Q2 2024 Federal Agricultural Mortgage Corp Earnings Call

Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the FarmerMac 2nd Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Operator: Quarter 2024 earnings conference call. This time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Operator: 2024 Earnings 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 Monday, August 5th, 2024. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Operator: If at any time during this call, you require immediate assistance, please press star zero for the operator.

Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, August 5th, 2024. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Operator: This call is being recorded on Monday, August 5th, 2024.

Jalpa Nazareth: I would now like to turn the conference over to Jalpa Nazareth. Please go ahead. Good afternoon. And thank you for joining us for our second quarter 2020 for earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at ArmorMax.

Jalpa Nazareth: Good afternoon, and thank you for joining us for our second quarter 2024 earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Pharmamax. 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 risk and uncertainties that could cause our actual results to differ materially from those projected.

Speaker Change: Good afternoon and thank you for joining us for our second quarter 2024 earnings conference call.

Jalpa Nazareth: Please refer to Pharmamax's 2023 annual report and subsequent SEC filings for a full discussion of the company's risks. On today's call, we will also be discussing certain non-GAAP financial measures. Disclosures and reconciliations of these non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on PharmaMac's website, pharmamac.com, under the financial information portion of the investor section.

Speaker Change: I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Armor Max.

Jalpa Nazareth: 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 risk and uncertainty that could cause our actual results to differ materially from those projected. Please refer to Farm Max 2023 annual report and subsequent SEC filings for a full discussion of the company's risk factors.

Speaker Change: 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.

Speaker Change: These statements are not a guarantee of future performance and are subject to the risk and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Pharmamax 2023 Annual Report and subsequent SEC filings for a full discussion of the company's risk factors.

Jalpa Nazareth: On today's call, we will also be discussing certain non-GAAP financial measures. Disclosure and reconciliation of these non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on farmrMax website farmrMax.com under the financial information portion of the investor section.

Speaker Change: On today's call, we will also be discussing certain non-GAAP financial measures.

Speaker Change: Disclosures and reconciliations of these non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on PharmaMac's website, pharmamac.com, under the Financial Information portion of the Investors section.

Jalpa Nazareth: Joining us for management this afternoon is our President and Chief Executive Officer Brad Nordholm, who will discuss second quarter 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 be joining us for the question and answer period. At this time, I'll turn the call over to President and CEO, Brad Nordholm. Brad? Thank you, Jalpa.

Jalpa Nazareth: Joining us for management this afternoon is our President and Chief Executive Officer, Brad Norham, who will discuss second quarter business and financial highlights and strategic objectives. And Chief Financial Officer, a partner of Remish, who will provide greater detail on our financial performance.

Speaker Change: Joining us for management this afternoon is our President and Chief Executive Officer Brad Nordholm, who will discuss second quarter business and financial highlights and strategic objectives, and Chief Financial Officer Aparna Ramesh, who will provide greater detail on our financial performance.

Unknown Attendee: Select members of our management team will also be joining us for the question-and-answer period.

Speaker Change: Select members of our management team will also be joining us for the question-and-answer period. At this time, I'll turn the call over to President and CEO Brad Nordholm. Brad? Thank you, Jalpa. Good afternoon, everyone, and thank you very much for joining us.

Brad Norham: At this time, I'll turn the call over to President and CEO, Brad Norham. Brad. Thank you, Jalpa. Good afternoon, everyone, and thank you very much for joining us. Our focus on stability, profitability, and growth has once again produced consistent results. Our underlying business model, strong capital position, and uninterrupted access to the debt capital markets throughout the full range of market cycles uniquely position us to partner with our customers. To help them grow and manage any capital and liquidity risk they might face. The foundation of our strategy is our consistent financial and operational execution. Coupled with proactive management of our balance sheet and funding sources.

Bradford Nordholm: Thank you, Jalpa. Good afternoon, everyone, and thank you very much for joining us.

Bradford Nordholm: Our focus on stability, profitability, and growth has once again produced consistent results. Our underlying business model, strong capital position, and uninterrupted access to the debt capital markets throughout the full range of market cycles uniquely position us to partner with our customers to help them grow and manage any capital and liquidity risks they might face. The foundation of our strategy is our consistent financial and operational execution, coupled with proactive management of our balance sheet and funding sources. This has positioned us well in all environments and is expected to continue to create more opportunities for enhanced shareholder value through our mission fulfillment. During the quarter, we closed $1.5 billion in NUPES.

Speaker Change: Our focus on stability, profitability, and growth has once again produced consistent results.

Speaker Change: Our underlying business model, strong capital position, and uninterrupted access to the debt capital markets throughout the full range of market cycles uniquely position us to partner with our customers to help them grow and manage any capital and liquidity risks they might face.

Speaker Change: The foundation of our strategy is our consistent financial and operational execution, coupled with proactive management of our balance sheet and funding sources.

Brad Norham: This is positioned as well in all environments and is expected to continue to create more opportunities for enhanced shareholder value through our mission fulfillment. During the quarter, we closed $1.5 billion of new business. Approximately 70% of the new volume consisted of higher spread, longer term loan purchase volume across all of our segments. Our total revenues in second quarter, 2024, improved $2.4 million over the same quarter last year to $89 million. As the compositional shift of new business volume towards higher spread loans, result is in higher net effectiveness spread, and our operating efficiency level was 27% better than our long term target of 30 percent, a reflection of our discipline approach to expense management.

Speaker Change: This has positioned us well in all environments and is expected to continue to create more opportunities for enhanced shareholder value through our mission fulfillment.

Speaker Change: During the quarter, we closed $1.5 billion of new business.

Bradford Nordholm: Approximately 70% of the new volume consisted of higher spread, longer term loan purchase volume across all of our segments. Our total revenues in the second quarter of 2024 improved $2.4 million over the same quarter last year to $89 million. As the compositional shift of new business volume towards higher spread loans resulted in higher net effective spread, and our operating efficiency level was 27%, better than our long-term target of 30%, a reflection of our disciplined approach to expense management, court earnings were lower relative to second quarter 2023, primarily due to the partial charge-off of a single permanent planting loan. Excluding the impact of credit expenses, court earnings were $45 million, which is As we've mentioned on prior calls, the nature of our credit events and the charge-offs have tended to be idiosyncratic.

