Federal Agricultural Mortgage (AGM) - 2025 Q2 - Quarterly Report

PART I Item 1. Financial Statements This section presents Farmer Mac's unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes on significant accounting policies, investment securities, derivatives, loans, guarantees, notes payable, equity, fair value disclosures, business segments, and income taxes for the periods ended June 30, 2025, and December 31, 2024 Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (%) | | :-------------------------------- | :----------------------------- | :------------------------------- | :--------- | | Total Assets | $32,995,909 | $31,324,742 | 5% | | Total Liabilities | $31,451,602 | $29,835,716 | 5% | | Total Equity | $1,544,307 | $1,489,026 | 4% | | Loans, net of allowance | $14,479,983 | $13,204,638 | 9.66% | | Notes payable | $28,843,331 | $27,371,174 | 5.38% | Consolidated Statements of Operations | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :--------------------- | :----------- | | Total interest income | $399,022 | $403,706 | (1.16)% | $780,436 | $800,023 | (2.45)% | | Total interest expense | $302,225 | $316,366 | (4.47)% | $592,700 | $626,315 | (5.37)% | | Net interest income | $96,797 | $87,340 | 10.83% | $187,736 | $173,708 | 8.08% | | Provision for losses | $(7,713) | $(6,179) | 24.82% | $(9,397) | $(4,378) | 114.66% | | Non-interest income | $5,837 | $2,526 | 131.00% | $9,217 | $9,840 | (6.33)% | | Operating expenses | $29,490 | $24,469 | 20.59% | $59,000 | $51,706 | 14.10% | | Income before income taxes | $65,431 | $59,218 | 10.50% | $128,556 | $127,464 | 0.86% | | Income tax expense | $10,594 | $12,113 | (12.54)% | $24,068 | $26,613 | (9.56)% | | Net income | $54,837 | $47,105 | 16.42% | $104,488 | $100,851 | 3.61% | | Net income attributable to common stockholders | $49,170 | $40,313 | 22.00% | $93,155 | $87,268 | 6.75% | | Basic EPS | $4.50 | $3.71 | 21.29% | $8.53 | $8.04 | 6.10% | | Diluted EPS | $4.48 | $3.68 | 21.74% | $8.49 | $7.96 | 6.66% | Consolidated Statements of Comprehensive Income | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :--------------------- | :----------- | | Net income | $54,837 | $47,105 | 16.42% | $104,488 | $100,851 | 3.61% | | Net unrealized (losses)/gains on available-for-sale securities | $(14,847) | $(5,287) | 180.83% | $6,915 | $34,665 | (80.09)% | | Net unrealized (losses)/gains on cash flow hedges | $(5,510) | $(1,392) | 295.83% | $(13,881) | $4,894 | (383.61)% | | Other comprehensive (loss)/income net of tax | $(15,857) | $(5,023) | 215.68% | $(5,518) | $31,004 | (117.80)% | | Comprehensive income | $38,980 | $42,082 | (7.40)% | $98,970 | $131,855 | (24.94)% | Consolidated Statements of Equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total Equity | $1,544,307 | $1,489,026 | 3.71% | | Retained Earnings | $1,003,641 | $943,239 | 6.40% | | Accumulated other comprehensive loss, net of tax | $(17,665) | $(12,147) | 45.49% | | Preferred stock | $411,149 | $411,149 | 0.00% | | Common stock | $10,934 | $10,891 | 0.39% | Consolidated Statements of Cash Flows | Metric | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | Net cash (used in)/provided by operating activities | $(97,541) | $289,466 | (133.69)% | | Net cash used in investing activities | $(1,382,439) | $(633,852) | 118.12% | | Net cash provided by financing activities | $1,486,302 | $378,640 | 292.59% | | Net change in cash and cash equivalents | $6,322 | $34,254 | (81.58)% | | Cash, cash equivalents, and restricted cash at end of period | $1,030,329 | $922,961 | 11.63% | Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies This section outlines Farmer Mac's accounting policies, including principles of consolidation, earnings per common share, and comprehensive income. It also details recently issued accounting guidance related to income tax disclosures and expense disaggregation, which Farmer Mac is currently assessing for potential impact - Farmer Mac consolidates its two subsidiaries and Variable Interest Entities (VIEs) where it is the primary beneficiary[25] - Basic EPS for Q2 2025 was $4.50, up from $3.71 in Q2 2024. Diluted EPS was $4.48, up from $3.68[16][30] - Comprehensive income for Q2 2025 was $38.98 million, down from $42.08 million in Q2 