Good afternoon. Thank you for joining us for our second quarter 2021 earnings conference call. I'm Jalpa Nazareth, Director of Investor Relations and Finance Strategy here at Farmer Mac. As we begin, please note that the information provided during this call may contain forward-looking statements about the company's business, strategies, and prospects, which are based on management's current expectations and assumptions.
These statements are not a guarantee of future performance and are subject to the risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Farmer Mac's 2020 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 Investors section.
Joining us for management this afternoon are our President and Chief Executive Officer, Brad Nordholm, who will discuss second quarter business and financial highlights and strategic objectives, and our 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 our President and CEO, Brad Nordholm. Brad?
Jalpa, thanks very much. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that Farmer Mac produced record core earnings this quarter. We did that while expanding our net effective spread, maintaining strong credit quality, and further rationalizing our portfolio in ways that are very consistent with our strategic plan.
These results largely reflect the continuation of the trends that have developed over the course of the last few years, including excellent funding execution in the debt capital markets, disciplined asset liability management, and ongoing shift in the composition of our portfolio towards higher spread loan purchase products. We achieved record core earnings of $30 million during the second quarter, a net effective spread above 1% for the first time in a number of years. Our asset quality metrics remain strong with 90-day delinquencies and substandard asset ratios moving favorably.
In other words, moving lower quarter-over-quarter. We're pleased with the overall performance of the portfolio. As you've probably read in the news, while the persistence of drought conditions in certain parts of the American West are causing real pain, real hardship for a number of farmers and ranchers in the American West, particularly in California, we really have not seen any evidence of this in our portfolio. For loans in areas that commonly experience exceptional drought conditions or do not always have access to underground water as a primary or supplemental source.
Farmer Mac's underwriting process provides for the assessment of anticipated long-term water availability for the property and includes analysis of how that impacts the collateral value in the borrower's cash flow. While we pay close attention to what is going on in American agriculture and empathize strongly with people who are experiencing drought conditions, we must state emphatically that the overall tone of agricultural real estate market today is very positive.
Commodity prices are strong and farmland values are projected to be stable or even slightly higher as we're seeing evidence of that in numerous public auctions and sales. In fact, a few of them have record high sale prices. During this last quarter, we provided a gross $1.5 billion of new credit to rural America. This resulted in our extending business volume exceeding $22 billion at quarter end. Our success continues to be driven by consistent customer-centric approach, which focuses on providing products and solutions that address funding needs through all agricultural economic cycles and to both our existing and our new markets.
Strong loan purchase growth in our Farm & Ranch line of business this quarter was largely attributable to our proactive outreach to our customers. Farm & Ranch's long-term standby purchase commitment product also exhibited some growth, a reversal from prior quarters. Regional Farm Credit System associations growth within our core sectors resulted in lenders exceeding commodity concentration limits and requiring additional need for capital relief. That is provided by Farmer Mac's purchase commitment product.
Across our other lines of business, we continue to see increased levels of competition in terms of price structure and execution, primarily due to the historically low interest rate environment and the Federal Reserve Bank's continued support of the lending market. In our USDA guaranteed line of business, in addition to increased competition, we're seeing lower demand for the product in certain regions due to strong increase in commodity prices. In other words, because the farmer's financial health is stronger, they need the guarantee program less.
This has also resulted in a higher increase in the high coupon USDA loans paying off compared to 2020. Although we've seen maturities in our institutional credit line of business, we did successfully fund four new AgVantage bonds with our rural infrastructure counterparty for an aggregate amount of $375 million. We also funded a $25 million AgVantage bond with a new counterparty that we believe offers significant agricultural holdings and growth potential.
The successful funding execution of these institutional counterparties is a testament to Farmer Mac's focus on expanding its customer and business relationships, and challenging ourselves to find more efficient and effective ways to provide our customers with the flexibility and assistance their borrowers need. We have stated in the past that we won't do AgVantage when the margins are too thin. This quarter, we were able to find a number of situations where that wasn't the case.
