Q4 2023 Federal Agricultural Mortgage Corp Earnings Call

[music].

Operator: Good morning, ladies and gentlemen, and welcome to the Farmer Mac fourth quarter and full year 2023 results conference call. At this time, all lines are in listen only mode.

Good morning, ladies and gentlemen, and welcome to the farmer Mac fourth quarter and full year 2023 results conference call. At this time all lines are in listen only mode.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, February 23rd, 2024. I would now like to turn the conference over to Joppa Nazareth. Please go ahead.

Following the presentation, we will conduct a question and answer session.

If at any time during this call you require immediate assistance. Please press star zero for the operator.

This call is being recorded on Friday.

February 'twenty through 'twenty 'twenty four I would now like to turn the conference over to jump in Nazareth. Please go ahead.

Jeltha Nazareth: Good morning, and thank you for joining us for our fourth quarter and full year 2023 earnings conference call. I'm Jeltha Nazareth, Senior 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 risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Farmer Mac's 2023 annual report on Form 10-K filed with the SEC today for a 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 2023 Form 10-K and earnings press release posted on Farmer Mac's website, FarmerMac.com, under the financial information portion of the investor section.

Good morning, and thank you for joining us for our fourth quarter and full year 2023 earnings conference call Zelle for NASA as senior 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.

We prefer to farmer Mac's 2023 annual report on Form 10-K filed with the SEC today for a full discussion of the company's risk factors on.

On today's call. We will also be discussing certain non-GAAP financial measures disclosures and reconciliations of these non-GAAP measure can be found in the 2023 Form 10-K and earnings press release posted on farmer Mac's website farmer Mac Dot com under the financial information portion of the investors section.

Brad Nordholm: Joining us for management this morning is our President and Chief Executive Officer, Brad Nordholm, who will discuss 2023 business and financial highlights and strategic objectives, and Chief Financial Officer Aparna Ramesh, who will provide greater detail on our financial performance. Select members of our management team will also join us to provide additional information on business trends and credit conditions. At this time, I'll turn the call over to President and CEO Brad Nordholm. Brad?

Joining us from management. This morning is our president and Chief Executive Officer, Brian <unk>, who will discuss 2023 business and financial highlights and strategic objectives, and Chief financial officer of corn over Mitch who will provide greater detail on our financial performance select members of our management team will also join us.

To provide additional information on business trends and credit conditions.

At this time I will turn the call over to President and CEO, Brad Burke Bret.

Thanks, John Good morning, everyone and thank you for joining us today.

Brad Nordholm: Thanks, Joppa. Good morning, everyone, and thank you for joining us today. 2023 was a remarkable year for Farmer Mac. We produced double-digit earnings growth and record net effective spread, and we substantially grew business volume, all while maintaining credit quality and holding our efficiency ratio below our target of 30%. Our success continues to be driven by our team's execution of our multi-year strategic plan, disciplined asset and liability management decisions and funding execution, and successful business development efforts which have resulted in the diversification of our revenue stream. Our strong capital base and uninterrupted access to the capital markets support our long-term strategic growth objectives, while also providing a buffer against market volatility and changing credit market conditions. So, let me be a bit more specific.

2023 was a remarkable year for farmer Mac.

We produced double digit earnings growth and record net effective spread and we substantially group business volume, all while maintaining credit quality and holding our efficiency ratio below our target of 30%.

Our success continues to be driven by our team's execution of our multiyear strategic plan.

Disciplined asset liability management decisions and funding execution.

And successful business development efforts, which have resulted in the diversification of our revenue streams.

Our strong capital base and uninterrupted access to the capital markets support our long term strategic growth objectives, while also providing a buffer against market volatility and changing credit market conditions.

So let me be a bit more specific.

Brad Nordholm: In comparison to the prior year, 2022, we concluded 2023 with a 28% growth and that effect the spread to $327 million. A 38% growth in court earnings to $171 million, and a 10% growth in outstanding business volume to $28.5 billion. I believe that it is the combination of our passion for our mission, our expertise, and discipline, coupled with their exceptional access to debt securitization and Consistent Asset Viability Management that enables us to deliver consistently strong financial results. I fervently believe that our passion for our mission, the passion from our employees, our board, our executives, I believe that it really turbocharges our expertise and discipline, and delivers these exceptional results. As you read in this morning's press release, we announced a 27% 30 cents per share increase in our quarterly common stock dividend to $1.40 per share beginning the first quarter of 2024. This reflects the 13th consecutive year that Farmer Mac has increased its quarterly dividends.

In comparison to the prior year 2022.

We concluded 2023 with a 28% growth in net effective spread to $327 million at.

A 38% growth in core earnings to $171 million and a 10% growth in outstanding business volume to $28 5 billion.

I believe that it is the combination of our passion for our mission our expertise and discipline.

With our exceptional access to debt securitization markets.

And consistent asset liability management.

That enables us to deliver consistently strong financial results.

I fervently believe that passion for mission the passion from our employees our board our executives.

I believe that it really turbocharges, our expertise and disciplined.

To deliver these exceptional results.

As you read in this morning's press release, we announced a 27%.

<unk> per share increase in our quarterly common stock dividend to $1 40 per share beginning first quarter of 2024.

This reflects the 13th consecutive year that farmer Mac has increased its quarterly dividend.

Brad Nordholm: We are resolved to increase our dividend on an annual basis with a policy focused on achieving a targeted payout that balances a reasonable growth of both previous and future earnings, along with maintaining an adequate level of capital. 3 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30, support our expectations for our future business volumes. As I've said for a couple of years, diversifying our loan portfolio and serving more of our clearly defined market segment has been a key priority over the last few years. And that diversification is benefiting us by changing the market cycle. In 2023, we've provided a gross $8.3 billion in liquidity and lending capacity to lenders serving rural America, reflecting net year over year outstanding business volume growth of over $2.5 billion. The rural infrastructure line of business grew $1.4 billion, or 21% year-over-year, to $8 billion as of year-end, primarily due to new advantage facilities with existing and new counterparties and growth within the renewable energy and telecommunications sectors. Portfolio

We are resolved to increase our dividend on an annual basis with a policy focused on achieving a targeted payout that balances a reasonable growth of both previous and future earnings along with maintaining an adequate level of capital to exceed our requirements and support our expectations for <unk>.

Future business volume growth.

As I've said for a couple of years diversifying our loan portfolio and serving more of our clearly defined market segments has been a key priority over the last years and that diversification is benefiting us through changing market cycles.

In 2023, we have provided a gross eight 3 billion in liquidity and lending capacity to lenders serving rural America.

Reflecting net year over year outstanding business volume growth of over $2 $5 billion.

Rural infrastructure line of business grew $1 4 billion or 21% year over year to $8 billion as.

As of year end, primarily due to a new vantage facilities with existing and new Counterparties and grosses in the renewable energy and telecommunications portfolios.

Brad Nordholm: The agricultural finance line of business increased 1.2 billion, or 6%, year-over-year to $20.5 billion, primarily driven by the acquisition of approximately $600 million, of Mortgage Servicing Rights for farm and ranch loans held by and serviced for a third party. New Advantage Securities with their long-standing institutional counterparty, and Loan Purchase Growth in Farm and Ranch Corporate Agribusiness. New eight vantage securities in the wholesale financing space were a key driver to overall volume growth in both lines of business, within the space reflects the comparative competitive of Farmer Mac's egg vantage pricing relative to market alternatives. Looking ahead to 2024, we believe, especially given the uncertainty and volatility around the interest rate environment, that Farmer Mac will continue to be viewed as a unique relative value and diversifying funding source for many institutional counterparts, driving exceptional growth in the rural infrastructure line of business, where the renewable energy and telecommunications portfolio, As we predicted on a number of prior calls, our total renewable energy segment more than doubled in size during the year, and our telecommunications portfolio grew nearly 60%. Bureau.

Take a cultural finance line of business increased $1 2 billion or 6% year over year to $20 5 billion.

Primarily driven by the acquisition of approximately $600 million of mortgage servicing rights for farm <unk> ranch loans held by <unk> and serviced for a third party.

New advantaged securities with our long standing institutional Counterparties.

And loan purchase growth and farm and ranch corporate agribusiness.

New vantage securities and the wholesale financing space.

Key driver to overall volume growth in both lines of business.

<unk> demand.

Within this space reflects the comparative competitiveness of farmer, Mac's AG vantage pricing relative to market alternatives.

Looking ahead to 2024, we believe especially given the uncertainty and volatility around the interest rate environment that farmer Mac will continue to be viewed as unique relative value and diversifying funding source for many institutional counterparties.

Driving exceptional growth in our rural infrastructure line of business, whereas the renewable energy and telecommunications portfolios.

As we predicted on a number of prior calls.

Total renewable energy segment more than doubled in size during the year.

And our telecommunications portfolio grew nearly 60% year over year.

Brad Nordholm: Given the strong demand for renewable power generation and storage and the growing investment in fiber and broadband in rural America, we continue to focus on strategic talent acquisition in these two areas to build our expertise and capacity. Veteran Market Opportunities. Our farm and ranch segment modestly increased over the past, primarily because of the higher interest rate environment. However, there was relatively strong activity in the fourth quarter of 2023.

Given the strong demand for renewable power generation and storage and the growing investment in fiber and broadband in Rural America. We continue to focus on strategic talent acquisition in these two areas to build our expertise and capacity as market opportunities arise.

Our farm and ranch segment modestly increase over 2022, primarily because of the higher interest rate environment.

There was relatively strong activity in the fourth quarter of 2023, and the higher demand for farm <unk> Ranch loan purchase product has continued into the first quarter of 2020 for.

Brad Nordholm: And the higher demand for Farmer Ranch loan purchase products has continued into the first quarter of 2024, further reflecting borrower's adjustments to the new rate environment. We are cautiously optimistic about the increase in farmer ranch loan purchase in 2024. Farmers generally have strong cash positions, but we have seen a slower increase in land values versus prior years. And we expect a decline in 2024 farm incomes as input costs remain elevated and commodity prices continue to recede.

Further reflecting borrowers adjustments to the new rate environment.

We are cautiously optimistic about the increase in farm <unk> ranch loan purchases in 2024.

Farmers generally have strong cash positions, but we have seen a slower increase in land values versus the prior years and we expect a decline in 2024 farm incomes as input costs remain elevated and commodity prices continued to recede.

Brad Nordholm: As we previously mentioned, we acquired $600 million of mortgage servicing rights on farm and ranch loans held by and serviced for a third party in the second quarter of 2023. During 2023, we also purchased servicing rights for approximately $700 million of mortgage servicing rights for Farmer Mac loans owned by Farmer Mac. These transactions have enabled us to expand our servicing portfolio for the first time since we added the servicing function in the third quarter of 2021. This capability gives us more direct oversight and governance of our portfolio, enhanced security, more control over timely access to data, and better visibility into loan performance from inception to maturity. Looking ahead, we will seek to continue to capitalize on this initiative to create a more efficient process for our customers and their borrowers and achieve economies of scale with minimal incremental expenses. Another area of significant focus is our farm securitization program. We have closed a $300 million transaction every year for the last three years and expect to be back in the market in the first half of 2024.

As we've previously mentioned, we acquired $600 million of mortgage servicing rights on farm <unk> Ranch loans held by a service for a third party in the second quarter of 2023.

During 2023, we also purchased servicing rights for approximately $700 million.

Mortgage servicing rights for farmer Mac loans.

Owned by Farmer Mac. These.

These transactions have enabled us to expand our servicing portfolio for the first time since we added the servicing function in the third quarter of 2021.

