Q4 2021 Federal Agricultural Mortgage Corp Earnings Call
Good day.
The farmer Mac fourth quarter full year 2021 earnings conference call.
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I'd now like to turn the conference over to Jonathan.
Director of Investor Relations and Finance strategy. Please go ahead.
Good afternoon, and thank you for joining us for our fourth quarter and full year 2021 earnings conference call I'm, Jeff in Nazareth director of Investor Relations and finance strategy.
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 acts.
<unk> results to differ materially from those projected please prefer to farmer Mac's 2021 annual report on Form 10-K filed with the SEC earlier today for 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.
non-GAAP measure can be found in the 2021 Form 10-K and earnings release posted on farmer Mac's website farmer Mac Dot com under the financial information portion of the investors section joining us from management. This afternoon are president and Chief Executive Officer, Brian <unk>, who will discuss fourth quarter business and financial highlights and strategic.
<unk> objectives, and our Chief Financial Officer, a program 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 nor Tom Brad.
Well, thank you Jennifer and good afternoon, everyone I really want to thank you for joining us today.
2021 was a transformative year for farmer Mac I am extremely proud of our team our continuing strong performance and our new initiatives that we launched over the last year.
Two of the more notable initiatives with expansion of our internal loan servicing function in the third quarter.
And the successful execution of our structured agricultural mortgage backed securitization in the fourth quarter.
These accomplishments combined with our consistent financial performance and continued strong credit quality.
<unk> confidence in our ability to successfully execute our multiyear strategic plan and to execute on our mission to bring even greater efficiency in how we provide financing to our lenders for the benefit of their farm and ranch ACO business in rural infrastructure customers.
The integration of the strategic acquisition to expand our internal loan servicing capabilities has been seamless.
Our teams deep expertise has allowed us to offer our customers the same quality of service without interruption.
We view this acquisition as an opportunity to create greater efficiencies across our loan servicing platforms.
Harnessed this opportunity for more direct oversight and governance over a large part of our portfolio, giving us enhanced security more control over and timely access of data and better visibility into loan performance from inception to maturity.
We're also excited for the growth opportunities the strategic acquisition will enable because it will equip us with the talent and infrastructure.
<unk> Inefficiently service larger more complex commercial loans and that is a key driver to our long term growth.
This move is an important example of our dual strategy to broaden our business opportunities, while also deepening our relationships with our existing customers.
We believe that will ultimately enable us to provide increased capital to support Rural America, and deliver better customer service to our lender network in support of our mission of increasing access to competitive credit for the benefit of our country's farmers ranchers and rural residents.
The October 2021 issuance of the agricultural mortgage backed securities was an important strategic milestone for farmer Mac.
And the success of the transaction is evidence of farmer Macs high quality credit strong balance sheet and consistent financial performance as well as the resilience of America's farmers and ranchers.
Over the last few months, we have been focused on enhancing the infrastructure to support a securitization program.
Closely monitoring the changing market dynamics to align with market expectations.
Over time, we expect to eventually be a frequent issuer in the marketplace.
With that said in the near term our plan is to ramp up the number of issuance as per year as we focus on building a strong foundation for the program.
In addition to these accomplishments we developed a newly formed alliance with AG analytics, a leader in agriculture data collection and analytics.
We're proud to be a part of this innovative and data driven initiative, which has enabled us to better identify track and analyze the millions of acres pledged as collateral for farmer Mac's farm and ranch loan portfolio.
While we are in the early stages of mining. This robust collection of data we are focused on enhancing our farmland value modeling capabilities and our approach to collateral management.
Turning to our results our focus on our strategic plan and continued investment in people and technology.
<unk> and a strong 2021.
We've provided a gross eight $6 billion of liquidity and lending capacity to lenders serving GUL America in 2021.
Which resulted in outstanding business volume of nearly $24 billion at year end.
We generated a record level of core earnings and most importantly, and fundamentally our portfolio remains strong and credit performance continued to be very stable with 90 day delinquencies and substandard asset ratios moving favorably quarter over quarter.
This year, we also introduced a realignment of our lines of business and operating segments.
More specifically, we have consolidated our reporting from our four lines of business to two lines of business.
Cultural finance and rural infrastructure Finance.
And seven operating sub segments with four segments that drive business strategy under the two lines of business.
Our new lines of business reflect how we are managing evaluating and serving our business that centers around our customer and market.