While we had limited loan purchase activity that closed from our rural utility counterparties, we do see positive momentum in the broadband and renewable energy project finance pipeline. We view this growing sector as a significant opportunity for Farmer Mac over the next several years, given the greater level of interest from rural electric cooperatives to develop and deploy broadband services and invest in renewable energy generation, as well as renewed interest from a federal policy perspective in broadband and renewable energy.
When I joined Farmer Mac nearly three years ago, I took steps to do a couple simple things at Farmer Mac, among them, making Farmer Mac a more commercial institution, making sure that we were listening to and responding to the needs of our customers by coming up with more competitive and responsive products and delivery systems. This vision really had attached to it meaningful business volume objectives that required our team to develop innovative approaches in how we acquire and retain customers, and how we develop and deliver new products.
We also took into consideration the appropriate investments in people and infrastructure required to meet our long-term plans. I am really proud to say that our consistent financial performance over the last three years and effective execution in a highly competitive lending environment where there's an abundance of liquidity today, is the direct result of the team's dedication to successfully broadening and deepening our business that's come about by learning to listen to and respond to our customers' needs.
This ultimately helps us support our mission of developing and delivering more credit products that are of benefit to all of rural America. As part of our efforts to identify opportunities to reach a larger audience, we recently engaged in a joint marketing campaign to promote a white paper that we co-authored with American Bankers Association. It's available at our website.
The multi-week promotional campaign is intended to shine light on agricultural mortgage market in the U.S. and Farmer Mac's role in helping agricultural lenders grow their business in relationship with the customers, ultimately to benefit all those in rural America. This has been an exciting opportunity for Farmer Mac to demonstrate to a wider audience how our mission is helping create tangible benefits in the agricultural marketplace. In summary, we are very pleased with the second quarter results, and we generally expect the positive trends we've seen in the first half of 2021 to continue.
While the emergence of the Delta variant creates some level of near-term uncertainty, we're confident that our current infrastructure, strong capital position, and commitment to our customers, as well as our employees' resilience and demonstrated ability to execute on our plans while working from home, is going to help us navigate whatever comes our way during the remainder of the year. Now with that, I'd like to turn the call over to Aparna, our Chief Financial Officer, to give you a little bit of additional insight into the financial results for the quarter. Aparna?
Thank you, Brad, good afternoon, everyone. I'm pleased to share with you Farmer Mac's record second quarter results. This reflects focused execution throughout the organization, as Brad just noted. Farmer Mac's second quarter 2021 earnings growth was driven by higher spread business volume and substantially lower funding costs, given our strong access to debt capital markets. Our return on equity to a common stockholder was 18% year to date, and this is well in line with our historical averages. This is despite the continued investments we're making to support our strategic growth initiatives.
Notably, we exceeded 100 basis points this quarter for net effective spread, and this exceeded our 90 basis points ±5 basis points guidance that we have previously provided. Our access to capital markets remains strong. We've issued debt daily. We raised preferred capital of $125 million at historically low rates for us. We've continued to maintain our disciplined asset liability management practices. This includes a methodical transition out of LIBOR-based instruments.
The year-to-date average balance of spread earning assets was $22.3 billion, which is comprised of $4.8 billion in cash and investments and $17.5 billion of loans and securities. Farmer Mac's net effective spreads for second quarter 2021 was $56.6 million, a 22% increase from $46.5 million in second quarter 2020. In percentage terms, this translates to a net effective spread that I mentioned previously of 1.01%, compared highly favorably to 0.89% in the same period last year.
The overall compositional shift this quarter of $395 million of net new higher spread Farm & Ranch loan purchase product, combined with a net decline of $100 million in AgVantage bonds that earn lower spreads, combined with our effective funding execution, were the primary drivers of our record net effective spread increase during the quarter. Year-to-date, we have successfully issued $6.6 billion in long-term debt funding across the maturity spectrum, with increases in the five to nine-year and greater than 10-year sectors.
By extending our liabilities, we were able to adequately prepare for a potential rising rate environment at pricing levels that are very attractive. We're also actively analyzing our duration and convexity matches on both our existing portfolio and our pipeline to ensure that we minimize our interest rate risk in the event of a sustained rise in interest rates. Turning to core earnings. Our core earnings for second quarter 2021 grew 14% to $30 million, or $2.77 per diluted common share, compared to $26.3 million or $2.45 per diluted common share in the same period last year.