2024, primarily due to unrealized losses on available-for-sale securities and cash flow hedges[18][31] - Farmer Mac is assessing ASU 2023-09 (Income Tax Disclosures) and ASU 2024-03 (Expense Disaggregation Disclosures) but does not expect a material impact on its financial statements[37] 2. Investment Securities Farmer Mac's total investment securities increased to $6.70 billion as of June 30, 2025, from $5.97 billion at December 31, 2024. The portfolio is primarily composed of available-for-sale securities, with unrealized losses mainly due to market spread widening and interest rate changes, but these are considered recoverable | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total Investment Securities | $6,697,258 | $5,973,301 | 12.12% | | Available-for-sale, at fair value | $6,674,031 | $5,953,014 | 12.11% | | Held-to-maturity, at amortized cost | $8,970 | $9,270 | (3.24)% | | Unrealized Gains (Available-for-sale) | $28,996 | $9,514 | 204.77% | | Unrealized Losses (Available-for-sale) | $(111,122) | $(161,589) | (31.11)% | - Unrealized losses on available-for-sale investment securities are primarily due to market spread widening and interest rate changes, but all securities in a loss position are backed by the U.S. government or GSEs, or have "AA+" credit ratings, and are believed to be recoverable[43] - Farmer Mac did not sell any investment securities in H1 2025, compared to $115.2 million in sales in H1 2024, which resulted in a $1.1 million gain[41] 3. Farmer Mac Guaranteed Securities and USDA Securities On-balance sheet Farmer Mac Guaranteed Securities and USDA Securities decreased to $7.86 billion and $2.41 billion, respectively, as of June 30, 2025, from $8.23 billion and $2.37 billion at December 31, 2024. Unrealized losses are mainly due to interest rate changes | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total Farmer Mac Guaranteed Securities | $7,862,498 | $8,232,234 | (4.49)% | | Total USDA Securities | $2,407,198 | $2,371,352 | 1.51% | | Available-for-sale AgVantage (Fair Value) | $5,722,890 | $5,505,531 | 3.95% | | Held-to-maturity AgVantage (Amortized Cost) | $2,061,940 | $2,667,564 | (22.64)% | | Unrealized Losses (Available-for-sale AgVantage) | $(234,617) | $(327,476) | (28.35)% | | Unrealized Losses (Held-to-maturity AgVantage) | $(13,435) | $(21,592) | (37.78)% | - Unrealized losses on these securities are primarily due to changes in interest rates[49] - Credit exposure related to USDA Securities is fully guaranteed by the U.S. government[50] - No sales of AgVantage, USDA Farmer Mac Guaranteed, or USDA Trading Securities occurred in H1 2025 or H1 2024, resulting in no realized gains or losses[52] 4. Financial Derivatives Farmer Mac uses financial derivatives, primarily interest rate swaps, to manage interest rate risk, not for speculation. As of June 30, 2025, the total notional amount of derivatives was $24.12 billion, with a net liability of $(23.05) million. The company expects to reclassify $8.4 million after-tax from AOCI to earnings over the next twelve months related to cash flow hedges - Farmer Mac uses financial derivatives to protect against market price or interest rate movements, not for trading or speculative purposes[56] | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total financial derivatives (Asset) | $30,650 | $27,789 | 10.30% | | Total financial derivatives (Liability) | $53,697 | $77,326 | (30.56)% | | Total Notional Amount | $24,117,672 | $24,896,331 | (3.13)% | | Fair value hedges (Notional Amount) | $21,251,703 | $21,609,943 | (1.66)% | | Cash flow hedges (Notional Amount) | $498,000 | $540,000 | (7.78)% | - Farmer Mac expects to reclassify $8.4 million after-tax from accumulated other comprehensive income to earnings over the next twelve months related to cash flow hedges[61] 5. Loans Total loans, net of allowance, increased to $14.48 billion as of June 30, 2025, from $13.20 billion at December 31, 2024. The allowance for losses increased to $29.96 million from $23.22 million, primarily due to provisions for losses in both Agricultural Finance and Infrastructure Finance, driven by specific borrower downgrades and new volume growth. 