Rather than according to the type of the product that we offer as we previously did.
We believe the simplified reporting format, where more clearly present, the distinct contributions of our operating businesses and how they drive value for the overall company.
As we expand and scale our company the transparency and utility of our disclosures must align and we believe these changes will make it easier for all of our stakeholders to digest and evaluate our results.
The agricultural finance line of business, which is approximately 75% of our total outstanding business volume.
Comprises all products secured by first liens on agriculture real estate, plus all USDA guaranteed loans grew just over $1 billion year over year.
This increase was primarily driven by farm <unk> ranch loan purchase and AG vantage securities programs with the growth in advantaged securities largely comprised of opportunistic short term bonds that are expected to mature in the first half of 2022.
While the short term nature of those securities may create some near term volatility to volume.
We do not anticipate a material impact to our net effective spread.
Our pipeline in this line of business remains strong as we believe our strong relationships knowledge innovation and flexibility have resulted in our ability to be adaptive throughout market cycles.
Our rural infrastructure Finance line of business grew a net $600 million six.
$6 billion in 2021.
Primarily due to a net increase in egg vantage securities with a key counterparty.
This growth is a testament to farmer mac's ability to offer competitively priced financing structures, while also demonstrating our ability to effectively execute.
The needs of our customers.
During 2021 farmer Mac purchased $132 million of loans to telecommunication companies that provide wireless cable fiber transport and broadband services to Rural America.
Part of its strategic initiatives to support the telecommunications industry.
Farmer Mac also facilitated the financing of approximately $31 million of renewable energy loans.
We view, both as growing sectors, the tie directly to our organizational mission.
And a significant opportunity for farmer Mac over the next few years, given the greater level of interest from rural electric cooperatives to develop and deploy broadband services and invest in renewable energy power generation.
I'm also pleased to announce that 8% or seven cent per share increase in our quarterly common stock dividend.
That will take it to 95 per share starting in the first quarter of 2022.
In deciding to increase farmer Mac's common stock dividend and maintain our payout target.
The board of directors considered our strong capital position and the consistency of and outlook for earnings.
To support our business and exceed all of our regulatory requirements.
This represents the 11th consecutive year that farmer Mac increased its quarterly dividend.
And it's a tangible indication.
To our shareholders of our ongoing financial success.
As we look to 2022 and beyond we believe our 2021 performance provides a great foundation for visibility and growth.
Well into the future as we continue to execute on our strategic objectives.
We are confident that the strength of our underlying business model, our strong capital position and our commitment to our customers. We will continue to support our ability.
To generate consistent returns throughout various market environments and across economic cycles, because we have done historically.
And with that I'll turn the call over to <unk> to discuss our financial results in more detail the Parnell.
Thank you Brad and good afternoon, everyone I'm pleased to share with you another year of record earnings results, reflecting focused execution throughout the organization.
For I delve into our annual results I'd like to provide a few highlights around our fourth quarter results.
Core earnings were $30 million or $2.76 per share.
Compared to $27 $6 million in third quarter 2021.
Our net effective spread modestly declined sequentially due to the sale of mortgage loans associated with the securitization transaction and I'll describe that in more detail shortly.
And finally outstanding business volume increased $495 7 million from September 30th 2021 to $23 6 billion.
Due to new farm and ranch advantage volume and strong loan growth in the farm <unk> Ranch segment.
Turning to our 2021 full year results.
Farmer Mac's outstanding business volume grew by $1 7 billion.
$23 6 billion as of December 31st 2021.
Net effective spread was $227 million.
Which represents a 12% increase from $197 million in 2020.
In percentage terms.
Net effective spread or any yes.
Improved five basis points.
98 basis points.
Prior year. This is primarily due to the shift in earning assets and continued competitive execution on that funding.
As a result of our disciplined asset liability management process.
Our newly introduced operating segments, which Brad described earlier.
Wow us to offer more transparency into the various contributing components portfolio any yes.
As we have implemented a funds transfer pricing methodology. This process allows us to allocate interest expense much more accurately to each of the operating segments.
Films are match funded asset liability management approach and it allocates both the benefits as well as the costs from the funding and hedging strategies to the funding segment.
Also allocates the results of the investment portfolio and demonstrates how it's held for liquidity purposes.
The year over year growth in net effective spread was primarily driven by net new business volume, particularly in the farm <unk> Ranch operating segment.