Speaker Change: Approximately 70% of the new volume consisted of higher spread longer-term loan purchase volume across all of our segments.

Speaker Change: Our total revenues in second quarter 2024 improved $2.4 million over the same quarter last year.

Speaker Change: to $89 million. As the compositional shift of new business volume towards higher spread loans resulted in higher net effective spread and our operating efficiency level was 27%, better than our long-term target of 30%.

Speaker Change: A reflection of our disciplined approach to expense management.

Brad Norham: Court earnings were lower relative to second quarter 2023, primarily due to the partial charge-off of a single permanent planting loan. Excluding the impact of credit expenses, court earnings were $45 million, which is an increase both sequentially and year over year. As we've mentioned on prior calls, the nature of our credit events and the charge-offs have tended to be idiosyncratic. We believe that our credit profile remains strong and the aggregate, and that we would be able to withstand significant shocks given our strong levels of capital. Turning to our portfolio, loan-purchased volume growth was strong in the renewable energy and farm and ranch segments.

Speaker Change: Court earnings were lower relative to second quarter 2023 primarily due to the partial charge-off of a single permanent planting loan.

Speaker Change: Excluding the impact of credit expenses, court earnings were $45 million, which is an increase both sequentially and year-over-year.

Speaker Change: As we've mentioned on prior calls, the nature of our credit events and the charge-offs have tended to be idiosyncratic.

Bradford Nordholm: We believe that our credit profile remains strong in the aggregate and that we would be able to withstand significant shocks given our strong levels of capital. Turning to our portfolio, loan purchase volume growth was strong in the renewable energy and farm and ranch sectors, reflecting borrower's adjustment to the current interest rate environment. We've purchased more renewable energy loans in the first half of 2024 than in all of last year, reflecting the continuous strong demand for renewable power generation and storage, as well as the continuing expansion of our team.

Speaker Change: We believe that our credit profile remains strong in the aggregate and that we would be able to withstand significant shocks given our strong levels of capital.

Speaker Change: Turning to our portfolio, loan purchase volume growth was strong in the renewable energy and farm and ranch segments, reflecting borrower's adjustment to the current interest rate environment.

Brad Norham: Reflecting borrowers' adjustment to the current interest rate environment. We purchased more renewable energy loans in the first half of 2024 than in all of last year. Reflecting the continuous strong demand for renewable power generation and storage, as well as the continuing expansion of our team. Outstanding volume in the renewable energy segment has more than doubled since the second quarter last year, and our pipeline remains very strong, heading into the second half of the year. As previously mentioned, renewable energy loans are aligned with our mission, while being accretive to revenues and effective spreads relative to our other eligible loans.

Speaker Change: We've purchased more renewable energy loans in the first half of 2024 than in all of last year.

Speaker Change: reflecting the continuous strong demand for renewable power generation and storage as well as the continuing expansion of our team.

Bradford Nordholm: Outstanding volume in the renewable energy segment has more than doubled since the second quarter last year, and our pipeline remains very strong heading into the second half of the year. As previously mentioned, renewable energy loans are aligned with our mission while being accretive to revenues and net effective spread, relative to our other eligible loans. Within our Farm and Ranch segment, we closed $700 million in new farm and ranch loan purchase volume in the first half of this year. That compares with a total of $780 million for the full year of 2023.

Speaker Change: Outstanding volume in the renewable energy segment has more than doubled since the second quarter last year and our pipeline remains very strong heading into the second half of the year.

Speaker Change: As previously mentioned, Renewable Energy Loans are aligned with our mission while being accretive to revenues and net effective spreads relative to our other eligible loans.

Brad Norham: Within our farm and ranch segment, we closed $700 million in new farm and ranch loan-purchased volume in the first half of this year. That compares with the total of $780 million in the full year of 2023. We believe we'll see this positive momentum continue to the remainder of the year, as tightening bank liquidity and adjustment to a higher rate environment with a near-term expectation of Federal Reserve Bank policy easing has taken hold. The forecasted decline in farm income relative to prior years is expected to drive more loan volume, including potential pool purchases, like the one we acquired earlier this year.

Speaker Change: Within our Farm and Ranch segment, we closed $700 million of new Farm and Ranch loan purchase volume in the first half of this year. That compares with a total of $780 million in the full year of 2023.

Bradford Nordholm: We believe we'll see this positive momentum continue for the remainder of the year as tightening bank liquidity and an adjustment to a higher rate environment with a near-term expectation of Federal Reserve Bank policy easing take hold. The forecasted decline in farm income relative to prior years is expected to drive more long volume, including potential pool purchases like the one we acquired earlier this year. We are incredibly pleased to see strong momentum in the farm and ranch segment.

Speaker Change: We believe we'll see this positive momentum continue for the remainder of the year as tightening bank liquidity and adjustment to a higher rate environment with a near-term expectation of Federal Reserve Bank policy easing has taken hold.

Speaker Change: The forecasted decline in farm income relative to prior years is expected to drive more land volume, including potential pool purchases like the one we acquired earlier this year.

Brad Norham: We are incredibly pleased to see strong momentum in the farm and ranch segment. It is a segment that is core to our mission, and growth in this segment continues to propel our securitization program, where we have seen strong industrial demand. As we discussed on our last earnings call, we closed our fourth farm series to curitization transaction on the second quarter and we're currently working on our fifth transaction for sometime potentially later this year. We are very pleased with the tremendous support we've seen from our customers and investors for this program and remain committed to being a regular issue in the market for the set of securitization products that align with both our power and investor interests.

Speaker Change: We are incredibly pleased to see strong momentum in the farm and ranch segment. It is a segment that is core to our mission and growth in this segment continues to propel our securitization program where we have seen strong investor demand.