This capability gives us more direct oversight and governance of our portfolio enhanced security more control over timely access to data and better visibility into long performance from inception to maturity.

Looking ahead, we will seek to continue to capitalize on this initiative.

A more efficient process for our customers.

And their borrowers and achieve economies of scale with minimal incremental expense.

Another area of significant focus is our farm securitization program.

We have closed a $300 million transaction every year for the last three years and expect to be back in the market in the first half of 2024.

Brad Nordholm: We're committed to being a regular issuer in the market with a set of securitization products in line with customer power and investor interests. Developing this capital flow to agricultural producers exemplifies Farmer Mac's core mission, lower costs for the end borrower and improve credit availability in rural America by also creating an underlying agricultural investment opportunity in the Capitol. Looking ahead to 2024, we will strive to continue to be a source of reliable capital for stakeholders as we navigate the ongoing uncertainty in the broader market. We want to step in where we can to be a partner to our customers and more effectively fulfill our role as a secondary market provider of low-cost liquidity and capital efficiency. The ultimate goal of strengthening the rural economy is

We're committed to being a regular issuer in the market with a set of securitization products to align with customer.

Sure and Investor interest.

Developing this capital flow to agricultural producers.

Amplifiers farmer Macs core mission to lower cost for the empower and route improved credit availability in Rural America.

Also creating an underlying agricultural investment opportunity in the capital markets.

Looking ahead to 2024, we will strive to continue to be a source of reliable capital for our stakeholders as we navigate the ongoing uncertainty in the broader markets.

We want to step in where we can to be a partner to our customers and more effectively fulfill our role as a secondary market provider of low cost liquidity and capital efficiency with the ultimate goal of strengthening the real economy.

Brad Nordholm: On prior calls, I've talked about an expansion of our approach to marketing and branding. You will soon begin seeing our efforts to use branding. This is a compelling and uniform way to support the expansion of our mission-driven work, which helps build a strong and vital rural America.

On prior calls I've talked about an expansion of our approach to marketing and branding.

Farmer Mac you assume we began seeing our efforts to use branding to deepen our connection with our stakeholders and a compelling and uniform way to support the expansion of our mission driven work.

It helps to build a strong and vital Rural America.

Brad Nordholm: The Initiative is intended to highlight our distinctive position. The Secondary Market Partner fosters greater connections between Wall Street and Main Street America, as well as across the entire value chain. In no small part, the fuel for that growth also comes from our active creation of more investment opportunities for the capital market, which has very strong access to CAP. A significant competitive advantage for us is our people and their interwoven connection of mission, expertise, and discipline. I don't believe you can separate those attributes and how they're committed to accelerate opportunity for Rural America to recognize their contributions. Thank you, and even more fully align these attributes. We have continued to enhance our benefit offerings to include all employees in an equity for all program to make them eligible to receive annual grants of equity-based compensation. I'm extremely proud of our team and all they've accomplished.

The initiative is intended to highlight our distinctive position.

It's a secondary market partner.

Astor's greater connections between Wall Street.

And main Street America, as well as across the entire value chain.

Fuel growth innovation, and prosperity and Americas rural and agricultural communities.

In no small part the fuel for that growth also comes from our active creation of more investment opportunities for the capital markets and strong access to capital.

A significant competitive advantage for us is our people.

And there are interwoven collection of mission expertise and discipline I don't believe you can separate separate those attributes.

And how they are committed to accelerate opportunities for rural America.

We recognize their contributions and even more fully align these attributes we have continued to enhance our benefit offerings to include all employees.

And in equity for all program to make them eligible to receive annual grants of equity based compensation.

I'm extremely proud of our team and all they have accomplished.

Aparna Ramesh: 2020. Now I'd like to turn over the call to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail. Thank you, Brad, and good morning everyone. 2023 was an exceptional year for Farmer Mac. Results were strong across the board, highlighting a balanced, well-measured approach, excellent credit quality, and resiliency through market size. Our performance in the fourth quarter of 2023 enabled us to finish the year with very strong momentum. Net volume growth in the fourth quarter of 2023 was $819 million, and this was primarily driven by new advantage security volumes in the rural utilities and farm and ranch segments and strong loan purchase volumes across the farm and ranch, renewable energy, and rural utility sectors. As Brad mentioned, the improvement in farm and ranch loan purchase volume in the fourth quarter has created positive momentum heading into 2020. Turning to results, core earnings were $44.9 million of $4.10 per share in the fourth quarter of 2023 and $171.2 million of $15.65 per share in 2023.

In 2023.

Now I'd like to turn over the call to a partner of Amish are chief financial officer to discuss our financial results in more detail.

Thank you Brad and good morning, everyone. Thank.

Thank you 23 was an exceptional year for farmer Mac.

Results were strong across the board highlighted.

Well measured approach excellent credit quality and resiliency through market cycles.

Our performance in fourth quarter 2023 enables us to finish the yields are very strong momentum.

Volume growth in fourth quarter, 2023, with $819 million and at this time that will be driven by new advantaged securities volume in the rural utilities and farm and ranch segment and strong loan purchase volume across the ranch.

Energy and utilities segment.

As Brad mentioned the improvement in farm <unk> Ranch loan purchase volume in the fourth quarter has created positive momentum heading into 2000. Thank you Paul.

Turning to results.

Core earnings were $44 9 million.

And Tencent.

In fourth quarter, 2022, and $171 2 million.

$15 65 per share.

Thank you Qi and this reflects double digit year, it will be a growth, which was largely driven by record net effective spread of $84 $6 million in fourth quarter, 2023 and $337 million.

Aparna Ramesh: And this reflects double-digit year-over-year growth, which was largely driven by a record net effective spread of $84.6 million in the fourth quarter of 2023 and $327 million for the entire year. The year-over-year 16 basis point improvement and spread to 118 basis points of NES, as of year-end, was primarily driven by our low-cost, excess capital, our debt-funding strategies, and previous low-rate environments, and our ability to redeploy both the excess capital and the lower cost into higher earnings. This advantage is further enhanced by the continued trend towards higher spread volume that is evident in our new segments like renewable energy and corporate advertising. The capital that we raised opportunistically when raising for its historical load in 2020 and 2021 has reduced the need for us to raise more expensive terms and callable debts in the current rising rate environment. We continue to defensively hold approximately $900 million in cash and other short-term instruments in our liquidity portfolio.

For the entire year.

The year it will be a 16 basis point improvement in spread to 118 basis points and yet as of year end was primarily driven by our low cost access capital our debt funding strategy.

And volume.

With me to redeploy excess capital.

The lower cost of funds into higher earning assets.

This advantage was further enhanced by the continued trend towards high volume that is evident in our new segments like renewable energy and corporate and connect.

The capital that Gilead Opportunistically, when we were at historical lows in 2020 and 2021.

We used the need for us to raise more expensive, Tom and callable debt and the current rising rate environment.

We continue to defensively hold approximately $900 million in cash and other short term instruments in our liquidity portfolio.

Aparna Ramesh: Not only does this help us weather potential market disruptions, but our excess and highly liquid capital generates immediate returns in a high nominal rate environment. While the rise in short-term rates has provided a benefit to earnings, we project limited downside to earnings if rates decline in the future, and this is due to a proactive equity capital allocation strategy where we're laddering and layering durations to minimize balance sheet and earnings volatility. Specifically, we expect to retain some of this benefit over the medium term, even if rates decline. And to that end, we have started extending maturities in our investment portfolio. Despite the macro headwinds, we continue to see strong access to debt capital markets and a general flight to quality investment, which allows us to be very well-positioned to find new asset opportunities as they arise. Our liquidity and capital position continue to remain well in excess of all regulatory ratios, and our projections show minimal change in our profitability and limited exposure to movement in interest rates for the market, maintain a monthly average of 307 days of liquidity to 2023 and had Turning to operating expenses, our operating expenses increased by 19% year-over-year due to increased headcount, increased stock concentrations, and increased spending on software licenses and information technology initiatives, which included consultants to support growth and strategic initiatives.

Only does this help us whether potential market disruption our expert in highly liquid capital.

And you guys have done in a high number will be.

While the rise in short term rates has provided a benefit to earnings we project limited downside to earnings.

Decline in the future and this is due to our proactive equity capital allocation strategy, where with laundry and leering duration to minimize balance sheet and earnings volatility.

Specifically, we expect to retain them.

Tom.

Over the medium term, even if rates decline.

To that end, we started extending the Cherokee.

Investment portfolio.

Despite the macro headwinds we continue to see strong.

<unk> access to debt capital markets and <unk>.

Under a flight to quality investment.

Which allows us to be very well positioned to fund new asset opportunities.

Our liquidity and capital position.

<unk> remained well in excess of all regulatory issue and all projections show minimal change in our profitability and limited exposure to movements in interest rates for the market projected to go up or down.

Mac maintain in monthly average of 370 of liquidity.

Through 2023 and had 319 days as of December 31, 2022.

And these numbers reflect resiliency against short and medium term market disruption.

Turning to operating expenses.

Our operating expenses increased by 19% year over year due to increased head count.

Stock compensation.

Spending on software licenses and information technology initiatives.

Included consultant disciplined growth and strategic initiatives.

Aparna Ramesh: We concluded 2023 with 185 employees. Expenditures associated with a multi-year technology investment, which we've discussed before, in our treasury and cash management systems, are being executed against to enhance our trading, hedging, and reporting platform. And this initiative has contributed significantly to the year-over-year increase in experience. This modernization effort is expected to position us to more effectively defend against cyber and fraud threats and also allow us to scale our portfolio and diversify our product offerings, in alignment with our business and funding strategy. We also plan to continue to make investments in strategic focus areas such as renewable energy and be strong revenue contributors in 2023 and to continue to modernize our infrastructure, including our servicing and loan platforms, to support our growth and strategic objectives. Despite the substantial increase in our expenses year-over-year, operating efficiency held at 27% at year-end.

We concluded 2023 with 185 employees.

Expenditures associated with our multiyear technology investment, which we've discussed before in our Treasury and cash management system.

We executed again to enhance our trading hedging and reporting platform.

This initiative has contributed significantly to the year over year increase in expenses.

This modernization effort is expected to position us to more effectively defend against cyber and fraud threat and also allow us to scale, our portfolio and diversify our product offerings that are in alignment with our business and funding strategy.

We also plan to continue to make investments and strategic focus areas such as renewable energy and these are strong revenue contributors in 2023.

To continue to modernize our infrastructure, including our servicing and loan platform.

Our growth and strategic objectives.

Despite the substantial increase in our expenses year over year operating efficiency held at 27% at year end and this is below our long term strategic plan target of 30%.

Aparna Ramesh: And this is below our long-term strategic plan target of 30%. This result is a testament to our creative revenue strategy, as well as a substantial reduction in our cost of farming, driven by a disciplined approach to raising capital and managing Taoist equality. We'll continue to monitor our efficiency ratio and manage it such that we expect it to remain at or below the long-run average of 30%. However, as we make investments in our loan infrastructure and funding platforms and continue to innovate our loan processes using technology to accelerate growth, we may see some century increases that could result in the efficiency ratio rising about 30%. Our credit profile continues to be very strong, in aggregate, despite the economic headwinds. A 90-day delinquency worth $35 million for 12 days to point to our entire portfolio, and this reflects a decrease both sequentially and year-over-year.

This result is a testament.

<unk> revenue strategy.

As well as a substantial reduction in our cost of funds.

Driven by our disciplined approach to raising capital and managing volatility.