By decrease in non-GAAP funding costs.
Frequently discussed in the past the positive impact of our dynamic funding strategies, including the use of callable bonds to replace more expensive outstanding debt at lower rates as.
As well as leveraging derivatives to eliminate basis risk.
Believe that the new segment reporting construct provides clear insight into the benefits of these funding strategies and how it contributes to profitability.
The business compositional shift we've discussed since early 2020.
Highlighted in the new segment reporting as the relationship between <unk> and volume are apparent in each segment.
For example, our rural utilities segment is comprised of low risk long dated assets, which generate a lower relative.
Relative to our corporate accident segment, which has greater levels of credit risk with higher levels of net effective spread.
As we prepare for a steepening yield curve, especially if the long end of the curve.
Very carefully analyzing our duration and convexity matches to minimize our interest rate risk as rates rise.
In general our net effective spread.
Be well cushioned against rising fees.
The options on our callable issuances remain attractive even if rates rise.
These will prove to be a good hedge against prepayments.
The environment remains flat or decreases.
Organization, which is a capability that we are now building will also provide us with a diversified source of long term funding.
Help us draw from a larger investor base, a more diversified investor base, it'll help us optimize our funding strategy would face with widening issuances at the long end of the curve.
This disciplined approach of managing our portfolio duration and convexity allows us to have a consistent performance in our net effective spread in both rising and falling rate environment.
Core earnings for 2021 increased 13% to $113 6 million or $10 47 per diluted common share compared to $100 6 million.
$9 at 33 cents per diluted common share for 2020.
The increase in core earnings was primarily due to an $18 7 million after tax increase in net effective spread.
After tax provision release of $8 1 million and $5 $2 million after tax gain on sale of mortgage loans. Please.
These factors were partially offset by a $9 5 million after tax increase in operating expenses and a $6 $9 million increase in preferred stock dividend.
The successful execution of a $299 4 million agricultural mortgage backed securitization in October was a key contributor to our core earnings results. This past year.
The deal was structured around two tranches.
Guarantee crunch.
<unk> on guaranteed fund the transaction with overall very well received by the investment community.
<unk> has provided farmer Mac with an opportunity as I mentioned earlier to diversified funding sources and fulfill our mission of delivering low cost liquidity, even more effectively.
We have spent the last few months identifying ways to potentially execute these transactions more efficiently and we expect to return to the market. This year with another similar securitization as we seek to make this a more programmatic effort for us in the future.
Operating expenses increased by 20% in 2021 compared to 2020 and this is primarily due to increased head count as we hired 32 net new employees to feel it.
<unk> 10, new employees in connection with the strategic acquisition of loan servicing rights that Brian described that occurred in the third quarter of 2021.
Our head count was 154 as of year end.
The additional loan servicing expenses are expected to be offset over a multiyear period by additional revenue and this will be reflected in higher spreads in our farm <unk> Ranch segment, where we will not be paying a third party for servicing the loans that we will now service and this should therefore make the initiative neutral to accretive for us in the mid <unk>.
The remaining hires were brought on to drive additional volume growth and support our long term technology strategy.
We also plan to continue investments.
Both in head count as well as the technology over 2022 and 2023.
These will be primarily to modernize and mitigate risk in our infrastructure and handset technology platform to support our revenue strategies and continue to add relevant talent across the organization, especially as we scale and enter into new areas of business, such as renewable energy and telecom.
While we expect these efforts to continue an increase over the next 12 to 18 months as we innovate and grow our business. We will continue as we've mentioned previously to closely monitor our efficiency ratio our efficiency ratio at the end of 2021 was 29%.
Going forward, we do expect operating expenses to increase commensurately with revenue growth, but as we've noted previously we intend to stay within a range that is consistent with our historical averages.
Always remain below a 30% operating efficiency level.
Our credit profile continues to be strong over 2021 as of December 31, 2021, the total allowance for losses was $16 4 million.
Decrease of $1 2 million from December 31st 2020.
This decrease was attributable to a $2 4 million relief due to improving economic conditions and the recovery on the payoff of the agricultural storage and processing alone.
Sure by specialized poultry facilities that had been partially charged off in 2020 <unk>.
Partially offsetting this decrease was 0.2 million provision for the rural infrastructure allowance for loan losses related to the impact of the February 2021, Texas Arctic freeze.
Turning to capital Farmer Mac's.