Bradford Nordholm: It is a segment that is core to our mission, and growth in this segment continues to propel our securitization program, where we have seen strong investor demand. As we discussed on our last earnings call, we closed our fourth farm series securitization transaction in the second quarter, and we're currently working on our fifth transaction, for some time potentially later this year. We are very pleased with the tremendous support we've seen from our customers and investors for this program and remain committed to being a regular issuer in the market for the set of securitization products that align with both our power and investor interests. As we look ahead, we are likely entering a period of macroeconomic level volatility, and farm income is projected to trend downward.

Speaker Change: As we discussed on our last earnings call, we closed our fourth farm series securitization transaction in the second quarter. And we're currently working on our fifth transaction for some time potentially later this year.

Speaker Change: We are very pleased with the tremendous support we've seen from our customers and investors for this program and remain committed to being a regular issuer in the market for the set of securitization products that align with both our and investor interests.

Brad Norham: As we look ahead, we are likely entering a period of macroeconomic level ball volatility. Farm income is projected to trend downward, but that coupled with possible Fed policy easing might create loan purchase opportunities for us at our farm and ranch segment. Amendment. We continue to serve as an attractive financing alternative for wholesale counterparties in addressing their liquidity needs. But we have seen and expect to continue to see business volume and a managed securities to be volatile due to slower market loan growth and a tightening of credit spreads, resulting in reduced liquidity needs from our counterparties.

Speaker Change: As we look ahead, we are likely entering a period of macroeconomic-level volatility. Farm income is projected to trend downward, but that, coupled with possible Fed policy easing, might create loan purchase opportunities for us in our farm and ranch segment.

Bradford Nordholm: But that, coupled with possible Fed policy easing, might create loan purchase opportunities for us on our farm and ranch. We continue to serve as an attractive financing alternative for our wholesale counterparties in addressing their liquidity needs, but we have seen and expect to continue to see business volume and advantage securities to be volatile due to slower market loan growth and a tightening of credit spreads resulting in reduced liquidity needs from our counterparties.

Speaker Change: We continue to serve as an attractive financing alternative for our wholesale counterparties in addressing their liquidity needs.

Speaker Change: But we have seen, and expect to continue to see, business volume and age-advantaged securities to be volatile due to slower market loan growth and a tightening of credit spreads resulting in reduced liquidity needs from our counterparties.

Brad Norham: But volatility is expected in the short term. Over time, we do anticipate further growth in our ag-vantage business volume, given the relative value of this product for our counterparties. And very pleased with how we are executing this company in what continues to be an uncertain economic, credit, and interest rate backdrop. We are maintaining our disband asset liability management, uninterrupted access to capital markets, and a strong capital base while producing a double-digit return on equity of 16 percent. Excluding the credit expense, our return on equity was 18 percent. The overall earnings story continues to be consistent; the diversification into revenue streams, particularly renewable energy, and our other newer business portfolios.

Bradford Nordholm: While volatility is expected in the short term, over time, we do anticipate further growth in our AgVantage business volume given the relative value of this product for our counterparty. I'm very pleased with how we are executing as a company in what continues to be an uncertain economic credit and interest rate backdrop. We are maintaining our disciplined asset liability management, uninterrupted access to capital markets, and a strong capital base while producing a double-digit return on equity of 16%. Excluding the credit expense, our return on equity was 18%.

Speaker Change: While volatility is expected in the short term, over time we do anticipate further growth in our AgVantage business volume given the relative value of this product for our counterparties.

Speaker Change: I'm very pleased with how we are executing as a company in what continues to be an uncertain economic credit and interest rate backdrop.

Speaker Change: We are maintaining our disciplined asset liability management, uninterrupted access to capital markets, and a strong capital base, while producing a double-digit return on equity of 16%.

Speaker Change: Excluding the credit expense, our return on equity was 18%.

Bradford Nordholm: The overall earnings story continues to be consistent. The diversification into revenue streams, particularly renewable energy, and our other newer business portfolio. And the resilience of our business model supports our long-term strategic growth objectives while also providing a buffer against market volatility and a changing credit environment. As we look forward, we're encouraged by the momentum we've seen since the start of the year. We believe that we are well positioned to make continuous progress on our long-term strategic growth initiatives to further our mission efficiently and innovatively as we navigate this backdrop of broader market uncertainty. And now, with that, I'd like to turn the call over to Aparna Ramesh, our CFO, to discuss our financial results in more detail. Aparna.

Speaker Change: The overall earnings story continues to be consistent. The diversification into revenue streams, particularly renewable energy, and our other newer business portfolios.

Brad Norham: And the resilience of our business model supports our long-term strategic growth objectives while also providing a buffer against market volatility and a changing credit environment. As we look forward, we're encouraged by the momentum we've seen since the start of the year. We believe that we are well positioned to make continuous progress on our long-term strategic growth initiatives to further our mission efficiently and innovatively as we navigate this backdrop of broader market uncertainty.

Speaker Change: And the resilience of our business model supports our long-term strategic growth objectives while also providing a buffer against market volatility and a changing credit environment.

Speaker Change: As we look forward, we're encouraged by the momentum we've seen since the start of the year.

Speaker Change: We believe that we are well positioned to make continuous progress on our long-term strategic growth initiatives.

Speaker Change: To further our mission efficiently and innovatively as we navigate this backdrop of broader market uncertainty.

Aparna Ramesh: And now with that, I'd like to turn the call to a partner, Remiss, or see a flow to discuss our financial results in more detail. A partner.

Speaker Change: And now with that, I'd like to turn the call to Aparna Ramesh, our CFO , to discuss our financial results in more detail. Aparna.

Aparna Ramesh: Thank you, Brad, and good afternoon, everyone. Our second quarter, 2024 results highlight our consistent, financial, and operational execution. That coupled with proactive management of our balance sheet and funding sources have resulted in outstanding business volume of $28.8 million as of June 30th. This represents a net decrease of $88.9 million from March 31st, 2024, largely due to scheduled maturity and repayments in the agricultural finance line of business. During the quarter, $785 million in farm and ranch advantage securities matured without refinancing, reflecting counterparties evaluating their liquidity needs amid the ongoing market dynamics. Changes in the quarterly Advantage Securities volume are primarily driven by the larger transaction sizes for the product.