90-day delinquencies in Agricultural Finance decreased to $123.39 million (1.3% of portfolio) from $155.44 million (1.8%) in the prior quarter | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total loans, net of allowance | $14,479,983 | $13,204,638 | 9.66% | | Allowance for losses | $29,956 | $23,223 | 28.99% | | Agricultural Finance loans (unpaid principal balance) | $9,356,452 | $8,834,689 | 5.91% | | Infrastructure Finance loans (unpaid principal balance) | $5,484,656 | $4,774,483 | 14.88% | | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :--------------------- | :----------- | | Provision for losses (total) | $7,713 | $6,179 | 24.82% | $9,397 | $4,378 | 114.66% | | Charge-offs (total) | $(2,840) | $(4,043) | (29.75)% | $(2,840) | $(4,043) | (29.75)% | - The $5.0 million net provision for Agricultural Finance loans in Q2 2025 was mainly due to two specific Farm & Ranch borrowers (permanent planting and crop loans) and credit downgrades. A $2.8 million charge-off was recorded for these relationships[76] - The $2.7 million net provision for Infrastructure Finance in Q2 2025 was due to downgrades in Renewable Energy and Broadband Infrastructure, and new volume growth[77] | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | :------------------------------- | | Agricultural Finance 90-Day Delinquencies (On-Balance Sheet) | $123,393 | $155,438 | $101,340 | | Agricultural Finance 90-Day Delinquencies (Off-Balance Sheet) | $2,475 | $4,539 | $7,604 | | Infrastructure Finance 90-Day Delinquencies | $0 | $0 | $0 | - Substandard assets in Infrastructure Finance increased from $42.2 million to $72.2 million in Q2 2025 due to downgrades in a Renewable Energy solar project and a Broadband Infrastructure loan[170][294] 6. Guarantees and Commitments Off-balance sheet Farmer Mac Guaranteed Securities decreased to $399.17 million as of June 30, 2025, from $426.31 million at December 31, 2024. Long-Term Standby Purchase Commitments (LTSPCs) maximum principal amount increased to $4.42 billion from $4.03 billion. The reserve for losses remained stable at $1.62 million | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Off-Balance Sheet Farmer Mac Guaranteed Securities | $399,168 | $426,310 | (6.47)% | | LTSPCs Maximum Principal Amount | $4,416,846 | $4,029,019 | 9.63% | | Guarantee and commitment obligation (Off-Balance Sheet Farmer Mac Guaranteed Securities) | $5,221 | $5,595 | (6.68)% | | Guarantee and commitment obligation (LTSPCs) | $42,255 | $42,731 | (1.11)% | | Reserve for losses | $1,620 | $1,623 | (0.18)% | - The net provision to the reserve for losses during the three and six months ended June 30, 2025 for both Agricultural Finance and Infrastructure Finance was primarily due to declining economic forecast factors[98] - Proceeds from new securitizations decreased to $286.51 million in H1 2025 from $343.65 million in H1 2024[93] 7. Notes Payable Total notes payable increased to $28.84 billion as of June 30, 2025, from $27.37 billion at December 31, 2024, primarily to fund loan acquisitions. The weighted-average rate for total principal net of discounts was 3.58% as of June 30, 2025 | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Total Notes Payable | $28,843,331 | $27,371,174 | 5.38% | | Discount notes (due within one year) | $1,972,497 | $2,167,258 | (9.00)% | | Medium-term notes (due within one year) | $3,260,919 | $2,343,264 | 39.16% | | Medium-term notes (due after one year) | $18,593,533 | $17,082,550 | 8.84% | | Weighted-Average Rate (Total principal net of discounts) | 3.58% | 3.51% | 0.07 pp | - Farmer Mac called $1.2 billion of callable medium-term notes in H1 2025, compared to $0.5 billion in H1 2024[109] - Farmer Mac has statutory authority to borrow up to $1.5 billion from the U.S. Treasury to fulfill guarantee obligations but has not used this authority as of June 30, 2025[110][111] 8. Equity Farmer Mac's core capital was $1.6 billion as of June 30, 2025, exceeding the minimum capital requirement of $959.9 million by $602.1 million. The company paid a quarterly common stock dividend of $1.50 per share in Q1 and Q2 2025, an increase from $1.40 per share in 2024 - Farmer Mac's core capital was $1.6 billion as of June 30, 2025, $602.1 million above the minimum capital requirement of $959.9 million[114] - Farmer Mac paid a quarterly