Federal Agricultural Mortgage Corporation

Good afternoon, ladies and gentlemen, and welcome to the PharmaMAC second quarter 2025 earnings results conference call. At this time, all participant lines are in the listen-only mode. Following the presentation, we will conduct a question and answer session. And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on August 7, 2025. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Good afternoon, and thank you for joining us for our second quarter 2025 earnings conference call. I'm Shelfa Nazareth, Senior Director of Investor Relations and Finance Strategy here at FarmerMac. 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 the risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Pharmac'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 10Q and earnings release posted on PharmaMac's website, pharma.com, under the financial information portion of the investor section. Today, I'm joined by President and Chief Executive Officer Brad Nordholm, who will lead our discussion on second quarter 2025 results, and our Chief Business Officer, Zach Carpenter, who will discuss customer and market development. 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?

Thanks, Jalpa. Good afternoon, everyone, and thank you for joining us. I'm very pleased to announce that we've achieved record results across the board during the second quarter, 2025. More specifically, we grew core earnings 19% year over year. We grew net effective spread over 12% compared to the same period last year, and we surpassed 30 billion in total outstanding business volume for the first time. Our total portfolio is well diversified by both commodity and geography, and we remain confident in the overall health of our portfolio as evidenced by our continued strong asset quality metrics. We ended the quarter with a record $47.4 million in core earnings and a record net effective spread of $93.9 million. The growth in spreads was driven by higher average loan balances and the continued shift to higher spread business, which has been a key driver of the increase in net effective spread over the past several years. Our strategic decision to diversify our loan portfolio into newer lines of business such as renewable energy, broadband infrastructure, and corporate agribusiness has been a key priority, and that diversification is benefiting us through changing market cycles, and it is benefiting rural America. Also reflected in our core earnings results this quarter is the purchase of $35.6 million of renewable energy investment tax credits. That resulted in a benefit of about $3.2 million. We continue to actively evaluate these types of renewable energy credits during 2025 as we continue to be a significant participant in the project finance market, which gives us unique insights into the value of these credits. Partially offsetting the growth in net effective spread in second quarter was an increase in operating expenses related to headcount, technology investments, and higher transaction related legal fees. The higher legal fees during the quarter were related to the new renewable energy tax credit purchases I mentioned and business transactions in our new segments of business. Our efficiency ratio remains in line with the long-term strategic target of 30% and reflects our disciplined approach to expense management as we monitor and manage expense growth proactively against our incoming revenue streams. We take pride in our focus on effective expense management as we scale our business and we'll continue to assess appropriate investments in our operational platforms and resources to support our future growth, our ability to innovate, and our ability to drive profitability. In terms of credit expense, several factors contributed to the $7.8 million net provision to the total allowance for losses this quarter. First, we recorded a $2.8 million charge off related to two specific borrower relationships, one a permanent planting loan and the other a crop loan, for a portion of each loan deemed uncollectible as of June 30th. However, after quarter end, we recovered approximately $1.7 million related to the permanent planting loan, which we expect to be reflected as a recovery in our third quarter results. Other factors contributing to the provision in the second quarter were downgrades of two loans in the infrastructure finance line of business, and higher allowances related new volume growth in broadband, infrastructure, and renewable energy segments. Finally, a declining economic forecast that flows as does the volume growth in broadband and infrastructure through our CECL models. These new segments carry different risks and different risk rate resulting in larger CECL derived allowances. but they are also generally businesses with higher effective spreads. We believe that our total portfolio is well diversified both by industries and segments and that we're 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. While some credit losses are inherent in lending, we believe that any losses in our current credit cycle will be moderated by the strength and diversity of our overall portfolio. And in fact, our overall credit profile remains strong as both 90-day delinquencies and substandard assets decreased quarter over quarter. 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. To date, we have not seen any significant effects on our portfolio related to government actions or changes in policy. We will continue to closely monitor industry and credit conditions as new government policies are implemented. I'm also pleased to share that after quarter end, our board of directors modified the terms of PharmaMax share repurchase program to increase the total authorized amount of repurchases from $9.8 million to $50 million of PharmaMac's outstanding C-class common stock. The Board also extended the term of that program to August 2027. PharmaMac intends to repurchase shares when it views repurchases as accretive and consistent with our strategic objectives. We successfully closed on our sixth farm securitization transaction in June in some challenging and volatile market conditions, which is a testament to the strength and demand of the farm program. We're working towards a second transaction later this year and also continue to explore alternative securitization structures that will allow us to expand our offerings while serving as another source of capital management. The securitization program remains an important strategic initiative for PharmaMac as it allows us to enhance and optimize the balance sheet by efficient deployment of capital and also enable our growth strategy by targeting new asset opportunities. We're very pleased with the tremendous support we've seen from our stakeholders for this program and expect to be in the market before the end of the year with another securitization transaction. Farmer Mac's core capital increased by $35 million to $1.6 billion as of June 30, 2025, exceeding our statutory requirement by $602 million, or 63%. The sequential increase reflects higher retained earnings, partially offset by capital impact due to growth in total assets. Our Tier 1 capital ratio modestly declined to 13.6% this quarter, from 13.9% last quarter, primarily due to growth in assets in our newer segments. As mentioned on prior calls, this dynamic is expected as we continue to grow our book of business in more accretive segments that require an incrementally higher amount of capital. Looking ahead, we'll continue to evaluate all the capital management tools we have available to achieve our goal of optimizing our overall capital position and maintaining an opportunistic approach to add to our capital buffer. A strong capital position has enabled us to grow and diversify revenue streams, remain resilient in volatile credit environments, and continue to offer competitively priced liquidity to our customers and their borrowers, even in challenging times. I also want to comment on the passage of the One Big Beautiful Bill, also known as H.R. 1, which contains many provisions that have the potential to impact Farmer Mac and its stakeholders, including farmers, ranchers, and the renewable energy industry. This legislation includes updates to the federal crop insurance and revenue protection programs, as well as tax benefits on the interest income earned on qualified rural or agricultural real estate loans. These are potentially positive for Farmer Mac. We're actively monitoring and assessing the impacts of this new law on us and the industries we serve. We believe our inclusion in the legislation reflects the importance of our mission to increase the accessibility of financing to provide vital liquidity for American agriculture and rural infrastructure. And now I'd like to turn the call over to Zach Carpenter, our Chief Business Officer, to discuss our customer and market developments in more detail. Zach?