Volatility.

We will continue to monitor our efficiency ratio and manages such that we expect to remain at or below the long run average of 30%. However, as we make investments in our loan infrastructure and funding platform and continue to innovate our loan processes using technology to accelerate growth we may see some center.

Increases that could result in the efficiency ratio rising above the 30% level.

Our credit profile continues to be very strong.

Despite the economic headwinds.

90 day delinquencies were $35 million.

So 12 basis points of our entire portfolio and this reflects a decrease both sequentially and year over year.

Aparna Ramesh: As of December 31, 2023, the total allowance for losses was $18.3 million, and this reflects a $1.1 million provision compared to year-end 2022, and this is primarily due to a single telecommunications loan that was downgraded to substandard during the year. The provision was partially offset by a release related to a single collateral-dependent agricultural storage and processing loan that was fully paid off during the year. We ended the year with no charge.

December 31, 2023, the total allowance for losses was $18 3 million.

This reflects a $1 1 million provision compared to year end 2022, and this is primarily due to a single telecommunications loan that was downgraded to substandard during the year.

The provision was partially offset by relief related to a single collateral dependent agricultural storage and processing loan that fully paid off during the year.

We ended the year with no charge offs.

Aparna Ramesh: Let's turn now to chat. $1.5 billion of core capital as of December 31st, 2023, exceeded our statutory requirement by $589 million, or 68%. Co-capital increased from year-end 2022, primarily due to an increase in retail debt, which reflects a substantial improvement in both the quantity and the quality of our capital. This is reflected in our Tier 1 Capital Ratio, which improved to 15.4%. Our consistent earnings strongly support the $0.30 per share increase in our quarterly common stock dividend.

Let's turn now to capital.

On the $1 $5 billion of core practical as of December 31, 2023 exceeded our statutory requirement by <unk>.

$589 million.

8%.

<unk> capital increased from year end 2022, primarily due to an increase in retained earnings which reflect a substantial improvement in both the quantity and the quality of our capital.

And this is reflected in our tier one capital ratio, which improved to 15, 4%.

A consistent omni strongly support the 30 <unk> per share increase in our quarterly common stock dividend and <unk>.

Aparna Ramesh: And we are very pleased that we can offer this return to our shareholders while maintaining strong capital ratios to defend our values and also fuelling our group. We will continue to invest significant resources to enhance our infrastructure and engage with our customers and investors to support a robust and liquid market for our farm securitization. Security patients have many beneficial aspects of farming.

We're very pleased that we can offer this return to our shareholders, while maintaining strong capital ratios to defend our balance sheet and also fueling our growth objectives.

We will continue to invest significant resources.

Enhance our infrastructure and engage with our customers and investor to support a robust and liquid market for our farm securitization product.

The integration has many beneficial aspects will follow.

Aparna Ramesh: It allows us to diversify our funding, enhance and optimize our balance sheet through the efficient deployment of capital, and it can enable our growth strategy by targeting new asset opportunities in our economy. While we are closely monitoring a changing market dynamic, we fully expect to return to the market in the first half of 2024 with another similar farm securitization transaction, like the previous three contacts. As we assess our strategic objectives for the program, we plan to transform what has been a financing strategy to start to offer this as a vehicle for capital efficiency and growth for our farmers. So, in summary, our entire team delivered exceptionally good quarterly results while fulfilling several important strategic and revenue objectives.

It allows us to diversify our funding enhance and optimize our balance sheet through the efficient deployment of capital I'm, assuming knievel, our growth strategy by targeting new asset opportunity into a conduit.

While we are closely monitoring the changing market dynamic we fully expect to return to the market in the first half of 2024 with another similar Tom securitization transaction.

Three transactions.

As we assess our strategic objective for the program we plan to transform what has been a financing strategy to start to also this as a vehicle for capital efficiency and growth for our counterparty.

So in summary.

<unk> delivered exceptionally good quarterly results while fulfilling.

Several important strategic and revenue objective.

Aparna Ramesh: We deliver on our key metrics that we report to you on each call. We have record core earnings and continue strong credit performance. And all of this resulted in a 19% return on equity while holding the efficiency ratio below 30%.

We deliver on a key metric that we report to you on each call. We had record core earnings and continued strong credit performance and all of this resulted in a 19% return on equity.

While holding the efficiency ratio below a 30% target.

Brad Nordholm: As the interest rate environment moderates, we remain optimistic that the natural hedges within our business and balance sheet should allow for a more sustainable long-run average in net effect. Looking ahead to 2024, we remain well-positioned and more optimistic than ever to deliver on a long-term strategic plan. And with that, Brad, let me turn it back over to you. Thank you, Aparna.

As the interest rate environment moderate we remain optimistic that the natural hedges within our business and balance sheet should allow for a more sustainable long run average in net effective spread.

Looking ahead to 2024, we remain well positioned and more optimistic than ever to deliver on our long term strategic plan objectives.

Brad Let me turn it back to you.

Thank you Arnaud we are extremely proud of our financial results for 2023.

Operator: We are extremely proud of our financial results for 2023. As Aparna was saying, we believe that we are well positioned heading into 2024 with strong liquidity and capital levels, a diversified business mix, highly effective risk management practices, and an expanded team of dedicated professionals. We're very optimistic about the future, and we'll maintain our singular focus on fulfilling our mission efficiently and innovatively as we navigate the backdrop of broader market uncertainty attributable to interest rates, regulation, and policy changes. This is how we believe we can continue to differentiate ourselves and deliver value to our customers and end borrowers in rural America. And now, operator, I'd like to see if we have any questions from anyone on the line with us today. Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star followed by the number on your touchtone phone.

As the part I'm, saying, we believe that we're well positioned heading into 2024 with strong liquidity and capital levels and a diversified business mix highly effective risk management practices and an expanded team of dedicated professionals.

We're very optimistic about the future and we will maintain our singular focus on fulfilling our mission efficiently and innovative fleet as we navigate the box backdrops.

Broader market uncertainty.

Attributable to interest rates regulation and policy change.

This is how we believe we can continue to differentiate ourselves and deliver value to our customers and borrowers in rural America.

And now operator, I'd like to see if we have any questions from anyone on the line with us today.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone, you'll hear a prompt thank you Johan.

Operator: You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any.

Your hand husband lease should you wish to decline from the polling process. Please press star followed by the two you say you are using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.

Operator: One moment, please, for your first question. Your first question comes from Bill Ryan with Seaport Research. Please go ahead.

Your first question comes from Bill Ryan with Seaport Research. Please go ahead.

William Ryan: Good morning and congratulations on your 2023 results. Question on the margin, specifically the net effect of the spread on renewable energy and utilities. Both improved quarter over quarter renewable energy quite a bit. I believe, Brad, last quarter you talked about maybe some pricing strategies that were being implemented to maybe enhance some of the yields. Could you talk about what the drivers of the margin in the quarter were, or the NES in those two business lines? Hey Bill, good morning. And yeah, thanks very much. We also have Zach Carpenter on, so I'm going to ask Zach to provide you with a little additional color.

Good morning, and congratulations on your 2023 results.

Question on the margin specifically, the net effect of spread on renewable energy and utilities.

Both improved.

Quarter over quarter renewable energy quite a bit.

I believe Brad last quarter, you talked about maybe some pricing strategies that were being implemented to maybe enhance the yields could you talk about what the drivers of the margin in the quarter was <unk> in those two business lines.

Hey, Bill good morning, yes.

Yes, thanks very much.

We also have Zack carpenter on some debt.

To provide you with a little additional color, but I believe on prior calls I talked about how over the last few years we have.

Brad Nordholm: But I believe on prior calls, I talked about how over the last few years, we have really tried to move our pricing from being pricing that really achieved the lowest acceptable threshold from Farmer Mac to pricing that reflects more of the market, and that's resulted in more variation between business segments and also within deals within the business segments. So that's a part of it. We also are becoming better established in the markets and have a growing reputation among market players, which allows them to see us as a premium player, and that puts us in a position of a bit better negotiating position as well. But let me turn to Zach to really kind of flush this out for you in more detail. Yeah, happy to do so, Brad.

Really tried to move our pricing from being pricing.

Really achieved the lowest.

Acceptable threshold from farmer Mac to pricing that reflect more of the market.

And that's resulted in more variation between business segments and also.

With within deals within the business segments. So that's part of it.

We also are becoming better established.

In the markets and house.

Our growing reputation among market players, which allows them to see us as a premium player and that.

That puts us in a position.

A bit better negotiating position as well.

Turning to <unk>.

Really kind of flush this out for you in more detail.

Yeah happy to Brad and Thanks Bill.

Zach Carpenter: And thanks, Bill. You know, Brad touched on most of the key attributes; I'd highlight three main things, you know, focused on real utilities. Just remember, the telecommunications portfolio is included in that segment, but that sector by itself has a much higher net effective spread, just given the risk profile of those transactions. And again, in that space, we're really focused on pricing to market and making sure that the transactions that we're bringing on board reflect the risk that we have in those. I think the second is more of a market construct in terms of the volatility we've seen.

Brad touched on most of the key attributes I'd highlight three main things.

Focused on rural utilities, just remember the telecommunications portfolio is included in that segment.

That sector by itself has much higher net effective spread just given the risk profile of those.

Transactions.

And again in that space, we're really focused on pricing to market and making sure that the transactions that were bringing on board.

<unk> reflect the risks out there that we havent knows I'd say the second is more of a market.

Construct in terms of the volatility we've seen what that created in 2023 was kind of a widening of credit spreads across.

Zach Carpenter: What that created in 2023 was kind of a widening of credit spreads across, I think, most sectors of Farmer Mac. And so as we execute in all three of the spaces, portfolios, telco, real utilities, renewable energy, we saw a widening of credit spreads in 2023, which also resulted in an increase in net effective spread. And the last thing I would know is just specifically focused on renewable energy.

I think most sectors of farmer Mac and so as we execute in all three of those spaces portfolio is telco rural utilities and renewable energy, we saw widening of credit spreads in 2023, which also resulted in an increase in net effective spread and the last thing I would note is just specifically focus to renewable energy.

Zach Carpenter: You know, our primary target and focus is really on those middle market type transactions and not necessarily the largest transactions in the market. And that by itself has focused us more on, I think, more accretive net effective spreads than some of the other transactions. So I think the combination of those three things is really what caused an accretive net effective spread in the rural infrastructure space.

Our primary target and focus is really in that middle market type transactions and not necessarily that the.

The largest.

Transactions in the market and that by itself has focused us more on I'd say more accretive net effective spreads than some of the other transactions. So I think.

The combination of those three things is really what caused an accretive net effective spread in the rural infrastructure space.

Okay wonderful.

Brad Nordholm: One follow-up is also related to the net effect of spread, but in terms of portfolio repricing, we've obviously been in a fairly stable interest rate environment. I think last quarter, everybody was expecting a more dramatic reduction in market interest rates, and we talked about the overall margin maybe being a little bit under pressure, but kind of where we're at right now, it doesn't look like rates are going to go down nearly as much, and the portfolio continues to reprice. Are we kind of looking more, you know, let's just say everything held constant at a stable type NES, you know, not adjusted for mix or anything, or with ongoing repricing of the existing portfolio, is there some potential upside to the core margin? Well, from an asset liability management point of view, the asset liability side is quite well matched. And so, unlike banks, when we have a movement in rates, for example, an increase in deposit costs, it doesn't put pressure on us.

Follow up also related to the net effect of spread but in terms of portfolio re pricing.