The year-over-year increase in core earnings was primarily due to an $8 million after-tax increase in net effective spreads and this was partially offset by a $2.2 million after-tax increase in operating expenses and a $1.9 million increase in preferred stock dividends from our recent Series G preferred issuance. Our operating expenses increased by 20% year-over-year, and this is primarily due to increased headcount and high spending on software licenses and IT consultants, information technology consultants, to support various core and strategic initiatives.
These increases were offset by lower levels of expenses that were related to consulting fees, travel, and conferences. However, as we've mentioned previously, these decreases are very likely to be temporary and expected to normalize post-pandemic, once normal activity resumes. We expect to see higher investments for the foreseeable future, primarily to modernize our infrastructure, to enhance our technology platforms to support our revenue strategies, and we'll continue to add relevant talent across the organization as we grow.
While we expect these efforts to increase over the next 12-18 months as we innovate and grow our business, we do expect to see a tapering off in expense growth. Moreover, we have instituted a very disciplined approach to controlling both our personnel and non-personnel expenses. We monitor our operating expense ratios. We do a thorough and rigorous review of our results each quarter as a management team. Our efficiency ratio ended second quarter 2021 at 26%, and this is below our target 30% level.
As we continue to upgrade our platforms and invest strategically in multi-year technology commitments that we hope will improve customer service and our competitive position, our efficiency ratios are projected to stabilize at historical levels and remain under 30%. We benefited from an improving macro environment, as evidenced by a million-dollar release of our total allowance for credit losses from March 31st, 2021, bringing us to $16.6 million as June 30th, 2021. Turning now to capital.
We opportunistically strengthened our capital levels through a successful issuance of $125 million in Series G preferred stock, and this happened in May. The addition of preferred capital, together with our strong earnings, increased our Tier 1 capital ratio this quarter from 14% as of March 31st to 15.3% as of June 30th, 2021. Farmer Mac's $1.2 billion of core capital as of June 30th, 2021, exceeds our statutory requirement by $483 million or 71%, putting us in a very robust position. In March 2021, our board of directors reinstated our share repurchase program, which had been suspended since the first quarter of 2020.
The plan was reinstated on its previous terms and has a remaining authorization of up to $9.8 million and an extended expiration date of the program to March 2023. We have not repurchased any shares in the first half of 2021, and we must note that we intend to repurchase stock only when we view repurchases as both accretive and consistent with our strategic objectives. Overall, in conclusion, we are very pleased with the consistency in our results this quarter, and this is reflected both in our profitability and is bolstered by consistent credit quality and our capital adequacy.
More complete information about Farmer Mac's second quarter 2021 performance is in our 10-Q we filed today with the SEC. With that, Brad, let me turn it back to you.
Great. Thanks so much, Aparna. The results we generated thus far in 2021, I think are reflective of a business, the Farmer Mac business, that can expand profitability while successfully serving our mission of increasing access to and reducing the cost of credit for the benefit of agriculture in America's rural communities. We continue to manage our capital prudently, focused on consistently building shareholder value for the long term. We continue to develop peer-leading operating efficiency while making investments to position the company for continued growth as we see over the next few years.
I'm very, very pleased with the results so far this year and very, very excited about the future that we have here at Farmer Mac. Operator, I'd like to see if we have any questions from anyone on the line today. Thank you.
Excellent, thank you. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. If you're using a speakerphone, we just ask that while posing your question, you just pick up your handset to provide favorable sound quality. Once again, ladies and gentlemen, if you do have a question or comment, please press star one on your telephone keypad at this time. Please hold as we poll for questions. Our first question comes from Greg Pendy with Sidoti. Please go ahead, sir.
Hey, guys. Thanks for taking my questions. I guess I got to ask this because you're at your highest net effective spread here that we've seen in some time. What is the scenario here that brings it down? I'm assuming the Farm & Ranch side is rather sticky in terms of you're putting on longer duration loans here. Is the most likely scenario that we see sort of decreased liquidity in the system and mix just hurts you with more institutional credit potentially coming back? In other words, total volumes will go up, but your mix will have much lower spread business coming in there. Is that fair to say?