dividend of $1.50 per share on common stock in Q1 and Q2 2025, up from $1.40 per share in 2024[112] - Farmer Mac is required to comply with the higher of minimum or risk-based capital requirements and was in compliance as of June 30, 2025[113][344] 9. Fair Value Disclosures Farmer Mac's assets measured at fair value totaled $12.44 billion as of June 30, 2025, with Level 3 assets representing 46% of financial instruments measured at fair value. The fair value of financial assets and liabilities are estimated using various valuation techniques, including discounted cash flow models for loans and securities, and market standard methodologies for derivatives | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets at fair value | $12,441,885 | $11,507,709 | | Level 1 Assets | $1,484,237 | $1,289,893 | | Level 2 Assets | $5,200,969 | $4,677,594 | | Level 3 Assets | $5,756,679 | $5,540,222 | | Level 3 Assets as % of total financial instruments at fair value | 46% | 48% | - Farmer Mac internally models the fair value of its loan portfolio, Farmer Mac Guaranteed Securities, and USDA Securities using discounted cash flow models with management's best estimates of prepayment speeds, forward yield curves, and discount rates, classifying these as Level 3[129] - No material assets or liabilities were measured at fair value on a non-recurring basis, and no transfers occurred within the fair value hierarchy during the reporting periods[120] 10. Business Segment Reporting Farmer Mac operates through seven reportable segments: Farm & Ranch, Corporate AgFinance, Power & Utilities, Broadband Infrastructure, Renewable Energy, Funding, and Investments. Core earnings for Q2 2025 increased to $59.53 million from $54.67 million in Q2 2024, driven by strong performance in Funding and Agricultural Finance segments - Farmer Mac's seven reportable segments are Farm & Ranch, Corporate AgFinance, Power & Utilities, Broadband Infrastructure, Renewable Energy, Funding, and Investments[131][135] | Segment | Q2 2025 Core Earnings (in thousands) | Q2 2024 Core Earnings (in thousands) | Change (YoY) | H1 2025 Core Earnings (in thousands) | H1 2024 Core Earnings (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------------------- | :--------------------------------- | :----------- | :--------------------------------- | :--------------------------------- | :----------- | | Farm & Ranch | $22,959 | $26,205 | (12.40)% | $49,233 | $51,245 | (3.80)% | | Corporate AgFinance | $4,886 | $(330) | (1580.61)% | $9,527 | $4,882 | 95.15% | | Power & Utilities | $3,652 | $3,632 | 0.55% | $7,089 | $6,940 | 2.15% | | Broadband Infrastructure | $2,019 | $1,522 | 32.65% | $4,451 | $5,033 | (11.56)% | | Renewable Energy | $2,394 | $720 | 232.50% | $4,359 | $737 | 491.45% | | Funding | $22,645 | $22,080 | 2.56% | $45,400 | $45,710 | (0.68)% | | Investments | $976 | $843 | 15.78% | $1,808 | $646 | 179.88% | | Total Segment Core Earnings | $59,531 | $54,672 | 8.89% | $121,867 | $115,193 | 5.80% | - Core earnings is a non-GAAP measure that excludes fair value fluctuations and specified infrequent or unusual transactions to better reflect the company's core business performance[135][176] 11. Income Taxes Income tax expense decreased to $10.59 million for Q2 2025 from $12.11 million for Q2 2024, with the effective tax rate decreasing to 16.2% from 20.5%. This reduction is primarily due to the purchase of $35.6 million in renewable energy investment tax credits at approximately $0.91 per $1.00 of credit, resulting in a $3.2 million tax benefit | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :--------------------- | :----------- | | Income tax expense | $10,594 | $12,113 | (12.54)% | $24,068 | $26,613 | (9.56)% | | Effective tax rate | 16.2% | 20.5% | (4.3) pp | 18.7% | 20.9% | (2.2) pp | - Farmer Mac purchased $35.6 million in renewable energy investment tax credits in Q2 2025, resulting in a $3.2 million tax benefit[144][214] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Farmer Mac's financial condition and results of operations, including an overview of performance, use of non-GAAP measures, detailed results of operations, business outlook, balance sheet review, risk management strategies, and liquidity and capital resources. It