We've obviously been in a fairly stable interest rate environment, I think last quarter, everybody was expecting a more dramatic reduction in market interest rates.

We talked about the overall margin, maybe being a little bit under pressure, but.

Kind of where we're at right now.

It doesn't look like rates are going to go down nearly as much in the portfolio continues to reprice.

Are we kind of looking more let's just say everything held constant at the stable type.

Yes.

Not adjusted for mix or anything or with ongoing repricing of the existing portfolio is there some potential upside to the core margin.

Well from an asset liability management.

The asset liability side are quite well matched and so unlike banks.

One way of movement in rates for example increase in deposit costs.

Doesn't put.

Pressure on us.

Brad Nordholm: But in terms of the repricing of the existing portfolio, that really goes to a prepayment question. Zach, why don't you provide some insight into what's happening with our prepayments, as well as the new origination opportunity? Yeah, absolutely.

But in terms of the repricing of the existing portfolio that really goes to a prepayment question. Jack why don't you provide some insight into what's happening with our prepayments.

As well as the.

Richard.

Asian opportunity.

Yes, absolutely.

Zach Carpenter: You know, specifically in the farm and ranch segment, rates still remain high compared to the last 10 to 15 years. So our prepayments have remained historically low, and we continue to expect that to take place, at least for the foreseeable future, in 2024. You know, that does tend to suggest that spreads will be relatively stable in the farm and ranch line of business. The only other thing I would highlight, and this, you know, directly goes on the asset side of the book as it pertains to net effective spread, is that we have seen a pretty significant tightening of credit spreads across the spectrum heading into 2024.

Specifically in the farm <unk> Ranch segment rates still remain high comparatively to the last 10 to 15 years. So our prepayments have remained historically low and we continue to expect that to take place at least for the foreseeable future into 2024.

Thus the new volume that we bring on is not making up for lost refinancing volume.

And that would let tend us to think that spreads will be relatively stable in the farm <unk> ranch or line of business. The only other thing I would highlight in this directly goes on the asset side of the book as it pertains to net effective spread as we have seen a pretty significant tightening of credit spreads across the spectrum heading into 2000.

<unk> 24, and so as we look at kind of our other products and segments, we will take that into consideration.

Zach Carpenter: And so as we look at kind of our other products and segments, we'll take that into consideration as we look to deploy more capital. But you know, again, the volatility in the market kind of moved the other way, starting in 2024. And that could impact certain refinancing activity in some of the other segments, but in our core farm and ranch and corporate ag segments, I think we're pretty confident that it's going to be relatively stable, at least for the foreseeable future. Okay, thanks for taking my question. Your next question comes from Boze George with KBW. Please go ahead. Everyone, good morning.

As we look to deploy more capital, but again the volatility in the market kind of moves the other way I'm starting in 2024, and so that that could impact certain refinancing activity at some of the other segments, but in our core farm and ranch and corporate AG segment, I think we're pretty confident that it's going to be relatively stable at least for the foreseeable future.

Okay. Thanks for taking my questions.

Your next.

Next question comes from Bose, George with <unk>. Please go ahead.

Hey, everyone. Good morning.

Boze George: Just wanted to follow up on the spread question. If the Fed does cut rates in the back half of the year, is the impact mainly on the Treasury function just, you know, with your cash there, and in terms of the hedges that you discussed, is that really going to offset the impact, you know, on that part of the liability structure? Yeah, I think we've commented on that both before and good morning.

Wanted to follow up on the spread question.

If the fed does cut rates in the back half of the year is the impact mainly on the treasury function just with your cash there and then in terms of the hedges that you discussed is it really kind of to offset the impact on that part of the of the liability structure.

Yes, I think we've commented up both on the and good morning, I think we've commented on the relative stability of spreads around our loan portfolio. So part of why don't you.

Brad Nordholm: I think we've commented on the relative stability of spreads around our loan portfolios. So partner, why don't you, since we do carry a very large investment in liquidity portfolios, why don't you provide some insight into how rates would impact that? Yeah, absolutely. And good morning, everyone.

Since we do carry a very large investment liquidity portfolios why don't you provide some insight into how rates would impact that.

Yeah, absolutely and good morning, everyone.

Aparna Ramesh: Thank you both for your questions. Let me just comment on that briefly. You know, as we've highlighted, we manage our books such that we have little to minimal volatility, whether rates go up or down. More specifically, as you think about our investment portfolio, something that we've started to do and we actually put in place in the fourth quarter of last year is what I would call a laddering strategy with respect to our duration. So what that really means is that as we look at this $1 billion plus of what I would call relatively short-term investments, essentially sitting in overnight money, which has been very, very accretive, we've taken aspects or portions of those and really, very systematically extended them over a two-, three-, five-year horizon. And what that will have the effect of doing is, in the short run, if the Fed were to continue to raise rates, we'd be giving up that incremental spread that we would have gotten if we hadn't actually extended out.

Thank you both.

Your question.

Let me just comment on that briefly as we've highlighted we manage our book such that we have.

Little to minimal.

Volatility whether rates go up or down more specifically as you think about our investment portfolio is something that we've started to do and we actually put in place in the fourth quarter of last year is what I would call elaborating strategy with respect to what duration.

So what that really means is that as we look at.

This 1 billion plus of what I would call relatively short.

Investments essentially sitting in overnight money, which has been very very accretive we've taken aspects of portions of those and really very systematically extended then over a 235 year horizon.

And what that will have the effect of doing is in the short run if the fed were to continue to raise rates, we'd be giving up that incremental spread that we would have gotten if we hadn't actually extended out.

Aparna Ramesh: But what it does is it positions us extremely well, as you noted in the back half of the year, where there is anticipation that the Fed might start to lower interest rates. It's going to keep us at a point that is going to be quite steady. And what that means is that it will not create a dramatic amount of volatility in our net effective spread, and it will actually lock in a lot of the benefits that we have seen over 2023 that have come from having raised extremely accretive capital at very low interest rate environments that have continued to reprice. We've essentially locked in a vast amount of those benefits by extending our duration in what we call an equity allocation strategy.

What it does do is it positions us extremely well.

As you noted in the back half of the year.

Where there is an anticipation that the fed might start to lower interest rates, it's going to keep us at a point that is quite going to be quite steady and what that means is that it will not create a dramatic amount of volatility in our net effective spread.

And it will actually lock in a lot of the benefits that we have seen over 2023 that has come from having received extremely.

<unk> capital at very low interest rate environments that have continued to reprice, we've essentially locked in a vast amount of those benefits by extending our duration and what they.

Carl and equity allocation strategy, so I hope that helps.

Aparna Ramesh: So I hope that helps, but we don't anticipate seeing any volatility or minimal volatility as a result of a repricing down of interest rates as it relates to our liability side of the house. And then you heard from Zak just in terms of how we plan to manage our asset side of the house, but these are some of the natural hedges that we have within our business model where we tend to benefit, and we try to manage our volatility whether interest rates go up or down. Okay, great. That's helpful. Thanks.

We don't anticipate to see any volatility.

More volatility as a result of a repricing down of interest rates as it pertains to our liability side of the house and then you have some docs just in terms of how we plan to manage our asset side of the house, but these are some of the natural hedges that we have within our business model.

Yes.

We tend to benefit.

We tried to manage our volatility whether interest rates go up or down.

Okay. Great. That's helpful. Thanks, and then can you just talk about the possibility or the outlook for generating volume some of the other farm credit system banks that you're you don't work with are you less active with at the moment.

Brad Nordholm: And then can you just talk about the possibility or the outlook for generating volumes for some of the other farm credit system banks that you don't work with, or you're less active with at the moment? Sure. I think we've previously mentioned that our relationship with Farm Credit System banks and associations is very important here at Farmer. We have remarkably common missions.

Okay.

Sure I think we've previously mentioned that.

Our relationship with farm credit system banks and associations is very important here at farmer.

We have remarkably common missions.

Brad Nordholm: And we are already doing business with a couple of banks and a number of associations. I'll turn to Zach to give you more color on our outreach, but this remains an area of high focus, and our expectation is that over the next couple of years, we will find new ways of doing more types of business with more farm credit associations and banks. But Zach, maybe you could offer some specifics on where we are with standardized testing, for example. Yeah, absolutely. The focus on our relationship to the farm credit system is very strong right now.

And we are already doing business with.

A couple of the banks in a number of associations.

I'll turn to Zack that give you more color on on our outreach.

But it remains an area of high focus and.

Our expectation is that over the next couple of years, we will find new ways of doing more types of business with more farm credit associations for banks.

Maybe you could offer some some specifics on where we are with Stan.

Stand by for example, and.

Purchase participations.

Yes, absolutely the focus on our relationship with farm credit system is very strong right now.

Zach Carpenter: We're engaging across many different banks and associations. About 90% of our purchase commitment, a long-term standby purchase commitment product, is supporting the system, and we'll continue to invest in that product as certain institutions find a hold or concentration limits. You know, the one thing I would highlight, a lot of the transaction growth specifically in corporate ad finance telecommunications is in conjunction with farm credit system institutions. We're either partnering in transactions where a farm credit entity has included Farmer Mac as a secondary market. Our telecommunications portfolio is predominantly in the primary space done with Cobank, one of the largest entities in the system.

We are indeed gene across many different banks and associations.

About 90% of our purchase commitment long term standby purchase commitment product is supporting the system and we'll continue to invest in that product has a certain institutions find a holder concentration limits you know the one thing I would highlight.

A lot of the transaction growth specifically in corporate acts enhanced telecommunications is in conjunction with farm credit system institutions, where either partnering in transactions, where a farm credit entity has included farmer Mac a secondary market our telecommunications portfolio.

Is predominantly in.

In the primary space done with co bank, one of the largest entities in the system.

Zach Carpenter: We continue to invest in outreach across the system, both with banks and associations. And so we're very happy with where we've evolved in our relationship with the system. And frankly, given the growth and focus we have in some of our new areas of new portfolios, we believe we'll have more opportunities to support the system in 2024 and beyond. Okay, great. Thanks very much.

We continue to invest in outreach across the system, but what with banks and associations and so we're very happy with where we have evolved in our relationship with our system and frankly, given the growth and focus we have in some of our new areas or new portfolios. We believe we'll have more opportunities to support the system in 2020.

Four and beyond.

Okay, great. Thanks very much.

Gary Gordon: Your next question comes from Gary Gordon. Please go ahead. Thank you. Two questions, one small one, focused on the utilities margin. It's about 40 basis points, well below your other... Why is it so low, or, you know, why is it... Price, etc. Thank you.

Your next question comes from Gary Gordon.

Please go ahead.

You.

Two questions one a small one in Utah.

Focused on the utilities margin in this release.

And it's about 40 basis points well below your other business units.

Why why is it so low or why isn't this business repriced or there are other benefits that I'm missing.

Brad Nordholm: Yeah, hey Gary, thank you for joining us today. A couple of things. One is that it's true that the way we measure that margin associated with that portfolio does show a small level. But keep in mind a couple of things.

Yeah, Hey, Gary.

Thank you for joining us today.

A couple of things one is that.

Yeah.

It's true that the way we measure that.

Margin associated with that portfolio does show.

A small level, but keep in mind, a couple of things one.

Brad Nordholm: Many of the borrowers in that portfolio are investment grade, and some of them are even high investment grade. So we are pricing appropriately, but we believe also to keep in mind. If you look at kind of where that's been trending over the last couple of years, it's been trending in a positive direction. It started even lower.

Many of the borrowers in that portfolio are investment grade and some of them are even high investment grade.

So we are a.