Yeah. Hey, Greg, it's Brad. Thanks always for your participation. I do appreciate the question. I'm going to ask Zack Carpenter to jump in here with a little additional color on our portfolio composition, our asset mix. I'd just note at the outset that NES is really driven by the whole portfolio. When we price an asset that we put in that portfolio, it's staying there for a while. It moves up and down relatively slowly. Obviously, attractive or more attractive execution in the debt capital markets can also have a faster impact on it as we roll over maturities.
Frankly, in the debt capital markets, our spreads are at record lows right now. It's hard to see that we're going to see much upward movement in NES from rolling over maturities of debt instruments in the debt capital markets.
With that just as a little bit of a preface and comment, I'll turn to Zack Carpenter to provide a little bit of discussion about how that NES is impacted by, for example, above-average growth in Farm & Ranch relative to the rest of the portfolio or above-average growth in agribusiness and larger complex credits, for example, or maybe below-average growth in rural utilities and lower margin assets that we have. Zack, are you available to jump in here?
Yeah. Thanks, Brad, and Greg, great question. I think you kind of hit it on the head with the compositional mix. We’ve seen since 2020 our balance sheet, at least from a volume perspective, shift into these on-balance sheet, higher earning assets. We continue to see strong growth in Farm & Ranch. A component of that Farm & Ranch business is our agribusiness value chain lending portfolio, which has significantly higher NES compared to many of our other business lines.
As we get further into the year and put more loans on in that business, we’re going to see some accretion higher in that space. That being said, at some point in time, we saw some positivity in our rural utilities AgVantage product. Those are lumpy and event opportunities, and they are much lower NES than some of our other portfolios. As we see some changes in the capital markets that warrant us to help our customers in that space, those are lumpy pieces of volume that will tend to shift the NES lower. The other piece of the puzzle is our fee-based off-balance-sheet products, right?
We clip a fee to those, and as those decrease and again become a less of a component of it, we see that fee business decrease, but the NES increase given the on-balance-sheet loan purchase product. What I would say is we continue to see strong growth in Farm & Ranch loan purchase, and that's going to drive it going forward. Some of the mix coming off from AgVantage and rural utilities loans that we would see later on this year would potentially taper that off a bit. We'll continue to see the strong growth on the agribusiness side, and that'll continue to help upward on the NES perspective.
That's very helpful. Then just to, I guess, some of the, for the rural utilities, some of that, if there is a bill passed, I know it'll take time if you are a beneficiary, but that's kind of the sweet spot. Is it fair to say within your divisions if there is from an infrastructure bill perspective?
Greg, the most likely thing that we would see in an infrastructure bill that would positively impact the rural utilities portfolio would be around broadband and renewable energy. The renewable energy certainly has higher margins. The broadband, it would depend on what any kind of federal program or stimulus, how it was structured and what it meant for credit quality. I think at this point, we would anticipate that both broadband and renewable energy over time, over a few years, could pick up nicely from the infrastructure bill funding and that both could be further accretive to us.
Obviously, we want to see the details of what's really in there and the feasibility of what is in that federal infrastructure plan as it would relate to actual loan opportunities before really being confident in projecting just how much that could be. Directionally, it's certainly positive.
That's very helpful. Thanks a lot.
As a reminder, that's star one if you do have a question or comment. There appear to be no further questions at this time. I'd like to turn the floor back over to Brad.
Well, thank you. You may have noted that we attempted to make a few changes in our call today. We attempted to make it a little bit shorter, providing more time for questions or just for going home at 5:00 P.M. On a very nice Thursday afternoon. We appreciate your attendance very much. We will have our next regularly scheduled call in November when we will be reporting on our third quarter 2021 results. We look forward to sharing information with you, of course, at that time.
As always, if you have questions you'd like to follow up with any additional information, any additional questions, just get in touch with us. We're always very pleased to speak with you. With that, thank you very much and have a good evening.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.