also includes forward-looking statements and supplemental financial information Forward-Looking Statements - Forward-looking statements predict future results, performance, or achievements and typically include terms like "anticipates," "believes," "expects," and "will"[148] - Key uncertainties include debt and equity financing availability, legislative/regulatory changes, fair value fluctuations, lender interest, agricultural/infrastructure growth rates, economic conditions (inflation, interest rates, trade policies), interest rate risk, and financial market developments[150][151] Overview - Farmer Mac's mission is to increase financing accessibility for American agriculture and infrastructure[152] - In Q2 2025, Farmer Mac exceeded $30 billion in outstanding business volume and provided $2.1 billion in liquidity[156] - Farmer Mac's board of directors increased the share repurchase program authorization from $9.8 million to $50 million and extended its expiration to August 5, 2027[153] | Metric | Q2 2025 (in thousands) | Q1 2025 (in thousands) | Q2 2024 (in thousands) | | :-------------------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income attributable to common stockholders | $49,170 | $43,985 | $40,313 | | Core earnings | $47,365 | $45,966 | $39,777 | - The $8.9 million YoY increase in net income attributable to common stockholders was due to a $7.5 million after-tax increase in net interest income, a $3.2 million tax benefit from renewable energy investment tax credits, and a $1.5 million after-tax increase in financial derivatives' fair value[158] - Outstanding business volume reached $30.6 billion as of June 30, 2025, a net increase of $0.8 billion from March 31, 2025, primarily from Infrastructure Finance ($0.6 billion) and Agricultural Finance ($0.2 billion)[166] Use of Non-GAAP Measures - Non-GAAP measures (core earnings, Core EPS, net effective spread) are used to understand economic performance, transaction economics, and business trends[174] - Core earnings and Core EPS exclude fair value fluctuations and specified infrequent or unusual transactions that are not indicative of future operating results[176] - Net effective spread measures the net spread between interest-earning assets and related funding costs, including associated derivatives, and excludes certain items from net interest income while including others[177][178][179] Results of Operations | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :--------------------- | :----------- | | Net income attributable to common stockholders | $49,170 | $40,313 | 22.00% | $93,155 | $87,268 | 6.75% | | Core earnings | $47,365 | $39,777 | 19.08% | $93,331 | $83,169 | 12.22% | | Basic EPS | $4.50 | $3.71 | 21.29% | $8.53 | $8.04 | 6.10% | | Core Basic EPS | $4.33 | $3.66 | 18.31% | $8.55 | $7.66 | 11.62% | | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | H1 2025 (in thousands) | H1 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :--------------------- | :----------- | | Net interest income | $96,797 | $87,340 | 10.83% | $187,736 | $173,708 | 8.08% | | Net effective spread | $93,893 | $83,596 | 12.32% | $183,883 | $166,640 | 10.35% | - The $10.3 million YoY increase in net effective spread for Q2 2025 was primarily due to a $7.4 million increase from net new business volume, a $1.4 million contribution from the Investments segment, and a $1.4 million decrease in funding costs[165][203] - Operating expenses increased by 21% YoY for Q2 2025 and 14% for H1 2025, mainly due to increased headcount, information technology infrastructure costs, transactional legal fees, hiring expenses, and servicing advance expenses[212][213] | Line of Business | Q2 2025 Net Growth/(Decrease) (in thousands) | Q2 2024 Net Growth/(Decrease) (in thousands) | H1 2025 Net Growth/(Decrease) (in thousands) | H1 2024 Net Growth/(Decrease) (in thousands) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Farm & Ranch | $123,390 | $(396,405) | $(389,063) | $(304,300) | | Corporate AgFinance | $64,160 | $50,599 | $65,818 | $122,914 | | Power & Utilities | $112,388 | $37,737 | $490,988 | $28,705 | | Broadband Infrastructure | $199,606 | $86,013 | $371,975 | $52,045 | | Renewable Energy | $332,372 | $133,165 | $524,511 | $387,951 | | Total | $831,916 | $(88,891) | $1,064,229 | $287,315 | - Outstanding business volume increased by $0.8 billion from March 31, 2025, to $30.6 billion as of June 30, 2025, driven by Infrastructure Finance ($0.6 billion) and Agricultural Finance ($0.2 billion)[166][217] Outlook - Farmer Mac's growth is tied to the capital and liquidity needs of agricultural and infrastructure lenders and the financial health of borrowers[234] - Elevated market interest rates have slowed loan prepayments in Farm & Ranch, contributing to strong loan purchase portfolio growth in Q2 2025[235] - Operating expenses are expected to increase due to planned investments in human capital, technology, and business infrastructure to enhance capacity and efficiency[240] - USDA forecasts a 22% increase in net cash farm income for 2025, driven by $33 billion in government support payments from the American Relief Act[242] - Renewable energy net generation grew by 70% in the last five years, leading Farmer Mac to deploy specialized financing products[256] - H.R. 1, signed July 4, 2025, phases out renewable energy tax credits, potentially increasing marginal costs and decreasing investment growth velocity over the next five years[257] - Farmer Mac has purchased approximately $64.8 million in renewable energy investment tax credits through June 30, 2025, at about $0.91 per $1.00 of credit[258] - Rural telecommunication and data connectivity demand is strong, driven by AI, cloud computing, and wireless network densification, supported by federal programs like BEAD, RDOF, and ReConnect[260] - H.R. 1 includes an amendment to the Internal Revenue Code that excludes 25% of net interest income on qualifying rural or agricultural real-property loans from gross income for banks, insurers, and Farmer Mac[266] Balance Sheet Review | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :------------------------------- | :--------- | :--------- | | Total assets | $32,995,909 | $31,324,742 | $1,671,167 | 5% | | Total liabilities | $31,451,602 | $29,835,716 | $1,615,886 | 5% | | Total equity | $1,544,307 | $1,489,026 | $55,281 | 4% | | Loans, net of allowance | $12,205,432 | $11,166,984 | $1,038,448 | 9% | | Loans held in trusts | $2,274,551 | $2,037,654 | $236,897 | 12% | | Notes Payable | $28,843,331 | $27,371,174 | $1,472,157 | 5% | - The increase in total assets was primarily attributable to new loan volume and a larger investment portfolio[270] - The increase in total liabilities was primarily due to an increase in total notes payable to fund the acquisition of loan volume[271] - The increase in total equity was primarily due to an increase in retained earnings[271] Risk Management Credit Risk – Loans and Guarantees Farmer Mac's direct credit exposure to Agricultural Finance mortgage loans was $12.8 billion across 48 states. 90-day delinquencies in this portfolio decreased to $125.9 million (0.98%) as of June 30, 2025, from $160.0 million (1.29%) in the prior quarter, primarily due to a decrease in permanent plantings and crop loans. Substandard assets in Agricultural Finance were $453.0 million (3.5% of portfolio), a decrease of $13.0 million from the prior quarter. Infrastructure Finance had no 90-day delinquencies, but substandard assets increased to $72.2 million due to two borrower downgrades - Farmer Mac has direct credit exposure to Agricultural Finance mortgage loans, Infrastructure Finance loans, and loans underlying LTSPCs, and indirect exposure to loans securing AgVantage securities[273] | Metric | June 30, 2025 (in thousands) | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | :------------------------------- | | Agricultural Finance Mortgage Loans (Direct Exposure) | $12,836,478 | $12,389,478 | $12,369,477 | | Agricultural Finance 90-Day Delinquencies | $125,868 | $159,977 | $108,944 | | Agricultural Finance 90-Day Delinquency Rate | 0.98% | 1.29% | 0.88% | | Agricultural Finance Substandard Assets | $453,000 | $466,000 | $398,300 | | Infrastructure Finance Substandard Assets | $72,200 | $42,200 | $42,200 | - The decrease in 90-day delinquencies in Q2 2025 was primarily driven by a decrease in permanent plantings and crop loans, concentrated in the Southwest region[275] - Infrastructure Finance had no 90-day