Pricing appropriately we believe.

Also keep in mind.

If you look at kind of where that's been trending over the last couple of years, it's been trending in a positive direction. It started even lower and so some of the efforts that we mentioned at the beginning of the call to price more to market as an example.

Brad Nordholm: And so some of the efforts that we mentioned at the beginning of the call to price more to market as an example are reflected even in that 40 basis point. And third, those that are the lowest margin are absolutely essential parts of the infrastructure of rural America. At the end of the day, the rural electric cooperatives are owned by farmers and rural Americans. They generate and transmit electricity owned by rural electric associations.

Our reflected even in that 40 basis points.

And third.

Those.

That are the lowest margin are absolutely essential parts of the infrastructure of Rural America.

At the end of the day at the rural electric cooperatives or owned by farmers and rural.

Rural Americans, the generating transmission electric cooperatives on bi.

Electric associations.

Brad Nordholm: It becomes very, very mission-centric for us to help them, and whether we're helping them through a market-priced farm and ranch loan purchase or helping them through a market-priced rural utility, rural electric cooperative loan purchase, the benefit is ending up in the same place. The final point I'd make about that is that when you think about that portfolio, we've had no charges; we've actually had no delinquency And that's also reflective of the fact that the capital consumption, the equity capital consumption for that portfolio is actually very low. So when we do adjust for a return on capital, those numbers actually look pretty good. Pretty good,

It becomes very very mission centric for us to help them and whether we're helping them through.

Market priced farm and ranch loan purchase or helping them through a market priced.

Rural utility rural electric cooperative loan purchase.

The benefit is ending up in the same place but.

The final point I'd make about that is that when.

When you think about that portfolio, we've had no charge offs with actually had no delinquencies ever.

And that's also reflective of the fact that the.

The capital consumption the equity capital consumption for that portfolio is actually very low.

So when we do adjust for a return on.

On capital.

Those numbers look actually pretty good.

Okay. Good.

Brad Nordholm: Second question is on to the implications of this large dividend increase. Thank you. So, we talked about a 35% payout. There was a 5.60 divot in him.

Second question is on sort of the implications of this a large dividend increase by the way. Thank you very much.

So you talked about a 35% payout.

Long run.

So it was $5 60 dividend implies $16 in earnings.

Brad Nordholm: $15.00. You're not getting to 65 $15.00 in earnings with Thank you for joining us. We appreciate it. It's safe to assume that, mailman.

Now you are not getting to 65.

$16 in earnings with.

Your traditional.

Target for your spread which is about 95 basis points.

Is it safe to assume that what you would consider your normal or let's say for the foreseeable future spread that it's.

Reasonable to talk about a materially higher number.

Brad Nordholm: Yeah, I mean, we're not going to provide content on that, but a couple of comments. One is that that 95 basis point NES is a part of that highlighted in talking about pricing pressures and asset liability management strategies. Over the next one to two-year horizon, we don't think we're going to see that 95 basis points at all. We may see a single-digit softening, but certainly not 95 basis points.

Yes, I mean, we're not going to provide guidance on that but a couple a couple of comments one is that that 95 basis points and yes, as a part of Zack highlighted in talking about.

Pricing pressures and asset liability management strategy over the next one to two year horizon.

We don't think we're going to see about 95 basis points at all we may see a single digit softening.

But certainly not 95 basis points.

Brad Nordholm: The second thing that I would mention about that is that during the call, I talked about regulatory uncertainty and legislative uncertainty. We're going into a year 2024 when we are extremely well positioned, but we have a farm bill that should have been done at the end of last year that was not. Hopefully, it'll get done this year.

The second thing that I would mention about that is that true.

On the call I talked about regulatory uncertainty you talked about legislative uncertainty.

We're going into a year 2024.

We are extremely well positioned.

But we have a farm bill.

That should have been done at the end of last year that was not hopefully it'll get done this year.

Brad Nordholm: That brings a bit of uncertainty to some of the underlying fundamentals of American agriculture, but we want to see it passed. We also have the new Basel regulatory environment, which may have some implications for capital. And so, we are very, very excited about the opportunities that we see, the business opportunities, and extremely pleased with the soundness of Farmer Mac. Those uncertainties just inject a little bit of a note of caution into our decision-making process as it relates to dividends.

That brings a bit of uncertainty to some of the underlying fundamentals of American agriculture, we wanted to see a past.

We also have new.

Basel regulatory environment, which may have some implications for capital.

And so while we are very very.

Excited about the opportunities that we see the business opportunities.

And extremely pleased with the soundness of farmer Mac.

That uncertainty those uncertainties, just inject a little bit of a note of caution into our decision making process as it relates to the dividend.

Aparna Ramesh: We landed on a place that we thought really reflected our future growth potential, that uncertainty that I just discussed, as well as something that rewards our shareholders for sticking with us in a very, very handsome way. And, as you know, that's a balancing act. Brad, if I might just add an additional point, and that has to do with what we've mentioned around the quality as well as the quantity of capital. Gary, where we want to head is really to have our capital stack skew more heavily towards retained earnings that comes from organic growth and maintaining our credit quality. It reduces the need for us to go into the preferred markets, as we have done. And it's proven very, very beneficial to us.

We landed at a place that we thought really reflected our future growth potential that uncertainty that I've just discussed.

As well as something that rewards our shareholders for sticking with us in a very very high.

In some way and as you know, it's a balancing act.

Right, if I might just add an additional point and that has to do with what we mentioned around the quality as well as the quantity of capital getting where we want to head is really to have a capital stack skewed more heavily towards retained earnings that comes from organic growth and maintaining our credit quality.

It produces the need for us to go into the preferred markets as we have done it's proven very very beneficial to us, but we do have a scenario, where we have some expensive preferred that could be repricing.

Aparna Ramesh: But we do have a scenario where we have some expensive preferreds that could be repriced. And by really making sure that we're maintaining our capital base such that we're skewing more towards quality of capital with retained earnings, it gives us more degrees of freedom in terms of letting some of those expensive preferreds go and not have to really worry about going into the market at a time that might not be accretive for us. So it's really just a balancing act for us in terms of managing our capital stack as well as fueling our balance sheet for growth. Thank you very much. Your next question comes from Brendan McCarty with Sidoti. Please go ahead. Hey, good morning, everybody.

And by really making sure that we're maintaining our capital base such that we're skewing more towards quality of capital with retained earnings. It gives us more degrees of freedom in terms of letting some of those.

The preferreds go.

And not have to really worry about going into the market at the time that might not be accretive for us. So it's really just a balancing act for us in terms of.

Managing our capital stack as well as fueling our balance sheet for additional growth.

Okay. Thank you very much.

Your next question comes from Brendan <unk> with Sidoti. Please go ahead.

Hey, good morning, everybody and thanks for taking my questions.

Brendan McCarty: And thanks for taking my question. Wanted to start off looking at the wholesale financing business. I understand the value proposition has really increased for institutional counterparties in the elevated interest rate environment. But just wondering if you can expand on where the benefits have flowed through on the segment level. Yeah, and I'll ask Zach to give you some specific color on that.

Just wanted to start off looking at the wholesale financing business I understand the value proposition has really increased for institutional counterparties and the elevated interest rate environment.

Just wondering if you can expand on.

The benefits have flowed through on the segment level.

Yeah.

As Jack is that I could give you some.

Some specific color on that but just generally speaking.

Brad Nordholm: But just generally speaking, as you noted, the higher interest rate environment and, frankly, the absence of Federal Reserve Bank support of liquidity facilities for financial institutions has created more of a comparative competitive advantage for us, as we noted in our comments. And that's driving new opportunities. Some of that opportunity is with customers we had in the past and we let go because we didn't like the pricing, but some of it is new opportunities as well. Zach, you might just kind of explain where this is all coming from.

As you noted.

The higher interest rate environment, and frankly, the absence of.

Federal Reserve Bank support of liquidity facilities for financial institutions has created more of a comparative competitive advantage for us as we noted in our comments and thats driving new opportunity.

Some of that opportunities with customers, we had in the past and we let go because we didn't like the pricing.

But some of it is there is no opportunity as well, but vacuum might just.

Kind of explain where this is all coming from.

Zach Carpenter: Yeah, happy to, not to reiterate a lot of what Brad said, but I think one of the key drivers is, you know, clearing the volatility in the market, and a lot of these large corporate institutional counterparties are looking to just diversify, you know, all the different funding sources they have. If you're in the public bond market, you see a significant increase in gap and added credit spreads, which we did last year, you know, Farmer To your question on where you see these benefits in our segment reporting, you know, you're predominantly going to see them in advantage within the farm and ranch segment, as well as in the rural utility segment.

Yes, happy to not to reiterate a lot what Brad said, but I think one of the key drivers is cleared and the volatility in the market and a lot of these large corporate institutional counterparties looking to diversify.

All of the different funding sources behalf. If you. If you are in the public bond market have you see a significant increase in gapping out of credit spreads, which we did last year farmer Mac and our secured advantaged facility is a relatively comparative and better advantage to those counterparties.

To your question on where you see these benefits in our segment reporting.

Predominantly the cm.

Advantage within the farm <unk> Ranch segment.

As well as in the rural utilities segment. So those are two.

Zach Carpenter: So those are two large corporate institutional counterparty line items. You can see the significant growth year over year, especially in rural utilities, as well as in farm and ranch. And so that's generally where we saw, at least in 2023, the growth opportunity and the increase in net effective spread that rolls up into those segments. And then, heading into 2024, you know, we anticipate a broader discussion with numerous other counterparties in terms of the benefits we could provide, given the aforementioned comments.

Large corporate institutional counterparty line items, you can see the significant growth year over year, especially in rural utilities as well as in farm and ranch and.

So that's generally where we saw at least in 2023, the growth opportunity and the increase in net effective spread that rolls up into those segments and then heading into 2024.

We anticipate a broader discussion with numerous other counterparties in terms of the benefits we can provide given the aforementioned comments.

Brendan McCarty: Brenda, one other thing I'd just like to add to this is that there's a strategic aspect of this as well. When we have an egg vantage facility, we are evaluating the underlying collateral that's being pledged, and that underlying collateral is typically loans that, as an alternative, we'd like to own, that we'd like to purchase. And I think over the last six to nine months, we've probably been able to initiate more discussions with some of those egg banished counterparties about their strategic objectives and whether a sale for them, a purchase by us of some of those underlying loans fits their strategic objectives better. And it's too early to say that that's going to yield results, but we're encouraged that we're engaged at such a strategic thought level with so many of these Great, great. That's very helpful. And, you know, I know you mentioned a big part of that story has been business development efforts and branding and just kind of, you know, marketing efforts as well. Can you specify what exactly?

Brandon one other thing.

Just like to add to this is that there's a strategic.

Aspect of this as well because.

When we have an advantaged facility, we are evaluating the underlying collateral that's being pledge and that underlying collateral.

It are typically loans that.

As an alternative but we'd like to own.

We'd like to purchase and I think over the last six to nine months, we've probably been able to initiate more discussions with some of those eight vanished counterparties.

About their strategic objectives and weather.

A sale for them are purchased by us of some of those underlying loans.

Fits their strategic objectives, better and two.

Too early to say that that's going to yield results, but.

We're encouraged that we're engaged at such a strategic thought level with so many of these counterparties and are optimistic that at some point in the future.

We will show that we can.

Provide another source of liquidity to them through.

Through a different type of facility alone purchase rather than make vantage facility.

Great Great. That's very helpful and I know you mentioned a big part of that story has been business development efforts and branding and just kind of marketing efforts as well.