One $2 billion of core capital as of December 31, 2021 exceeded our statutory requirement by $487 million or 41%.
This compares to $1 billion of core capital as of December 31st 2020.
The increase in capital in excess of the minimum capital level required was primarily due to the issuance of the series G preferred stock in May 2021, and an increase in retained earnings.
The issuance of the series G preferred stock earlier in the year positions us well for this inflationary environment that we see the capital efficiency of the securitization transaction also contributed to our improvement to 14, 7% of tier one capital from 14, 1% as of year end 2020.
All of this further reduces the need in the immediate future to do more preferred stock issuance.
As Brad mentioned, we are very pleased.
Seven cents per share increase in our first quarter 2022, common stock dividend getting us to a total of 95 per share and this represents an 8% increase from a year ago.
We believe that our strong earnings and consistent capital position support this dividend increase.
And also our long term target payout ratio, which is set at 35% of core earnings.
In conclusion, our balance sheet is well optimized our access to capital markets. Also remained strong we believe that we're well positioned for rising rates.
<unk> future loan growth at levels that are earnings accretive.
That Brad let me turn it back to you.
Thank you apart.
I'm incredibly proud of the 2021 results and I'm incredibly proud of the entire farmer Mac team that has delivered these results with.
We further enhanced our operational infrastructure, we've enabled greater customer service. So we built a diverse earnings stream with multiple growth levers.
Looking ahead to 2022 and beyond we continue to see tremendous opportunity to bring even greater efficiencies in how we provide financing to our lenders to the benefit of their farm and ranch agribusiness and rural infrastructure customers.
We're looking forward to sharing additional updates on our strategic growth initiatives.
In the coming quarters, and with that operator, I'd like to see if we have any questions from anyone on the line today.
Thank you we will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
As they're using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two today's first question comes from Marla Backer I'm, sorry, Marla backer with Sidoti. Please go ahead.
Thank you.
So can you give us any kind of color on.
How do you think if inflationary pressure continues or escalate.
These levels, how do you think that could impact.
Changes in your business volume.
Yes, good afternoon, Martin that's very nice too.
To have you on the call today.
I think there are a couple of dimensions of this and I'm going to ask both Zack Carpenter, our chief business officer to comment on what we're seeing out in the country side as well as a partner with mesh our CFO to comment on what the implications are for interest rate sensitive asset liability management.
But in general we've been talking for almost a year now about the likelihood of rising interest rates.
And how the way we manage our book from an asset liability management standpoint puts us in actually a pretty neutral position.
We also more recently have been monitoring.
<unk> pressures on the AG economy.
Especially coming from increases in natural gas and fuel prices, which are fairly closely correlated with inputs not just diesel fuel on the fire, but also.
Hi.
Fertilizers for example.
The wildcard just in the last week is what the impact of the situation in Ukraine will have on global agricultural commodity flows Jenna.
Generally speaking, though we think that that probably favors the U S. But let me ask let me now turn to Zack and apparently to offer their perspectives.
On the different dimensions of your question.
Yeah. Thanks, Brad.
Great question.
From the farm and ranch side, I think that's where it poses the biggest.
View in terms of inflationary pressures and Brad made a big comment in terms of Nat gas and fertilizer and those are huge input costs to the farmer rancher in terms of Brian there operation and were seeing the largest component of inflationary pressures there.
Continuing with the supply chain disruptions that we see see across the market. The other dimension that Brad mentioned as interest rates and the increasing it.
Short term interest rates that we're seeing are protected to see in the environment.
And so overall from I'd say more farm and ranch foundational perspective, we anticipate to see probably a little bit lower prepayment speeds than we've seen over the last two years I would attribute that to a lower refinancing environment given the increase in interest rates.
And then in terms of input costs, we anticipate to see heavy draw on our revolving lines of credit.
Especially to fund the fertilizer in the input costs for the harvest or preparing for the harvest and getting everything in the ground.
I would say overall, maybe a moderated.
So thanks back and I was just jumping real quick.
Marla on what this all means for us as we look at our tuition and conduct ste on our asset liability management suddenly when you look at this environment because some tension between the long and the short end of the curve I think the forward curve is implying substantial flattening or even an inversion as you look out.
So all of that has.
Obviously applications.
From an asset level management standpoint, but from our standpoint, I think we're pretty well cushion.