Aparna Ramesh: Thank you, Brad, and good afternoon, everyone. Our second quarter 2024 results highlight consistent financial and operational execution that, coupled with proactive management of our balance sheet and funding sources, have resulted in outstanding business volume of $28.8 billion as of June 31. This represents a net decrease of $88.9 million from March 31, 2024, largely due to scheduled maturities and repayments in the agricultural finance line of business. During the quarter, $785 million in farm and ranch advantage securities matured without refinancing, reflecting counterparties evaluating their liquidity needs amid the ongoing market dynamics.

Aparna Ramesh: Thank you, Brad, and good afternoon, everyone.

Aparna Ramesh: Our second quarter 2024 results highlight our consistent financial and operational execution that coupled with proactive management of our balance sheet and funding sources have resulted in outstanding business volume of $28.8 billion as of June 30th.

Speaker Change: This represents a net decrease of $88.9 million from March 31, 2024, largely due to scheduled maturities and repayments in the agricultural finance line of business.

Speaker Change: During the quarter, $785 million in farm and ranch advantage securities matured without refinancing, reflecting counterparties evaluating their liquidity needs amid the ongoing market dynamics.

Aparna Ramesh: Changes in the quarterly advantage security volume are primarily driven by the larger transaction sizes for the product, scheduled maturity amounts for a particular quarter, the liquidity needs of Pharmamax Advantage counterparties, changes in the pricing and availability of wholesale funding, and the relative value of our wholesale financing products versus other funding alternatives. Based on all these factors, we expect our advantaged business volume in both lines of business to continue to be volatile as we meet the evolving needs of our stakeholders. While volume declined on a net basis, there was strong activity in our farm and ranch and our renewable energy sectors.

Speaker Change: Changes in the quarterly advantage security volume are primarily driven by the larger transaction sizes for the product.

Aparna Ramesh: Scheduled maturity amounts for a particular quarter, the liquidity needs the farm and ranch advantage counterparties, changes in the pricing and availability of wholesale funding, and the relative value of our wholesale financing products versus other funding alternatives. Based on all these factors, we expect advantage business volume in both lines of business to continue to be volatile as we navigate the evolve. Loving needs of Ustic holders. While volume declined on the net basis, there was strong activity in a farm and ranch and our renewable energy segments. The activity in those two business segments included strong loan purchase volume, which is generally more accretive and higher spread relative to Advantage securities.

Speaker Change: Scheduled maturity amounts for a particular quarter, the liquidity needs of Pharmamax Advantage counterparties, changes in the pricing and availability of wholesale funding, and the relative value of our wholesale financing products versus other funding alternatives.

Speaker Change: Based on all these factors, we expect Advantage Business Volume in both lines of business to continue to be volatile as we navigate the evolving needs of our stakeholders.

Speaker Change: While volume declined on a net basis, there was strong activity in our farm and ranch and our renewable energy segments.

Aparna Ramesh: The activity in those two business segments included strong loan purchase volume, which is generally more accretive and higher spread relative to advantage security. This high spread business volume drove the quarter-over-quarter increase in all. Core earnings were $39.8 million, or $3.63 per share, in Q2 2024, reflecting a $3.6 million decrease sequentially and a $2.4 million decrease year-over-year. The sequential and year-over-year change in core earnings was primarily due to a $6.2 million provision to the total allowance for loss.

Speaker Change: The activity in those two business segments included strong loan purchase volume, which is generally more accretive, and higher spread relative to advantage securities. This higher spread business volume drove the quarter-over-quarter increase in NES.

Aparna Ramesh: This higher spread business volume drove the quarter-over-quarter increase in NES. Core earnings were $39.8 million or $3.63 per share in second quarter 2024, reflecting a $3.6 million decrease sequentially and a $2.4 million decrease year-o-year. The sequential and year-o-year change in core earnings was primarily due to a $6.2 million provision to the total allowance for losses. That provision was primarily attributable to a single permanent planting loan that is in bankruptcy, and this resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollectable. The other factor is the increase in loan volume related to renewable energy loan purchases.

Speaker Change: Core earnings were $39.8 million, or $3.63 per share, in Q2 2024, reflecting a $3.6 million decrease sequentially and a $2.4 million decrease year-over-year.

Speaker Change: The sequential and year-over-year change in core earnings was primarily due to a $6.2 million provision to the total allowance for losses.

Aparna Ramesh: That provision was primarily attributable to a single permanent planting loan that is in bankruptcy, and this resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollected. The other factor is an increase in loan volume related to renewable energy loan purchases. Core earnings, net of credit, however, increased by 7% sequentially and 4% year-over-year.

Speaker Change: That provision was primarily attributable to a single permanent planting loan that is in bankruptcy, and this resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollectible.

Speaker Change: The other factor is the increase in loan volume related to renewable energy loan purchases.

Aparna Ramesh: Core is up by 7% sequentially and 4% year-o-year. Offsetting the impact of the higher provision and higher funding cost with quarter was an increase in net effective spread and is noted it was driven by the compositional shift in new business volume to higher spread products. We did see an increase in funding costs from the opportunistic issuance of debt at advantageous rates, which we did in advance of funding needs. As we mentioned on prior calls, we achieved record levels of net effective spread over the course of 2023. As we benefited from the rapid rise in short-term rates and by reinvesting excess capital, we generated additional return from an upward repricing of our short-term investment portfolio.

Speaker Change: Core earnings, net of credit, however, increased by 7% sequentially and 4% year-over-year.

Aparna Ramesh: Offsetting the impact of the higher provision and higher funding costs this quarter was an increase in net effective spread, and it is noted that this was driven by the compositional shift in new business volume to higher spread products. We did see an increase in funding costs from the opportunistic issuance of debt at advantageous rates, which we did in advance of funding. As we've mentioned on prior calls, we achieved record levels of net effective spread over the course of 2020, as we benefited from the rapid rise in short-term rates and, by reinvesting excess capital, we generated additional return from an upward repricing of our short-term investment portfolio.