Can you specify what exactly.

Brad Nordholm: You know, has kind of driven that diversification of counterparties. Well, let me just jump in ahead of Zach. He's modest, but it is all of those things.

It's kind of driven that diversification of counterparties.

Well, let me just jump in ahead of Xactly is modest but it is all of those things, but it absolutely begins with housing high quality people with relationships and experience that motor.

Brendan McCarty: But it absolutely begins with having high-quality people with the relationships and experience that motivates those counterparties to engage in these discussions. And we have hired some absolutely outstanding people over the last couple of years that are enabling us to do that. Got it, got it.

Motivates those counterparties to engage in these discussions and we have hired some absolute exactly is really hard some absolutely outstanding people over the last couple of years that are enabling us to do that.

Got it got it and kind of switching gears here to the outlook on prepayment risk I understand.

Brendan McCarty: And kind of switching gears here to the outlook on prepayment risk. I understand, you know, should we see a potential decline in rates in the back half of the year? Obviously, I assume prepayments will pick up in the core farm and ranch business. But can you touch on, you know, the prepayment outlook for the other segments? I know prepayment risk is very low in the rural utility segment, but maybe you can expand on the other business lines. Yeah, Zach, can you just run through all the segments?

Should we see a potential decline in rates in the back half of the year, obviously I assume prepayments will pick up in our core farm and ranch business, but can you touch on the prepayment outlook for the other segments I know prepayment risk is very low in the rural utilities segment, but.

Maybe you can expand on the other business lines.

Yes, Zack can you just run through all the segments.

Zach Carpenter: Yeah, happy to. You're spot on in the rural infrastructure side of the house. We don't anticipate much, if any, prepayment risk, maybe some modest risk in the telecommunications portfolio. Generally speaking, those are all floating rates.

Yeah happy to.

Spot on in the rural infrastructure side of the house, we don't anticipate much if any prepayment risk maybe some modest.

Risk in the telecommunications portfolio generally speaking those are all floating rate.

Zach Carpenter: But those are going to turn on a weighted average life of three to four years anyway, but you know, the rate environment isn't going to really increase that. In corporate ag finance, those are just lumpy transactions in general. So the prepayment concept isn't really conducive in that segment.

But those are going to turn on a weighted average life of three years to four years anyways, but.

The rate environment isn't going to really increase that.

In corporate <unk> finance.

Those are just lumpy transactions in general so the prepayment concept it really isn't.

Conducive in that segment. These are more M&A type transactions, where you may get paid off.

Zach Carpenter: These are more M&A-type transactions where you may get paid off, or you could participate in a larger facility. So really, when you think about our overall portfolios or lines of business, the prepayment component is akin to farm and ranch and USDA. And if we see some, you know, rate compression in the back half of the year, I think, you know, as Aparna mentioned, we anticipate an increase in loan purchase, and we're kind of setting ourselves up to take advantage of potential refinance opportunities. And remember, we've said this in prior quarters, a lot of our customers or community and regional banks are keeping those loans on the balance sheet to manage through a higher deposit payout environment.

Or you can participate in a larger facility. So really when you think about our overall portfolio as our lines of business really the prepayment component is akin to farm <unk> ranch and USDA and if we see some rate compression in the back half of the year I think.

Pardon I mentioned, we anticipate an increase in non purchase and we're kind of setting ourselves up to take advantage of a potential <unk>.

Refinance opportunities and remember we've said this on prior quarters, a lot of our customers our community and regional banks are keeping those loans on the balance sheet to manage through a higher deposit payout.

Environment that being said liquidity and capital efficiency is now becoming a more focused in the banking sector.

Zach Carpenter: That being said, liquidity and capital efficiency are now becoming more of a focus in the banking sector, which we believe as those loans kind of reprice on their balance sheet create an enhanced opportunity for us, especially in farm and ranch and USDA, to take an advantage in a rate decline scenario. So yes, probably more prepayment risk in farm and ranch and USDA, but we're more than confident that we'll make it up in new volume. If I might just add one point as well, Brandon.

Which we believe as those loans kind of reprice on their balance sheet creates a enhanced opportunity for us, especially in farm <unk> ranch and USDA to take a advantage.

Our rate decline scenario, so, yes, probably more prepayment risk in farm <unk> ranch and USDA, but we're more than confident that we'll make it up in new volume.

If I might just add one point as well Brendan.

Aparna Ramesh: You know, we are fairly agnostic in terms of prepayment risk, and this has to do with how we manage our balance sheet from a hedging standpoint. So, something that we've noted before, we tend to layer in callables such that they're fairly duration matched as we look ahead and think about prepayment risk. So even if we were to have prepayments, it wouldn't necessarily affect our margins very substantially. So, you know, everything that Zach highlighted, prepayment risk is low across the segments, but in addition to that, from a funding standpoint, we're extremely well hedged, where we could simply call expensive debt and reprice that downward such that we're maintaining our margins. Please see the complete disclaimer at https://sites.google.com.au. Understood, that's helpful.

We're fairly agnostic in terms of prepayment risk and this has to do with how we manage our balance sheet from a hedging standpoint, so something that we've noted before we tend to layer in carnivals.

Such that the fairly duration match as we look ahead and think about prepayment risk. So even if we were to have prepayments it wouldn't necessarily affect our margins very substantially so everything that Zack highlighted prepayment risk is low across the segments, but in addition to that from a funding standpoint were extremely.

Well hedged, where we could simply call.

Expensive debt and reprice that downwards, such that with maintaining our margins.

Sure.

Understood. That's helpful and one more question for me just on the farm economy as a whole I know you mentioned youll land values have moderately decline in farm net income or appear to be no reverting more towards historical averages but.

Brad Nordholm: And one more question for me, just on the farm economy as a whole. I know you mentioned that land values have moderately declined, and farm net income appears to be, you know, reverting more towards historical averages. But, Can you just kind of talk about your outlook for the farm economy and how it impacts Farmer Mac? That's a big question because the decline of land gauss is actually pretty isolated. We've been doing a lot of work on that recently. Permanent crops in California are one place where there have been headlines about modest decreases, and those tend to be almonds and other permanent crops where there are not multiple sources of water, where there may be some pressure on water availability, as well as the combination of low commodity prices.

Can you just kind of talk on your outlook for the farm economy and how it.

Impacts farmer Mac.

Yeah.

That's a that's a big question because.

The decline in land that was actually a pretty isolated we've been doing a lot of work on that recently.

Permanent crops in California are one place where there have been headlines about.

The modest decreases and those tend to be.

Almonds and other permanent crops, where there are.

Not multiple sources of water, where there may be some.

Some pressure on water availability as.

As well as the combination of that with low commodity prices.

Brad Nordholm: But we're not seeing it across the board, and as you know, our loan to current value on just about everything in our portfolio is extremely modest. Well, we'll sell up to 50% of the portfolio as it stands. But yes, we're expected to see a softening in farm income. Of course, that's an aggregate number for the entire sector, and we are an organization with 17,000 borrowers, each one of them having their own situation. But input prices are generally staying sticky and high while commodity prices for major crops have been soft.

<unk>.

We're not seeing it across the board and as you know our.

Loan to current value on just about everything on our portfolios extremely modest well most of that 50% on the portfolio as it stands.

But yes, we're expected to see softening and farm income of course, that's an aggregate number for the entire sector.

And we are an organization with 17000 borrowers each one of them with their own situation.

But input prices are generally.

Staying sticky and high.

While commodity prices for major major crops have.

Brad Nordholm: And so, you know, projected net farm incomes for the sector again this next year that will be somewhere in the neighborhood of 20% less than it kind of was at the peak. The first thing that that will do is put a little bit, it will cause some drawdown of liquidity. Farmers have been holding a lot of liquidity, and it'll cause some drawdown of that. But we think that it may, especially if we have slightly lower interest rates later in the year, it'll start stimulating some additional borrowing activity. As Zach has mentioned, farm and ranch originations were slow, at least through the first three quarters of 2023, a little bit of a pickup in the fourth quarter, but that will cause some further pickup in the year. In terms of other segments of the farm economy, it probably tips them to do a bit more borrowing, which could benefit us.

Have been softening.

So you know we're looking at.

Projected net farm incomes for the sector again.

This next year that will be somewhere in the neighborhood of 20% less than kind of what was at the peak.

The first thing that that will do is put a little it will cause some of them.

Drawdowns of liquidity.

Farmers have been holding a lot of liquidity and it will cause some brought onto that we think that it made it especially if we have slightly lower interest rates later in the year it'll start stimulating some additional.

Borrowing activity Zach as mentioned farmer.

Farm <unk> ranch originations were slow at least through the first three quarters of 2023 is a little bit of pick up in fourth quarter.

But that will cause some further pick up in the year in terms of.

Other segments of the farm economy, it probably tips.

The tips them to a bit more borrowings.

Which could benefit us.

Brad Nordholm: We'll be continuing to apply the very, very disciplined credit standards that we have applied for many years here at Farmer Mac so that we're continuing to make prudent credit decisions. So you put it all together, and it's probably a slight positive for Farmer Mac even if it is a source of concern for our key constituents in rural America. Great. Thanks, Brad. That's all for me. Thanks, everybody.

We will be continuing to apply the very very disciplined credit standards that we have for for many years here at farmer Mac. So that we're continuing to make prudent credit decisions. So you put it altogether and.

And it's probably a slight positive for farmer Mac, even if it is.

A source of concern for Archie constituents in Rural America.

Great. Thanks, Brad that's all from me thanks, everybody.

DeForest Hinman: Your next question comes from DeForest Hinman with Bumbershoot Holdings, please go ahead. Hey, thanks for squeezing me in.

Your next question comes from Deforest Hinman with <unk>.

Bumbershoot Holdings. Please go ahead.

Hey, Thanks for squeezing me in you kind of beating around the bush on the loan growth outlook, there's a lot of moving parts, but I mean.

Brad Nordholm: You're kind of beating around the bush on the loan growth outlook. There are a lot of moving parts, but I mean, Simplistically, you know, farmer ranch loans, high single-digit growth in 2021. About 10% growth in 2022 and 2% growth in 2023. Is it still in that ballpark, or is it kind of a, you know, mid single-digit growth outlook for 2024 when we take into account all these moving pieces? That's the first question. Yeah, I mean, we're not going to provide a precise forecast, but back you want to try to give a little bit more color on that one.

Simplistically.

<unk> ranch loans high single growth in 2021.

About 10% growth in 2022.

8% growth in 2023.

It still in that ballpark or is it kind of.

Mid single digit growth outlook for 2024, when we look at all these moving pieces. That's the first question.

Yes.

We're not going to provide a precise forecast, but back you want to try to give a little bit more color on that one.

Zach Carpenter: Yeah, I mean, I think the confluence of factors in the market is leading to us being, you know, more optimistic about loan purchase activity and farming ranch than we were in 2023. I mean, I noted earlier in a comment on the regional and community banking dynamic, managing capital, liquidity, deposits, that's having a real impact on those institutions, which, you know, as their loan portfolio reprices, we think creates a great opportunity for Farmer Mac, and low prepayment speeds, again, solidify the portfolio. And so we're able to take advantage of some of these dynamics. We're not making up any refinancing losses, lost on our portfolio, you know, limited supply of new land, and farm incomes, as Brad just mentioned in the prior question, it's going to come down, there's gonna be stress and working capital.

Yeah, I mean, I think the confluence of factors in the market is leading to us being more optimistic in loan purchase activity in farm <unk> ranch than we were in 2023, I mean, I noted earlier in a comment on the regional and community banking dynamic managing capital liquidity deposit.