We've taken advantage of a few things we we did issue a lot wrong David.
Debt securities over the last two years, taking advantage of market opportunities you call a blueprint have actually widened quite a bit.
But in this current environment, let's active crime.
Looking at the flowing in prepayments that won't have a material impact on our business and even though.
Where to go down.
Phoebe pretty well pushing because we've got about a third of our fixed Facebook in Caldwell securities, So, which it will be slice. It I think we're going to be pretty well cushion.
Whether at school.
Or even a C C. A slightly version of the next year, I think we'll be well well positioned and obviously the inflationary impact really season two of us defend might do on the short end of the service there.
Thank you for that comprehensive bouncer.
Switching topics switching gears, a little bit you talk a little bit in your prepared remarks about.
Trends are moving into some related areas telecom renewable energy.
Can you give us some sense of how large who thinks of those.
Complementary complementary areas could become as as part of the total business.
Yes, we'd be happy to Marla.
First of all.
We're going to.
Slowly moving into renewable energy projects pronounce I think this is our third year now.
And in the last year as you know we have been more active and telecommunications company finance.
We are Michelle driven organization, we are very purposeful and focusing on the needs of rural America within the confines of our charter.
And one of the big issues in Rural America, as broadband and other telecommunications access. So we do actively look for those opportunities they need to put our credit box.
And as we've been slowly moving into this area over the last year.
The last couple of years increase group renewable energy project Finance, we've been building policy credit underwriting standards.
And slowly.
Spanning the team.
I would say over the last two years, we place more of a prioritization on the growth of our farm and ranch and.
Corporate agribusiness than we have in this area and that's partially reflected in the numbers.
But once you forward a renewable energy project finance.
It's about $8 billion annual origination market per year within kind of the credit profile that is attractive to us our biggest challenge is to broaden the number of origination channels. We have because we are a secondary market.
And I think you'll see a little bit of emphasis on that this year, probably more next year.
And if then without increased emphasis we could kind of double the projected volume.
Every year for four or five years, it would become a meaningful part of our business.
Becoming upwards of 2025% of volume, but that will take some years to get to.
Okay, great and.
When you said 20, 25%.
Volume, we're talking about in the aggregate between the two different spaces, we've been talking about.
Versus the rest of the portfolio and that's an annual originations in terms of portfolio composition that would be less because it will take longer to ramp up.
Okay. Thank you.
And our next question comes from Gary Horton private of US are please go ahead.
Thanks very much.
For a couple of things one.
Charge offs in the fourth quarter for the year.
Gary There were there were no charge offs and we had a collection.
Lone that we discussed at some length going back.
And one and a half years ago poultry processing alone.
We had taken some right downtown that over the last year and a half and we exited that position.
Position during the fourth quarter and actually had a small collection on it so charge offs were.
I guess, you would say negative.
They they were we collected more than we charge to us and we didn't charge up anything.
But at $1.1 billion of the company to tell them.
That.
So far.
To the operating expenses were up about 2 million quarter to quarter third quarter Fourthquarter I guess.
The servicing business was part of that most of that.
The service business as part of that we also had some expenses.
She had an almost the last month of the year. Prior you want to elaborate on that yeah, No I think that death at the nail on the head.
Doing systematic investment in towards the areas and then the third area is getting with the acquisition of the servicing business. So most of the head count that we acquired too that was about.
11, or so most of that came in the latter half of the back of the contributor and then a broad noted.
Made some investments in our IP platforms and some of the consulting team.
Towards the end of November so we saw an uptick in consulting fees as well and those two factors.
See contributed and then also just are hiring.
Had some of the highest plan for the first half of deals that moved to that.
Pushed out to the third and fourth quarters that primarily the fourth quarter. So.
Contributing factors commodities eventually.
Okay, and again on sale of loans.
Related to the securitization or there was actual sale.
Yeah that is that is related to the securitization and crap that in a fair amount of detailed that in a nutshell after the fourth quarter event.
And resulted in a pretax stainless a little over 6 million.
And it really is.
It happens right away so when you sell it.
You look again on sale, depending on where nominal interest you.
Alright.
The cash earnings from those loans there'll be an operating earnings going forward.
The cash earnings so.
So the 202 million elderly goes off of our books and then there is an island.
But we do routine that continue.
Continues to has.
Any profile that occurs over the life of the loan and then there are some southern succeed as well that are associated with that.