Speaker Change: Offsetting the impact of the higher provision and higher funding costs this quarter was an increase in net effective spread, and as noted, it was driven by the compositional shift in new business volume to higher spread products.

Speaker Change: We did see an increase in funding costs from the opportunistic issuance of debt at advantageous rates, which we did in advance of funding needs.

Speaker Change: As we've mentioned on prior calls, we achieved record levels of net effective spread over the course of 2023.

Speaker Change: as we benefited from the rapid rise in short-term rates.

Speaker Change: And by reinvesting excess capital, we generated additional return from an upward repricing of our short-term investment portfolio.

Aparna Ramesh: The capital in debt that we raised proactively and opportunistically when rates were at historical lows in 2020 and 2021 positioned us well throughout the rising rate environment and ongoing market uncertainty. But at the time that we raised that capital, we did see a reduction in earnings. In a similar fashion, we have now made a decision to opportunistically lengthen the tenor of our liquidity investment portfolio as part of our overall balance sheet management strategy and to mitigate volatility from decreases in the rate environment. While we might sacrifice some short-term earnings from keeping the investment portfolio short, as we move into the anticipated said easing cycle, we expect to be well positioned in the medium term.

Aparna Ramesh: The capital and debt that we raised proactively and opportunistically when rates were at historical lows in 2020 and 2021 positioned us well throughout the rising rate environment and ongoing market uncertainty. However, at the time that we raised that capital, we did see a reduction in earnings.

Speaker Change: The capital and debt that we raised proactively and opportunistically when rates were at historical lows in 2020 and 2021 positioned us well throughout the rising rate environment and ongoing market uncertainty.

Speaker Change: But, at the time that we raised that capital, we did see a reduction in earnings.

Aparna Ramesh: In a similar fashion, we have now made a decision to opportunistically lengthen the tenor of our liquidity investment portfolio as part of our overall balance sheet management strategy and to mitigate volatility from decreases in the rate environment. While we might sacrifice some short-term earnings from keeping the investment portfolio sharp, as we move into the anticipated Fed's easing cycle, we expect to be well-positioned in the medium-term. We also executed on some attractive opportunities in the first quarter to increase our debt issuances, and we expect to reap those benefits as business volumes start to excel.

Speaker Change: In a similar fashion, we have now made a decision to opportunistically lengthen the tenor of our liquidity investment portfolio as part of our overall balance sheet management strategy and to mitigate volatility from decreases in the rate environment.

Speaker Change: While we might sacrifice some short-term earnings from keeping the investment portfolio sharp, as we move into the anticipated Fed's easing cycle, we expect to be well-positioned in the medium term.

Aparna Ramesh: We also executed on some attractive opportunities in the first quarter to increase our debt issuances, and we expect to reap those benefits as well as business volumes start to accelerate. Of setting some of these increases in funding and liquidity expenses was the strategic sale of investment securities that yielded a gain of $1.1 million. The sale of these securities was done to rebalance the liquidity investment portfolio to align with the current level of business volume activity, while allowing us to test the market and our portfolio. for contingent liquidity. Even with the sale, we remain highly liquid.

Speaker Change: We also executed on some attractive opportunities in the first quarter to increase our debt issuances, and we expect to reap those benefits as well as business volumes start to accelerate.

Aparna Ramesh: Offsetting some of these increases in funding and liquidity expenses was a strategic sale of investment securities that yielded a gain of $1.1 million. The sale of these securities was done to rebalance the liquidity investment portfolio to align with the current level of business volume activity while allowing us to test the market and our portfolio for contingent liquidity. Even with the sale, we remain highly liquid.

Speaker Change: Offsetting some of these increases in funding and liquidity expenses was a strategic sale of investment securities that yielded a gain of $1.1 million.

Speaker Change: The sale of these securities was done to rebalance the liquidity investment portfolio to align with the current level of business volume activity while allowing us to test the market and our portfolio for contingent liquidity.

Aparna Ramesh: As of June 30th, we held approximately $900 million in cash and other short-term instruments in our investment portfolio. Another factor driving our earnings results this quarter was the sale of a portion of a corporate ag finance, agricultural, storage, and processing business. The decision to sell a portion of the corporate ag finance loan that resulted in a loss of $1.1 million during this quarter was really to reduce the overall exposure to the borrower due to an updated credit profile. After the sale of this loan, the borrower restructured its credit facilities and addressed the short-term headwinds. Farmamax's exposure to that loan was $7.4 million as of June 30, 2024.

Aparna Ramesh: As of June 30, we held approximately $900 million in cash and other short-term instruments in our investment portfolio. Another factor driving our earnings results with quarter was the sale of a portion of a corporate agsonance agricultural storage and processing loan. The decision to sell a portion of the corporate agsonance loan that resulted in a loss of $1.1 million during this quarter was really to reduce the overall exposure to the borrower due to an updated credit profile. After the sale of this loan, the borrower restructured its credit facilities and addressed the short-term headwinds. PharmaMax exposure to that loan was $7.4 million as of June 30, 2024.

Speaker Change: Even with the sale, we remain highly liquid. As of June 30th, we held approximately $900 million in cash and other short-term instruments in our investment portfolio.

Speaker Change: Another factor driving our earnings results this quarter was the sale of a portion of a corporate ag finance, agricultural storage and processing loan.

Speaker Change: The decision to sell a portion of the corporate ag finance loan that resulted in a loss of $1.1 million during this quarter was really to reduce the overall exposure to the borrower due to an updated credit profile.

Speaker Change: After the sale of this loan, the borrower restructured its credit facilities and addressed the short-term headwinds.

Speaker Change: Farmamax exposure to that loan was $7.4 million as of June 30, 2024.