That's having a real impact on those institutions, which.

As their loan portfolio re prices, we think creates a great opportunity for farmer Mac.

Lower prepayment speeds again solidifies the portfolio. So we were able to take advantage of some of these dynamics, we're not making up any refinancings lost.

Austin, our portfolio limited supply of new land and farm incomes as Brad has mentioned in the prior to prior question, it's going to come down there's going to be stressed in working capital and I think there is going to be interest in tapping into that equity so comparing year over year and stepping into 2024 as we made in our prepared comments, yes, I think we're more optimistic.

Zach Carpenter: And you know, I think there's going to be interest in tapping into that equity. So you know, compare year over year and step into 2024, as we made in our prepared comments. Yeah, I think we're more optimistic that there is a greater chance of enhanced growth in 2024 versus 2023. You know, that being said, lots of things can change, be it the Farm Bill or a political year via interest rates. So it's hard to really pinpoint that.

Take that there is a greater chance of of enhanced growth in 2024 versus 2023.

Being said lots of things can change to be at the Farnborough, albeit a political year be at interest rates. So it's hard to really pinpoint that but I think we're stepping into more optimism than we were stepping into 2023.

DeForest Hinman: But I think we're stepping into more optimism than we were stepping into 2023. Okay, that's helpful. Renewable loan growth is very positive. You had 153% growth in 2022. 100% growth in 2023. We talked about the, you know, the outreach on the syndication side, adding some headcount. I mean, I don't think all those initiatives are in place. And, you know, we grew that loan book to, you know, 100%, and it's over 400 million. In the past, we talked about, you know, the idea of that being, you know, a billion dollar portfolio at some point. Can you just help us understand how that that that loan book looks going into, you know, 2024 and, you know, where that could end of Game Traction. Yeah, Zach has done a lot of infrastructure building here with policies, Mark Grady with credit policies, and Zach with key hires. So, you know, we saw that pickup in 23, and it really accelerated in the back half of 23.

Okay. That's helpful.

Renewable loan growth very positive you had 153% growth in 2022.

100% growth in 2023, we talked about the you know the outreach on the syndication side, adding some.

Head Count I mean, I don't think all of those initiatives are in place.

We grew that loan book too.

100% and its over 400 million I think in the past we talked about.

That being.

$1 billion portfolio at some point can you just help us understand.

You know how that that loan book looks going into <unk>.

2024.

Uh huh.

Could that end up and then maybe even.

Where could that be in 2025 from these initiatives.

Gained traction.

Yeah.

Zack has done a lot of infrastructure building here with policies Mark radio.

Credit policies.

Zach with key hires.

So.

We saw that pick up in 'twenty three it really accelerated in the back half of 'twenty three.

Brad Nordholm: Going into 24, you know, the pieces are all in place to continue that very strong momentum. So, you know, the billion-dollar number, it's very realistic that that could happen sometime in 25. I think that gives you kind of a slope that you can work on.

Going into 'twenty four.

The pieces are in place to continue that very strong momentum so $1 billion number it's very realistic that that could happen sometime in <unk> and 'twenty five.

Yeah.

I think that gives you a kind of a slope that you can work on.

DeForest Hinman: OK, and then I hadn't heard this from Aparna, but this comment on some of the higher-cost preferreds. You know, you guys have been in the market for a number of years. But I do see that, you know, I think the Series C preferreds are actually redeemable in 2024. I mean, is that, you know, a preferred we'd be looking to remove?

Okay.

And then I haven't heard this from.

Part of it but this comment on.

Some of higher cost preferred you guys are in the market.

Oh for a number of years.

Do you see that I think the series C or actually a redeemable in 2024.

That.

Our preferred we'd be looking to.

Remove and then.

Aparna Ramesh: And then I think on a bigger picture question, is there any benefit to leaving the preferreds in place as it relates to how the regulators calculate your capital ratios? Are we pretty clearly saying we'd like to remove those preferreds over time? And then, as a result of that, it actually improves the dividend capacity to the commonholders. So maybe just some more color there.

And a bigger picture question is there any.

Benefit to leaving the preferreds in place as it relates to how the regulators calculate or.

Capital ratios are we pretty clearly, saying, we'd like to remove.

Those preferreds over time and then.

As a result of that it actually improves the.

The dividend capacity to the common holders. So maybe just some more color there and should.

Aparna Ramesh: And, you know, should we be expecting those preferreds to be removed over time with these call provisions? Yeah. Yeah.

Should we be expecting those preferreds to be.

Removed over time with those call provisions.

Yes.

Aparna Ramesh: So I think that's an excellent question. It's something that we really need to think about in entirety. We don't really distinguish between our sources of capital, but we do make a slight distinction in our own minds as we think about the quality of capital and the quality of capital being organic and retained earnings because that then allows us to have a base of capital that we can very efficiently deploy for growth, but also in terms of really rewarding our shareholders in the here and now.

So I think that's an excellent question, it's something that we really think about it.

And to argue we don't we don't really distinguish between our sources of capital, but we.

We do make a slight distinction in our own minds as we think about the quality of capital and the quality of capital being organic and retained earnings because that then allows us to have a base of capital that we can very efficiently deploy for growth, but also in terms of really rewarding our shareholders want to hear it now so that's that's really the big picture in terms of how.

Aparna Ramesh: So that's really the big picture in terms of how we think about our capital. In terms of preferreds, you know, preferreds are an excellent source of capital for us. We have access to the preferred market. The way we think about our preferred issuances to Forrest is that we try to do that opportunistically. So in 2020 and 2021, we were able to tap the retail preferred market and issue preferreds that were sub-5% and sub-6%. And so we did that. And if we were ever able to do that again, that's exactly what we would do. These are fixed-rate preferreds where we really hold a call option. The CVC that you note, you're absolutely right; that has an option where we can redeem it, and if we did not, then it would convert to floating.

We think about our capital.

In terms of preferreds preferreds are an excellent source of capital for US we have access to the retail preferred market. The way, we think about a preferred issuance as the forest is we try to do that opportunistically. So in 2020 in 2021.

We're able to adapt the retail preferred market.

And issue preferred stock was up 5% in sub 6% and so we did that and if we were ever able to do that again, that's exactly what he would do at these are fixed rate per foot is where we really hold the call option. The CVC that should note you're absolutely right that has.

Option, where we can redeem it.

And if we did not then it would convert to floating and as you know in the current rate environment that would result in additional cost.

Aparna Ramesh: And as you know, in the current rate environment, that would result in additional costs approximately to the tune of about $2 million per year. We haven't really made a complete decision as yet. But what I would say is, given our various degrees of freedom plus our excellent credit quality, the fact that we've got a very big and growing share of our capital stack coming from retained earnings, it's highly probable that it is something that we will look at. But preferreds are very much an option for us, and they will continue to be an option for us. But we look at it in terms of an expensive option versus something that's really opportunistic. So in this particular case, you're right, it is redeemable, and it does convert to floating.

US approximately to the tune of about $2 million, we haven't really made a complete decision as yet, but what I would say is just given.

Various degrees of freedom, plus our excellent credit quality. The fact that we've got.

Really a very big and.

And growing share of our capital stock coming from retained earnings it's highly probable that it is something that we will look at but preferreds are very much an option for us and it will continue to be an option for us, but we look at it in terms of an expensive option versus something that's really opportunistic. So in this particular case you're right. It is.

T mobile and it does convert to floating so it's probably something that will take a very close look at as we approach. The redemption date to consider whether we want to let that go and if we want to issue something possibly when the markets.

Brad Nordholm: So it's probably something that we'll take a very close look at as we approach the redemption date to consider whether we want to let that go and if we want to issue something, possibly, when the markets are favorable to us in the fixed-rate environment. Yeah, I'd just like to add, as Arne has talked about the optionality that we have, and whether we choose to redeem that in July or not will depend on factors that we're not looking at today; it will depend on factors that we're looking at in the second quarter. We'll be revisiting growth, we'll be revisiting Basel, we'll be revisiting the Farm Bill and taking into consideration all the things that you would expect management to be looking at before coming up with a position on that. But I would add that the other part of your question was, how do we stand with the regulators?

A favorable to us in the fixed rate environment.

Yes.

Yes.

I'd just like to add.

Brian has talked about the optionality that we have and.

Whether we choose to redeem that in July or not will depend on factors that we're not looking at today.

They will depend on factors that we're looking at in the second quarter.

We will be revisiting growth will be revisiting.

Basel won't be weird because of it.

The thing Farmville and taking into consideration all of the things that you would expect management to be looking at before coming up with a position on that but I would argue the other part of your question was how do we stand with the regulators.

Brad Nordholm: Simply put, our levels of capitalization by every measure have never been stronger, and we far exceed all regulatory requirements. We do regular stress testing with regulators, and we do well under that stress testing with our capital. Farmer Mac has never been stronger. When you consider the financial results, return on equity of 19%, almost 19%, you consider the growth in earnings, you consider dividends, you consider the growth in the overall volume of Farmer Mac, that we have done that while also increasing capital makes it even more remarkable because, oftentimes, there's a tradeoff. For us, there's not been a tradeoff.

Simply put our levels of capitalization by every measure has never been stronger and we far exceed all regulatory requirements.

We do regular stress testing with regulators, we would do.

Well under that stress testing with our capital.

Farmer Mac has never been stronger and when you consider.

The financial results return on equity of 19% to almost 19%.

Consider the growth in earnings.

Consider dividends you consider.

The growth in the.

And the overall volume of farmer Mac that we have done that while also increasing capital.

It even more remarkable because oftentimes there's a tradeoff for us there's not been a tradeoff.

Brad Nordholm: So that gives us just a lot of flexibility, a lot of options to run this business to even greater success in the future. We're not constrained by capital. And I'll just add that securitization is another lever, which is another capital efficient tool that we will throw into the mix as we think about retained earnings, preferred, and now securitization in terms of thinking about our leverage ratios and our tier 1 ratio. So that's just another thing that we do. Yes, Brad, I agree. You've done a phenomenal job. You know, I like slide two with Dividend Cager.

That gives us just a lot of flexibility.

A lot of options.

To run this business to even greater success in the future, we're not constrained by capital.

And I'll just add that securitization is another lever, which is another capital efficient tool that we will throw into the mix as we think about retained earnings preferred and now securitization in terms of thinking about.

Our leverage ratios and our tier one ratio. So that's just another thing that would be thrown into the mix.

Yes, Brian I agree you've done a phenomenal job.

I like.

Slide two dividend CAGR I mean, I think we've talked about this in the past I don't know if theres any company that's out.

DeForest Hinman: I mean, I think we talked about this in the past. I don't know if there's any company that's had a, uh, Hold up, and you continue to see that most financial companies are dealing with spread compression, and you know you haven't really added very much. You had, like you said, 19% ROE.

Faster.

And growth.

Errors in the financial statements.

Its founding and the spreads continue to.

Holdup and you continue to see most financial companies be dealing with.

Spread compression and you haven't really.

And had very much.

DeForest Hinman: That's incredibly attractive, especially from a consistency perspective, and we've talked about this before; the stocks they'll probably be undervalued, but, you know, continuing to increase the dividend, hopefully, you know, gets more people to look at the stock. Final question is, and I've asked this many times before, just hiring: we added quite a few people in 2023. So can you update us on, you know, who we need to hire in 2024?

Like you said, 19%.

ROE that's incredibly attractive, especially from a.