We'll go over the license the loan which is about seven years.
Okay.
The interest spread.
Operating earnings interest rates went down about five basis points of what kind of the details of his.
Fair value changes, which I.
I have no idea what that is but there was plus three basis points last quarter minus three this quarter.
What's what's zero sort of normal.
Yeah.
So.
Nope.
That you'd like to comment a little bit more on.
Just some of the competitive pressures that on.
The aggregate the result of the.
The shift between what would have been within our any book as a result of the seal of securitization.
Created a decrease in any quarter over that's definitely a factor and then there were some other non securitization deleted competitive pricing pressures.
If you're looking at the portfolio any change quarter over quarter.
If I'm looking at 2022 this year.
The third quarter, a better indicator of the fourth quarter, a better indicator of what an ongoing.
Yeah.
Yeah, I don't know that we'd want to tie 2022 expectations to either the third or fourth quarter, what I would take areas that.
Until we got well into 2021, we've always provided guidance of 90 basis points, plus or five plus or minus five basis points. What you saw this year with some shift in strategy and you'll see the reasons why reflected in our new line of business reporting about margins associated with that and you saw the AD.
Kind of go up first second third quarter, and then pay off just a little bit.
In the fourth quarter.
What.
Would say instead is that.
Calling it a 2022 thinking about.
<unk> around any asked as being at least five basis points higher than the prior guidance, we provided at least 95 basis points.
Or minus five and possibly even a bit higher.
<unk>.
Ah.
In line with our expectations.
Okay. Thanks.
I'm sorry go ahead.
Yeah No Gary.
Definitely I think we used to and could you previously to about 90 points to think about is having shifted up about five feet.
Okay.
Okay last thing on the dividend.
So operating earnings were up 13% dividend was up eight.
And also instead of 35% payout based on the dividend for this year would say operating or it could be up about 5%. This year is 19, 35% payout ratio.
So I'm trying to.
Figure out and it seems like the dividend should've been up more.
And I'm wondering if there's any anything behind that.
I make it.
It's not an absolute strict.
Polio precisely one year Gary So we have previously explained that we have a target of about about a 35% payout.
And yes earnings were up strongly this year. We're looking ahead, we want to make sure that we can continue to deliver.
Delivered nice step in earnings.
When we discuss this with our board, which is felt that growing higher than that today.
Was not really advisable because once again, we see some growth opportunity.
And want to make sure that we maintain strong capitalization throughout 22.
An environment, where some of that gross may actually consume more capital.
Okay, Yeah, and Gary and just one more point I think when you look at either of 2021 of 2022 were also now subject to a fair amount of volatility from nominal interest rates.
We've got a guard against that to some of the credit effects, which are non-cash b as well as the gain on sale. The ZIP code is a natural fluctuations as a result of that so we want to make sure that.
Beef learning this from a cash flow as affected as opposed to.
Some of the other fluctuations that come about as a result of shifting.
Okay.
Thank you.
Yeah.
Sorry.
Ocean, who it comes from John Duboe, where Flint Ridge capital. Please go ahead.
Good afternoon.
My question is regarding the outstanding business volume grows for the company and.
Brad I think you've described in the past.
The company is relatively low market share.
Of the finance business at least the way you've defined it.
You also have a competitive advantage from a funding standpoint due to your charter so.
What what would you consider sort of a normalized growth rate in outstanding business volume net.
And then what would be the factors that would drive.
Your actual results to be either higher or lower in a particular year.
Around that.
Normalized growth rate.
Yeah.
Yeah. Thanks, Thanks for getting on with US today John .
I think it's important to follow up the low market share with the note that primer Mac as a secondary market.
And so are.
Our market share is a function not only of.
The growth that we could initiate through.
Aggressive, calling and good technology platforms and competitively priced product. It's also a function of the overall level of liquidity and the agricultural finance system.
Including with commercial banks independent finance companies and insurance companies and the farm credit system. So that's another factor that has to be taken into consideration.
But with that.
Additional caveat, let me turn to Zack to offer some more direct response to kind of growth rates and influences of growth rates.
When we were out working with customers.
Yes, thanks bread and it's it's a great question and I think Brad started the conversation in the right way and noting where a secondary market and and ultimately what that means that our customers are the financial institutions, serving the farmers and ranchers in the AG space, but I think a big component of what we've tried to.
