land leases, and the commitment for the tax credits, those are really all in place at the time of the funding.

So we don’t really wear risk associated with the change in tax law on the projects as they’re currently structured. So we’re keeping a close eye on it. We’re cautiously optimistic that they’ll continue. Keep in mind that the economic viability of many of these projects is extremely high and that some of them would continue, if there was a reduction in investment tax credits. So we’re keeping a close eye on it. We do not see any immediate adverse threats from changes in tax legislation, but we will be monitoring closely. Gary, the second part of your question was focused on — what again? Could you remind me?

Unidentified Analyst: Yeah, it was related to AI. What sort of applications are you foreseeing?

Brad 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 is 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? So the focus really for the time being is on process. There’ll be a time in the future when it may shift or be expanded to include decisioning. But right now it’s a very, very fertile field for us to apply to process.

Unidentified Analyst: Okay, thank you.

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

Brad Nordholm : Thank you, operators. 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, very sustainable, resilient, and well-established business model that we have. We have a terrific team here at Farmer Mac. They share this commitment to focus on mission and deliver results, and that’s exactly what we have done during this record quarter and what we expect to do going forward. 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 the second quarter. Thanks very much.

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