Consistency perspective, and we've talked about this before the stock still probably Oh.

Undervalued, but continuing to increase the dividend hopefully.

Yeah.

It's more people too.

If you look at the stock our final question is Oh and.

And I've asked this many times before just hiring we added quite a few people in.

2023, so can you update us on.

Do we need to hire in.

In 2024, where does that stand in terms of getting those people.

DeForest Hinman: Where does that stand in terms of, you know, getting those people in place? And then can you give us an update on any of the IT initiatives that we've been putting in place? Are they partially done? Are they completed?

In place and then can you give us an update on any of the.

Yes, it initiatives that we've been putting in place are they.

Partially done are they completed or is there more work.

Brad Nordholm: Or is there more work to be done? And that's it. Thank you. Sure, sure, of course. Yeah, we have expanded our employee base. I think we ended up in 2023 with 184, 186 employees, something like that. And, you know, over the last couple of years, it's been a balance of funding and ALM-related, business development-related, core control and risk management-related across the organization, and compliance. You know, when you think about an organization with aggregate volume approaching $30 billion that has only 184 employees, you know, we have to have a full suite of very, very talented people doing a lot of functions that, you know, banks our size do So, we feel very good about the additional depth that we've built in our organization. As we go into 2024 and kind of through our budgeting process, it's pretty simple.

To be done and that's it thank you.

Sure sure of course.

Yes.

We have expanded our employee base I think we ended up 2023 was 180 496 employees something like that.

And we have.

Over the last couple of years, it's been a balance of <unk>.

Funding in a L M related business development related.

Core control and risk management related.

Across the organization compliance.

Do you think about an organization with.

Aggregate volume approaching $30 billion that has only 184 employees.

We have to have a full suite of very very talented people.

Doing a lot of functions that.

Banks, our size do with literally thousands of employees so.

We feel very good about the additional depths with built in our organization.

As we go into 2024 and kind of through our budgeting process.

It's pretty simple.

Brad Nordholm: You know, a little bit of emphasis on our branding and communications in terms of headcount, just a bit on IT, and the rest really is business development. We feel that we have built very, very strong origination, credit approval, credit administration, credit policy, funding, and platforms here at Farmer Mac. And now we're going to work to put more volume through them. So that's kind of reflected in our choice of how we're allocating increases in headcount. The increases in headcount in 24 will be slower than they have been in each of the last couple of years, we believe.

You know a little bit of emphasis on our branding and communications in terms of head count.

Just a bit on it.

And the rest really is business development.

We feel that we have built very very strong origination credit approval credit administration credit policy funding.

Platforms here at farmer, Mac and now less work to put more volume through them. That's so that's kind of reflected in our choice of.

Of how we're allocating increases in head count increases in head count 24 will be slower than they have been used at the last couple of years, we believe.

Brad Nordholm: As it relates to IT initiatives, there's a tremendous amount going on. Sean Thatcher joined us as CIO in the second quarter of 2023, and it feels like he's been here for over a year.

As it relates to it initiatives, there's a tremendous amount going on.

Sean that's your joined US as a CIO in the second quarter of 'twenty three it feels like he's been here for <unk>.

Brad Nordholm: He's gotten a tremendous amount done. He's brought a lot of organization to that team, and they're currently focused on many tactical projects, but two huge strategic projects, and I'll let Aparna and Zach come in on them. The first is what we call STARS, which we expect to finish this year, maybe even half halfway through the year.

Over a year he has gotten a tremendous amount done he has brought a lot of organization to that team.

And they are currently focused on.

Many tactical projects, but two huge strategic projects and I'll, let <unk> comment on them. The first is what we call stars.

Which we expect to finish this year, maybe even halfway through the year and the other is an update to a hugely important and huge legacy platform here at farmer Mac called AG power, but pardon me you want to provide an update on that why it's so important and then Zach Youtube.

Aparna Ramesh: And the other is an update to a hugely important and huge legacy platform here at Farmer Mac called AgPower. But Aparna, would you like to provide an update on that, why it's so important? And then Zach, you too?

Aparna Ramesh: Yeah, sure. Let me give you a bit of a sense about this treasury platform that we're embarking on. You know, it is the most significant overhaul, I would say, of platforms at Farmer Mac. It impacts about two-thirds of the balance sheet, both on the asset side as well as the liability side.

Yeah sure. Let me, let me give you a bit of a sense about this treasury platform that we're embarking on it is the most significant.

All I would say of platforms that farmer Mac, it and thoughts about two thirds of the balance sheet, both on the asset side as well as the liability side something that most people don't know is that we have a significant amount of payments that really close through loan payments as well as debt holders. So we actually transact.

Aparna Ramesh: Something that most people don't know is that we have a significant amount of payments that really go through loan payments as well as debt holders. We actually transact anywhere between half a trillion to three-quarters of a trillion in terms of just payments. In addition to different securities, we have hedging and reporting, et cetera, as well as what we do with our wholesale financing. All of that really goes through these platforms. These have been platforms that have been in existence, and I really commend the team at Farmer Mac, the founding team that has really layered on and built these functions. But today, we have options, and we have commercial products that are out there. So we've been working with a consultant who's helped us through this journey over the last two years.

Anywhere between half a trillion to three quarters of a truly and in terms of just payments. In addition to different securities we have hedging in reporting et cetera as.

As well as what we do with our wholesale financing all of that really goes through these platforms. These have been platforms that have been in existence and really commend the team at farmer Mac are the founding team that is really layered on and built the assumptions, but today, we have options and we have commercial products that are out there. So.

We've been working with the consultant who has helped us through this journey over the last two years.

Aparna Ramesh: And we've selected two key vendors who are going to really provide platforms for both our front end and our middle office, as well as our cash management systems. And this is going to create a lot of dependencies internally in terms of overhauling how our data flows through as well as how our different capabilities with respect to hedging and reporting really connect. So it's a massive effort with lots of people, and touches a lot.

And we've we've really selected two key vendors who are going to.

Really provision platforms for both upfront and middle office as well as a cash management systems and this is going to create a lot of dependencies internally in terms of overhauling how data flows through as well as how our different capabilities with respect to hedging and.

Reporting really connect and so it's a massive effort with lots of people touches a lot.

Aparna Ramesh: And, you know, this is an initiative that, you know, I'll just say is anywhere between, you know, we foresee somewhere between $16 million to $20 million in cash expenses. Obviously, it gets capitalized, and there's a P&L impact that we continually recalibrate toward. But as Brad mentioned, you know, it's going very well, as any large-scale initiative might. And we expect to see this come to fruition optimistically in the middle of this year, but certainly no later through, I would say, the third quarter or so. But tremendous partnership across the organization, and I echo Brad.

And this is an initiative that I would just say is anywhere between four see somewhere between $16 million to $20 million in cash.

Cash expenses, obviously, you know it gets capitalized and there's a there's a P&L impact that we continually recalibrate woods.

As Brad mentioned, you know it is going very well.

As as any large scale initiative might and we expect to see this come to fruition optimistically in the middle of this year, but certainly no later through I would say quarter or so but.

This partnership across the organization and I Echo Brad Shawn has been a tremendous addition to the executive team and a tremendous partner as well on this initiative and then the second initiative is really the loan originations last one so I'll just turn to Zack he can give you a little bit more color on how we're really innovating around some of those some of those technologies.

Aparna Ramesh: Sean has been a tremendous addition to the executive team and a tremendous partner as well on this initiative. And then the second initiative is really the loan origination platform. So I'll just turn to Zach.

Zach Carpenter: He can give you a little bit more color on how we're really innovating around some of those technologies that drive up the debt. Thank you. Yeah, before I start, I'll be quick.

That business line.

Yes, Deforest I'll be I'll be quick, but you know Brad mentioned the AG power, that's our infrastructure that are community banks and our sellers used to interact and transact with farmer Mac you know our goal is to dramatically change that infrastructure to be cheaper.

Zach Carpenter: But you know, Brad mentioned AgPower, that's our infrastructure that our community banks and our sellers use to interact and transact with Farmer Mac. You know, our goal is to dramatically change that infrastructure to be cheaper, more customer-friendly, more effective, and drive down the time of us purchasing a loan from our sellers as quickly as possible. So that's better technology, that's more efficiency, that's collateral enhancements, and really providing a state-of-the-art infrastructure platform that all of our sellers can use to transact as easily as possible with Farmer Mac.

More customer friendly more effective and drive down the time.

US purchasing a loan from our sellers as as quickly as possible. So that's better technology, that's more efficiencies, that's leveraging collateral enhancements and really providing a state of the art infrastructure platform that all of our sellers can use that can transact as easily as possible with farmer Mac and on.

DeForest Hinman: And you know, on the positive side, Sean and I feel that by the end of 2024, we'll be rolling something out. And I think we're very excited, and we're receiving a lot of positive reinforcement from our customers. So again, this is to be a state-of-the-art infrastructure loan origination platform for our sellers. Okay, great. And then just a final comment, the idea of adding equity compensation across the entire employee base. I think you said that that's a very good idea and should probably help with retention, and you know, your mission-based focus, you know, that's very helpful. Thanks for taking all the questions.

The positive side, I think Sean and I feel by end of 2024 will be rolling something out.

We're very excited and we're receiving a lot of positive.

Reinforcement from our customers.

So again this just be a state of the art.

Infrastructure loan origination platform for our sellers.

Okay, Great and then just a final comment the idea of adding equity.

Compensation across the.

The entire employee base I think you said that that's a very good idea and should probably help with.

Uh huh.

And your.

Your Michigan based.

No focus.

No that's very helpful. Thanks.

Thanks for taking all the questions.

Brad Nordholm: Good. Yeah, we appreciate that sentiment very much. We do think it's important. It resulted in about a doubling when we went to equity for all.

We appreciate that.

But very much we do think it's important.

It resulted in about a doubling what do we want to equity for all of it was about a doubling in the number of employees who are eligible for awards.

Brad Nordholm: It was about a doubling in the number of employees who were eligible for awards, and it allows us to have conversations about stocks, stock performance, the relation of that to overall financial performance and the relation of that to overall service efficiency. So we think that it's just one more thing that contributes to a really healthy and very passionate mission-focused culture at Farmer Mac. There are no further questions at this time. I would now like to turn the call over to Brad Nordholm. Please go ahead. Great.

And it allows us to have.

Conversations about.

Stock stock performance the relation of that to overall financial performance in the relation with that the overall service submissions. So we think that.

It's just one more thing that.

Contributes to a really healthy and very.

Passionate mission focused culture at farmer Mac.

There are no further questions at this time I would now like to turn the call over to Brad Nord home. Please go ahead.

Great well thank.

Brad Nordholm: Well, thank you, everyone, for joining us today. We really appreciate your participation, your interest, and your many great questions, which we hope we've addressed to your satisfaction. If you have follow-ups, of course, get in touch with JALPA. But otherwise, we will be having our next regularly scheduled call in May to report our first quarter 2024 results, and we look forward to that very much. I hope you have a great day, and please stay in touch. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Stop Mismanaging Your Resources seems like a natural part of life, but the release of potential addiction here is the key.

Thank you everyone for joining us today.

We really appreciate your participation your interest and many great questions.

Which we hope.

Addressed to your satisfaction. If you have follow ups of course get in touch with Jamba, but otherwise we will be having our next regularly scheduled call in May to report our first quarter 2024.

Results and we look forward to that.

That very much I hope you have a great day and please stay in touch thank you.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and I. Thank you. Please disconnect your lines.

[noise].

Yes.

Okay.

Thanks.

Yeah.

No.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.