Execute over the last couple of years as a diversification of our our base right and so you've seen a very strong growth rate in the agricultural farm and Ranch Corporate Act finance space as we've dedicated more time, there, but also looking to focus more in telecom of new renewable energy when you fully focus focus on the farm and ranch in the <expletive> .
Cultural space, it's dominated by a few key lenders the farm credit system insurance companies in the it community commercial banks rain so as.
As we look to grow our business and support our customer base needs to be taken in the context of a very concentrated industry of lenders.
Which differs in many instances in other areas. So our focus there to continue to increase growth rates is really to diversify I think part of our chain.
Change in reporting structure highlights the fact that our corporate acts Nancy ignorant or focusing on agribusinesses are larger and more complex value chain lending helps us diversify and support our mission in a different way and ultimately left us.
Create a larger growth rate in many different fashions lastly, the only thing I would like to comment on is that some of our products and some of our customers are highly concentrated advantage think of these wholesale finances, and so we need to make sure that as we put capital to use is appropriate for a machine and appropriate for farmer Mac and in many instances we've seen over the last couple of years.
As credit spreads tightened it didn't make sense for us to to support those those low profitability spreads around a moderate that appropriately so a little bit of ups ups gives and takes across across the board, but I think from the AD space, we are making inroads in a very concentrated environment as a secondary market.
John I think we can provide maybe some specific in terms of volumes.
For the 6% to 8% CAGR arrange an in terms of volumes that's pretty typical.
10 to 12 is extremely strong and more an outlier for us and I think going forward. We don't see factors that would necessarily reduce that but we don't see factors that would necessarily increase that upper limit either.
So maybe that's helpful in terms of kind of putting some bands around this.
Yes, that's very helpful.
And then just maybe follow up.
Gary's question about.
Or at least the way you answered his question about the dividend. So would you would you be expecting perhaps a bit of an acceleration and growth. This year because of some of these new initiatives and.
Or is it.
Really more of a mix issue where.
Whatever you're putting on may be somewhat more capital intensive.
Maybe than than what you've done in the past.
Yeah, well, it's really interesting because until a week ago.
We would have told you were much more certainty.
Rising interest rates were coin too slow prepays and that that might be supportive over slightly faster growth were great.
And the last week with the situation in Ukraine, and maybe creating a bigger challenge for the fed now.
There's a little bit less certainty to that but.
But generally yes, we do see.
Greater capital consumption.
With some of these new lines of business, including the.
Agricultural finance corporate agriculture line of business and.
So really to tell us consumes more accountable and so when we make these decisions.
I guess, it's fair to say that we make conservative decisions.
But those are some of the factors that go into it.
Right and and then of course, presumably those.
More capital intensive assets would have.
Higher yields I would.
I would say.
And they do and for the first time, you can actually see that in the new line of business reporting that we're providing you.
And then just one last thing.
So you've been investing in some of these new growth initiatives, if if you could sort of.
Grow assets sort of in a mid single digits.
Range.
Do you think over sort of a medium term.
[noise] time horizon that you'd be able to still get some operating leverage off of that in other words.
The expenses would not grow quite as fast as a top line or you.
See yourself being in a prolonged period of investment spending.
I think we can provide some pretty specific commentary John .
We've set for a number of years now that we're going to keep our operating efficiency ratio in the 25, 30% Ranjan last year were just under 29.
We haul to that point, we're not going to let it go higher.
We have been investing in.
People and technology to support new lines of business.
And.
We do have the expectation that within a couple of years, we will see more I guess, you would refer to it as operating efficiency or a leverage coming from this which would result in some decline incremental decline and operating efficiency ratio.
And some acceleration in these lines of business.
Just to take a couple of for example, renewable energy would comment on that developing a network of origination channels that can deliver more volume.
Takes time big a new entrant to the market.
Takes time to capture market available pricing.
Corporate agribusiness you could say the same thing for that developing the capability to participate with other banks and syndicated and club alone deals and to have credibility with them to demonstrate our capabilities and all of our underwriting expertise.
And if you're able to capture market available price and it does take some time, so when you put together.
That reality of entering new lines of business as well as the investment of people and technology that it takes to do it both road pricing standpoint, as well as from operating expense standpoint.
Working out probably two years two to three years, you should start seeing improvements Ah.
Attributable to both.
Okay. Thanks I appreciate it.
XOMA as a roofer murder Prostoon doesn't want to ask a question Paradise question comes from Sloan.