delinquencies as of June 30, 2025[294] - The credit exposure on USDA Securities is guaranteed by the full faith and credit of the United States, resulting in little to no credit risk[297] Credit Risk – Counterparty Risk Farmer Mac manages counterparty credit risk with AgVantage issuers, lenders, servicers, and interest rate swap counterparties. AgVantage counterparties are required to meet creditworthiness standards and maintain collateralization levels. Farmer Mac had $8.02 billion in outstanding AgVantage securities as of June 30, 2025. Interest rate swap counterparties are managed through collateralization provisions, with $24.1 billion notional amount of swaps outstanding - Farmer Mac is exposed to credit risk from AgVantage issuers, approved lenders/servicers, and interest rate swap counterparties[301][303] - AgVantage counterparties are required to meet creditworthiness standards and maintain specified collateralization levels, with Farmer Mac having recourse to pledged collateral in case of default[301] | Counterparty | June 30, 2025 Balance (in thousands) | December 31, 2024 Balance (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | CFC | $3,776,849 | $3,521,143 | | MetLife | $2,050,000 | $2,050,000 | | Rabo AgriFinance | $1,385,000 | $2,020,000 | | Other | $809,938 | $930,297 | | Total outstanding AgVantage | $8,021,787 | $8,521,440 | - Farmer Mac manages interest rate swap counterparty risk through collateralization provisions, with $24.1 billion notional amount of swaps outstanding as of June 30, 2025[330] Credit Risk – Other Investments Farmer Mac's cash and cash equivalents ($1.0 billion) and investment securities ($6.7 billion) are managed to minimize financial market volatility, preserve capital, and support debt market access. Investments must meet high creditworthiness standards (very strong capacity to meet financial commitments, low default risk) and comply with concentration limits (5% of regulatory capital for single entities, 100% for GSE senior non-convertible debt) - Farmer Mac held $1.0 billion in cash and cash equivalents and $6.7 billion in investment securities as of June 30, 2025[308] - Investment portfolio goals include mitigating enterprise risk, providing reliable liquidity, and supporting asset growth[343] - Investments must meet strict creditworthiness standards (very strong capacity, low default risk) and comply with concentration limits (5% of regulatory capital for single entities, 100% for GSE senior non-convertible debt)[309][310] Interest Rate Risk Farmer Mac is exposed to interest rate risk due to timing differences in asset and debt cash flows. The company manages this risk by matching asset purchases with debt and financial derivatives that have similar duration and convexity characteristics. Key metrics used include sensitivity to market value of equity (MVE), forecasted net effective spread (NES), and duration gap analysis. As of June 30, 2025, Farmer Mac maintained a positive effective duration gap of 3.7 months - Farmer Mac manages interest rate risk by funding asset purchases with debt and financial derivatives that have similar duration and convexity characteristics[315] - Interest rate risk metrics include MVE sensitivity, forecasted NES, and duration gap analysis[322] | Interest Rate Scenario | Percentage Change in MVE from Base Case (June 30, 2025) | Percentage Change in MVE from Base Case (December 31, 2024) | | :--------------------- | :------------------------------------------------------ | :---------------------------------------------------------- | | +100 basis points | (3.8)% | (4.0)% | | -100 basis points | 3.7% | 3.6% | | Interest Rate Scenario | Percentage Change in NES from Base Case (June 30, 2025) | Percentage Change in NES from Base Case (December 31, 2024) | | :--------------------- | :------------------------------------------------------ | :---------------------------------------------------------- | | +100 basis points | (0.5)% | (0.8)% | | -100 basis points | 1.8% | 1.6% | - As of June 30, 2025, Farmer Mac maintained a positive effective duration gap of 3.7 months, relatively unchanged from December 31, 2024[329] - Farmer Mac uses pay-fixed, receive-fixed, and basis interest rate swaps, and exchange-traded