Aparna Ramesh: The market valuation of this particular exposure has since improved, given the restructuring. Our liquidity and capital positions remain well in excess of all regulatory requirements. And our projections show minimal change in our profitability and limited exposure to movements in interest rates where the market rates go up or down. As of June 30, 2024, PharmaMax had 283 days of liquidity, which is another important data point that validates our expected resiliency against short- and medium-term market disruptions. We project flat to higher earnings if rates decline in the future due to our proactive capital allocation strategy, where we are laddering and layering duration to minimize volatility.

Aparna Ramesh: The market valuation of this particular exposure has since improved given the restructuring. Our liquidity and capital positions remain well in excess of all regulatory requirements, and our projections show minimal change in our profitability and limited exposure to movements in interest rates where market rates go up or down. As of June 30, 2024, PharmaMac had 283 days of liquidity, which is another important data point that validates our expected resiliency against short- and medium-term market disruption. We project flat to higher earnings if rates decline in the future.

Speaker Change: The market valuation of this particular exposure has since improved given the restructuring.

Speaker Change: Our liquidity and capital positions remain well in excess of all regulatory requirements.

Speaker Change: And our projections show minimal change in our profitability and limited exposure to movements and interest rates where the market rates go up or down.

Speaker Change: As of June 30, 2024, PharmaMac had 283 days of liquidity, which is another important data point that validates our expected resiliency against short- and medium-term market disruptions.

Speaker Change: We project flat to higher earnings if rates decline in the future.

Aparna Ramesh: Due to our proactive capital allocation strategy, where we are laddering and layering duration to minimize volatility. These are practices, as we've noted previously, that are consistent with our disciplined asset liability management approach, which is designed to help minimize earnings volatility over the medium to long term. Despite macro headwinds and widening credit spreads that have affected many primary issuers of debt securities recently, we continue to see strong access to debt capital markets and a flight to quality investments.

Speaker Change: Due to our proactive capital allocation strategy, where we are laddering and layering duration to minimize volatility.

Aparna Ramesh: These are practices, as we've noted previously, that are consistent with our disciplined asset liability management approach, which is designed to help minimize earning volatility over the medium to long term. Despite macro headwinds and widening credit spreads that have affected many primary issuers of debt securities recently, we continue to see strong access to debt capital markets and a flight to quality investments. These factors, coupled with opportunistic debt issuances, allow us to be very well positioned to creatively fund new asset opportunities as they arise. Operating expenses declined by 10% sequentially, primarily due to a decrease in consulting costs related to technology strategic initiatives.

Speaker Change: These are practices, as we've noted previously, that are consistent with our disciplined asset liability management approach, which is designed to help minimize earnings volatility over the medium to long term.

Speaker Change: Despite macro headwinds and widening credit spreads that have affected many primary issuers of debt securities recently, we continue to see strong access to debt capital markets and a flight to quality investments.

Aparna Ramesh: These factors, coupled with opportunistic debt issuances, allow us to be very well positioned to creatively fund new asset opportunities as they arise. Operating expenses declined by 10% sequentially, primarily due to a decrease in consulting costs related to strategic initiatives. However, operating expenses increased 2% year-over-year, primarily due to increased headcount and increased stock compensation.

Speaker Change: These factors, coupled with opportunistic debt issuances, allow us to be very well positioned to accretively fund new asset opportunities as they arise.

Speaker Change: Operating expenses declined by 10% sequentially, primarily due to a decrease in consulting costs related to technology strategic initiatives. Operating expenses increased 2% year-over-year, primarily due to increased headcount and increased stock compensation expense.

Aparna Ramesh: Operating expenses increased 2% year over year, primarily due to increased head count and increased stock compensation expense. Operating efficiency was 27% for the second quarter 2024, which is better than our long-term strategic plan target. We will closely monitor our efficiency ratio and manage it such that we expect to remain at or below a long run average of 30%. As we make investments in our loan infrastructure and funding platforms and continue to innovate our loan processes to accelerate growth, we plan to be disciplined in keeping our efficiency ratios in line with our growth expectations. As of June 30, 2024, the total allowance for losses was 18.6 million dollars, reflecting a 2.2 million dollar increase from March 31st, 2024.

Aparna Ramesh: Operating efficiency was 27% for the second quarter of 2024, which is better than our long-term strategic plan target. We will closely monitor our efficiency ratio and manage it such that we expect to remain at or below a long-run average of 30%. As we make investments in our loan infrastructure and funding platforms and continue to innovate our loan processes to accelerate growth, we plan to be disciplined in keeping our efficiency ratios in line with our growth expectations as of June 30th, 2024.

Speaker Change: Operating efficiency was 27% for second quarter 2024, which is better than our long-term strategic plan target.

Speaker Change: We will closely monitor our efficiency ratio and manage it such that we expect to remain at or below a long-run average of 30%.

Speaker Change: As we make investments in our loan infrastructure and funding platforms and continue to innovate our loan processes to accelerate growth, we plan to be disciplined in keeping our efficiency ratios in line with our growth expectations.

Aparna Ramesh: The total allowance for losses was $18.6 million, reflecting a $2.2 million increase from March 31, 2024. The increase was primarily attributable to a single permanent planting loan that is in bankruptcy, which resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollectible. The remaining $2.2 million provision, as noted previously, was the result of new business volume and higher yielding segments. Based on our point-in-time analysis, it's important to note that we do not believe that the charge-off on this one loan is indicative of a broader set of systemic risks within our portfolio. But we continue to closely monitor climate and weather-related effects on commodity prices and corresponding land valuation, especially across certain regions that have experienced drought.

Speaker Change: As of June 30th, 2024.

Speaker Change: The total allowance for losses was $18.6 million, reflecting a $2.2 million increase from March 31, 2024.

Aparna Ramesh: The increase was primarily attributable to a single permanent planting loan that isn't thanks. Cropsey, which resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollectable. The remaining $2.2 million provision has noted previously was a result of new business volume and higher yielding segments. Based on our point-in-time analysis, it's important to note that we do not believe that the charge-off on this one loan is indicative of a broader set of systemic risks within our portfolio. But we continue to closely monitor climate and weather-related effects on commodity prices and corresponding land valuation, especially across certain regions that have experienced drought.