Was inversely and please go ahead.
Hey, all thanks, so much for a great year I'm, hoping that you could help me understand and users of the credit that you are providing sort of in terms of size and scale I know that you've got like charter and board level loan limits from a credit risk perspective.
But I am more wondering like kind of from an impact perspective, how are you, making sure that these partnerships that you're driving are sort of pushing capital into the smaller and perhaps more capital starve corners of the system, where you might have the most acute needs.
I am really happy that you ask that question.
We are a charter and mission driven organization, we are here to improve the available to access a credit to rural America.
And we take that seriously.
Whenever we ride our annual business plans whenever we design our outreach to the financial institutions through which we originally had our business. When we think about how we go to market. When we report to Congress when we refer to a regulator Prime credit administration, when our board evaluates us.
Some of the key metrics that we look at include the percentage of our volume for example for our farm and Ranch program that goes to family Hearts as defined by the USTA that numbers and over 90% today.
Account.
And also by small.
Farmers.
Again as defined by U S D and that number is just over 50% today.
And we're really proud of that we take that seriously because as you point out.
A very large almond grower in California may have access to credit from a couple of different sources. He may have access will insurance company.
Arm credit bank, where.
We're happy to serve.
That <unk>.
Farmer as we're happy to serve all farmers work, we don't discriminate if they're in compliance with the law and credit worthy we are interested in doing business with them.
But we do take we do put special focus on the small family farms, because maybe this year or inferring. They maybe don't have multiple options from.
From commercial banks, maybe from farm credit banks may be from.
Insurance companies and.
The availability of our crowded even if it's on a secondary market purchase basis may be more meaningful to them.
And we know that we pay attention to that and.
I'm really proud of the fact.
That if you look at the growth in our farm and ranch activity over the last three years.
Three or four years ago, we were doing $700 million to $900 million of annual originations.
This year it was two $5 billion so that reflects increased emphasis.
And.
Use of improved use of technology, we have underwriting system called egg expressed that can handle smaller loans very fast and efficiently and probably is.
Used by a large portion not all doesn't have to be used as used by a large portion of small family farm loan recipients as a commercial and financial institutions that serve them. So.
We can point to metrics.
But I also hope that you can hear the passion the excitement of commitment that we have here at primer Mac.
One of those four.
Are those corners of American production agriculture.
Yeah, absolutely that comes through in the in the reporting and all over the place and I'm just sort of curious.
Why there aren't more granola hippie shareholders like myself on your who are out here celebrating this aspect of your.
Kind of effectiveness.
Do you all feel like.
The kind of ESG sustainable investing green bond issuance trend intersects with your business is it going to be.
Like for instance, the.
The secondary market insurance.
Doing.
Tie end of that do you feel like you're being appreciated by the market basically is my my question here.
Bully for this yet.
Yeah, if you're specifically getting to kind of.
S J a sustainable agriculture.
Corner of the Investor market is interesting because when we did the roadshow for the securitization.
In the end of the third quarter that close.
The end of the third quarter beginning of the fourth quarter, we actually had quite a few investors who are really interested in that.
Who are on the call.
We have had some ESG only investors who have been looking at us and starting us for over a year now who are we noted recently invested in farmer Mac in the last quarter and so while our charter our mission focuses on serving American Agriculture Broadway.
And when you really understand what's going on in American agriculture.
And the changes and practices at the farm level that many farmers are choosing.
They may have ganic strategies, there may have low till no tail precision agriculture, which reduces the use of inputs there might be just.
A lot of practice is out there that are very consistent with the kind of stories that those investors are interested in hearing about for us capturing the data on all the loans in our portfolio is a challenge because the secondary market participant we don't naturally have access to all that data.
But we are working to have more access.
And we are very interested in finding more ways of time the story about how we serve all of American agriculture, including those that are going in the direction.
You are talking about.
Also the long distance high five to you and your team. Thanks, so much.
Thank you. Thank you.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the covers back over to normal for any closing remarks.
Hello, Thank you operator, and thank you all for joining us today I hope that's been an affirmative.
That earlier I'm incredibly proud of the team.
And we are very very optimistic about 2022, so get in touch with us if you're a follow up questions and we look we'll look forward to.
Our next call with you and.
What I hope will be continuing.
Upward trajectory or farmer Mac.
Thank you. Thank you.
This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.