futures contracts to manage interest rate risk[332] Liquidity and Capital Resources - Primary funding sources include debt issuances, guarantee/commitment fees, net effective spread, and asset repayments[339] - As of June 30, 2025, outstanding debt included $2.0 billion in discount notes and $26.9 billion in medium-term notes[339] - Farmer Mac maintained a monthly average of 303 days of liquidity in Q2 2025, exceeding the 90-day regulatory minimum[340] - Farmer Mac was in compliance with all statutory capital requirements (minimum, critical, and risk-based) as of June 30, 2025, classified as "level 1" (highest compliance)[344] - Tier 1 capital ratio was 13.6% as of June 30, 2025, and 14.2% as of December 31, 2024[345] Other Matters - No other matters were reported[347] Supplemental Information | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | | New Business Volume | $2,125,019 | $1,494,450 | 42.28% | | Repayments (Total) | $1,223,547 | $1,576,216 | (22.49)% | | Outstanding Business Volume | $30,587,259 | $28,758,339 | 6.36% | | Net Effective Spread | $93,893 | $83,596 | 12.32% | - Outstanding business volume increased to $30.59 billion as of June 30, 2025, from $29.52 billion at December 31, 2024[231][351] - The weighted-average remaining maturity of outstanding AgVantage securities was 4.8 years as of June 30, 2025[233] Item 3. Quantitative and Qualitative Disclosures About Market Risk Farmer Mac is exposed to market risk from interest rate changes, which it manages through financial transactions, including derivatives, and by monitoring its exposure. Further details are provided in the Risk Management section - Farmer Mac is exposed to market risk from changes in interest rates[355] - Market risk is managed through financial transactions, including derivatives, and by monitoring interest rate exposure[355] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that Farmer Mac's disclosure controls and procedures were effective as of June 30, 2025. There were no material changes in internal control over financial reporting during the quarter - Farmer Mac's disclosure controls and procedures were effective as of June 30, 2025[357] - No material changes in internal control over financial reporting occurred during Q2 2025[358] PART II Item 1. Legal Proceedings There are no legal proceedings to report - No legal proceedings were reported[361] Item 1A. Risk Factors Information about risk factors is referenced to the "Forward-Looking Statements" section in Part I, Item 2 of this Form 10-Q and Part I, Item 1A of Farmer Mac's 2024 Annual Report - Risk factor information is cross-referenced to the "Forward-Looking Statements" section and the 2024 Annual Report[362] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Farmer Mac issued 432 shares of Class C non-voting common stock in April 2025 to directors who elected to receive stock in lieu of cash retainers. These securities are exempt from registration under Section 3(a)(2) of the Securities Act of 1933 - Farmer Mac issued 432 shares of Class C non-voting common stock in April 2025 to directors electing stock in lieu of cash retainers[363] - These securities are exempt from registration under Section 3(a)(2) of the Securities Act of 1933[363] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[364][365] Item 4. Mine Safety Disclosures This item is not applicable to Farmer Mac - This item is not applicable[364] Item 5. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025 - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q2 2025[366] Item 6. Exhibits This section lists the exhibits filed with the report, including the registrant's charter, by-laws, specimen certificates for various stock classes, certifications of executive officers, and Inline XBRL documents - Exhibits include the registrant's charter, by-laws, stock certificates, and certifications of principal executive and financial officers[367][368] Signatures The report is signed by Bradford T. Nordholm, President and Chief Executive Officer, and Gregory N. Ramsey, Vice President – Chief Accounting Officer, on August 7, 2025 - The report was signed by Bradford T. Nordholm (President and CEO) and Gregory N. Ramsey (VP – Chief Accounting Officer) on August 7, 2025[371][372]