Speaker Change: The increase was primarily attributable to a single permanent planting loan that is in bankruptcy, which resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollectible.

Speaker Change: The remaining $2.2 million provision, as noted previously, was the result of new business volume and higher yielding segments.

Speaker Change: Based on our point-in-time analysis, it's important to note that we do not believe that the charge-off on this one loan is indicative of a broader set of systemic risks within our portfolio.

Speaker Change: But we continue to closely monitor climate and weather-related effects on commodity prices and corresponding land valuation, especially across certain regions that have experienced drought.

Aparna Ramesh: Our overall credit profile continued to be stable across our agricultural and rural infrastructure portfolios through 2nd quarter 2024. And this is reflective of our rigorous credit policies and diligent underwriting practices. Ninety-date delinquencies as of June 30, 2024, reflect 22 basis points across our entire portfolio, compared to 17 basis points in the same period last year. Turning now to capital, Pharma Max $1.5 million of core capital, as of June 30, 2024, exceeded our statutory requirement by $626 million or 71%. Core capital increased sequentially, primarily due to an increase in retained earnings. Our tier 1 capital ratio, as of June 30, 2024, slightly decreased to 15.3% from 15.4% at year-end.

Aparna Ramesh: Our overall credit profile continued to be stable across our agricultural and rural infrastructure portfolios through second quarter 2024, and this is reflective of our rigorous credit policies and diligent underwriting practices. 90-day delinquencies as of June 30, 2024, reflect 22 basis points across our entire portfolio compared to 17 basis points in the same period last year. Turning now to capital, PharmaMac's $1.5 billion of core capital as of June 30, 2024 exceeded our statutory requirement by $626 million, or 71%. Core capital increased sequentially, primarily due to an increase in retained earnings.

Speaker Change: Our overall credit profile continued to be stable across our agricultural and rural infrastructure portfolios through second quarter 2024, and this is reflective of our rigorous credit policies and diligent underwriting practices.

Speaker Change: 90-day delinquencies as of June 30, 2024 reflect 22 basis points across our entire portfolio compared to 17 basis points in the same period last year.

Speaker Change: Turning now to capital, PharmaMac's $1.5 billion of core capital as of June 30, 2024 exceeded our statutory requirement by $626 million, or 71%.

Speaker Change: Core capital increased sequentially, primarily due to an increase in retained earnings. Our Tier 1 capital ratio, as of June 30, 2024, slightly decreased to 15.3% from 15.4% at year end.

Aparna Ramesh: Our Tier 1 capital ratio, as of June 30, 2024, slightly decreased to 15.3% from 15.4% at year end. On July 18, 2025, we redeemed $75 million of Ceres C-Preferred stock, which on its own will be accretive to core earnings beginning in the third quarter, assuming all other factors are considered.

Aparna Ramesh: On July 18, 2025, we redeemed 75 million of series-seat preferred stock, which on its own will be accretive to core earnings, beginning in the 3rd quarter. All other factors being equal. We consider several factors prior to making this decision, including our robust capital position, our securitization program, dividend strategy, and the recapitalization that has come from consistent earnings growth. Our levels of capitalization have remained strong and has not exceed all regulatory requirements. Maintaining credit standards that reflect our risk profile, coupled with strong levels of capital, is a fundamental part of our long-term strategy. We expect our strong capital position to allow us to grow in more capital intensive segments, enable us to remain resilient in volatile credit environments, and allow us to offer a source of low-cost liquidity for our customers and borrowers, even in difficult times.

Speaker Change: On July 18, 2025, we redeemed $75 million of Series C preferred stock, which on its own will be accretive to core earnings beginning in the third quarter, all other factors being equal.

Aparna Ramesh: We considered several factors prior to making this decision, including a robust capital position, a securitization program, dividend strategy, and the recapitalization that has come from consistent earnings growth. Our levels of capitalization have remained strong and, as noted, exceed all regulatory requirements. Maintaining credit standards that reflect our risk profile, coupled with strong levels of capital, is a fundamental part of our long-term strategy. We expect a strong capital position to allow us to grow in more capital-intensive segments, enable us to remain resilient in volatile credit environments, and allow us to offer a source of low-cost liquidity for our customers and borrowers, even in difficult times.

Speaker Change: We considered several factors prior to making this decision, including a robust capital position, a securitization program, dividend strategy, and the recapitalization that has come from consistent earnings growth.

Speaker Change: Our levels of capitalization have remained strong and, as noted, exceed all regulatory requirements.

Speaker Change: Maintaining credit standards that reflect our risk profile, coupled with strong levels of capital, is a fundamental part of our long-term strategy.

Speaker Change: We expect a strong capital position to allow us to grow in more capital-intensive segments, enable us to remain resilient in volatile credit environments, and allow us to offer a source of low-cost liquidity for our customers and borrowers, even in difficult times.

Aparna Ramesh: In conclusion, our entire team delivered strong quarterly results, maintaining the key metrics that we highlight on each call, while staying within our credit framework, which emphasizes loan-to-value and cash flow metrics. Notably, we delivered a 16% return on equity this quarter, 18% excluding the credit expense, and we also stayed below our efficiency ratio target of 30%. We believe that our balance sheet is well-positioned for market uncertainties, and we are more optimistic than ever to deliver on our long-term strategic plan objectives.

Aparna Ramesh: In conclusion, our entire team delivered strong quarterly results, maintaining the key metrics that we highlight on each call while staying within our credit framework, which emphasizes loan-to-value and cash flow metrics. Notably, we delivered a 16% return on equity this quarter, 18%, excluding credit expense. And we also stayed below our efficiency ratio target of 30%.

Speaker Change: In conclusion, our entire team delivered strong quarterly results, maintaining the key metrics that we highlight on each call, while staying within our credit framework, which emphasizes loan-to-value and cash flow metrics.

Speaker Change: Notably, we delivered a 16% return on equity this quarter, 18% excluding the credit expense, and we also stayed below our efficiency ratio target of 30%.

Aparna Ramesh: We believe that our balance sheet is well-positioned for market uncertainty, and we are more optimistic than ever to deliver on our long-term strategic plan objectives. And with that, Brad, let me turn it back. Thank you, Aparna.

Speaker Change: We believe that our balance sheet is well-positioned for market uncertainty and we are more optimistic than ever to deliver on our long-term strategic plan objectives.

Brad Norham: And with that, Brad, let me turn it back to you. Thank you, Carla. As we've attempted to highlight one more quarter for you, our business model is resilient and diversified. Our balance sheet is very healthy, and our team is as committed as ever.

Speaker Change: And with that, Brad, let me turn it back to you.

Bradford Nordholm: As we've attempted to highlight one more quarter for you, our business model is resilient and diversified, our balance sheet is very healthy, and our team is as committed as ever. We operate with high capital levels, and we are well-positioned to deliver earnings growth and strong profitability for the remainder of 2024. We've emphasized that our ability to issue long-dated fixed-rate debt in all rate environments, bolstered by a growing securitization program, is a core competitive advantage.

Brad Nordholm: Thank you, Aparna.

Speaker Change: As we have attempted to highlight one more quarter for you, our business model is resilient and diversified.

Speaker Change: Our balance sheet is very healthy, and our team is as committed as ever.

Brad Norham: River. We operate with high capital levels, and we are well positioned to deliver earnings growth and strong profitability for the remainder of 2024. We've emphasized that our ability to issue long-data fixed rate debt in all rate environments, bolstered by our growing securitization program, is a core competitive advantage. That advantage combined with our diverse wide revenue strategies and our discipline approach to asset life-vote management is resulted in consistent spreads across all business cycles, including the second quarter of 2024.

Speaker Change: We operate with high capital levels and we are well positioned to deliver earnings growth and strong profitability for the remainder of 2024.

Speaker Change: We've emphasized that our ability to issue long-dated fixed-rate debt in all rate environments

Speaker Change: bolstered by a growing securitization program is a core competitive advantage.

Bradford Nordholm: That advantage, combined with our diversified revenue strategies and our disciplined approach to asset liability management, has resulted in consistent spreads across all business cycles, including the second quarter of 2024. Now, operator, I'd like to see if we have any questions from anyone on the line today.

Speaker Change: That advantage, combined with our diversified revenue strategies and our disciplined approach to asset liability management, has resulted in consistent spreads across all business cycles, including the second quarter of 2024.

Operator: And now operator, I'd like to see if we have any questions from anyone on the line today. Thank you.

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

Operator: 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 one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please make sure to lift the handset before pressing any buttons. Your first question comes from the line of Bose George from KWB. Please go ahead.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star, followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the number two. If you are using a speaker phone, please make sure to lift the handset before pressing any keys.

Speaker Change: 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 one on your touchtone phone. You will hear a prompt that your hand has been raised.

Speaker Change: Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift the handset before pressing any keys.

Bose George: Your first question comes from the line of Bose George from KWB. Please go ahead. Everyone, good afternoon. I wanted to ask about, actually a part now, you made a, you stated that you expect flat to higher earnings, you know, as rates go down. I was curious, are you expecting flat to higher spreads as well, or is this the combination of spreads and, you know, and volume growth? Yeah, that's correct. You know, both as we, you know, we stress test our volume sheet on a monthly basis in terms of exposure to nominal interest rates. And so when we sort of head into a, what I would call a said easing cycle, you know, what we see is a, I would say a marginal improvement in our net effective spread in terms of just margin.

Speaker Change: Your first question comes from the line of Bose George from KWB. Please go ahead.

Bose George: Everyone, good afternoon. I wanted to ask about, actually Aparna, you made a, you stated that you expected flat to higher earnings as rates go down. I was curious, are you expecting flat to higher spreads as well, or is this the combination of spreads and, you know, and volume growth?

Bose George: Everyone, good afternoon. I wanted to ask about, Aparna, you made a, you stated that you expect flat to higher earnings, you know, as rates go down. I was curious, are you expecting flat to higher spreads as well, or is this the combination of spreads and, you know, and volume growth?

Aparna Ramesh: Yeah, that's correct. You know, both as we, as you know, we stress test our balance sheet on a monthly basis in terms of exposure to nominal interest rates. And so when we sort of head into what I would call a Fed easing cycle, you know, what we see is, I would say, a marginal improvement in our net effective spread in terms of just margin. If you go back, I'll just give you a couple of data points.

Aparna Ramesh: Yeah, that's correct. You know, as you know, we stress test our balance sheet on a monthly basis in terms of exposure to nominal interest rates. And so when we

Speaker Change: sort of head into a, what I would call a Fed easing cycle, you know, what we see is a, I would say a marginal improvement in our net effective spread.

Aparna Ramesh: If you go back a couple of years, you probably would have seen levels of net effective spread that are very similar to where we're at right now. What we've talked about relative to. You know, some of the runoff that we saw in our spread last year had to do with our exposure to our investment portfolio staying pretty short. And by lengthening that, we certainly started to slowly give up.

Brad Norham: If you go back, you know, I'll just give you a couple of data points. If you go back a couple of years, you probably would have seen levels of net effective spread that are very similar to where we're at right now. What we've talked about relative to, you know, some of the run-ups that we saw in our spread last year had to do with our exposure to our investment portfolio, saying, pretty short. And by lengthening that, we suddenly started to slowly give up some of those gains that we picked up last year. So most of that, you know, about four basis points or so, is driven by, you know, funding.

Speaker Change: In terms of just margins, if you go back, you know, I'll just give you a couple of data points. If you go back a couple of years,

Speaker Change: You probably would have seen levels of net effective spread that are very similar to where we're at right now.

Speaker Change: of what we've talked about relative to

Speaker Change: You know, some of the run-ups that we saw in our spread last year had to do with our exposure to our investment portfolio staying pretty short.

Speaker Change: and by lengthening that, we certainly started to slowly give up.

Aparna Ramesh: Some of those gains that we picked up last year, so most of that, you know, about 4 basis points or so is driven by funding, and the funding dynamic is such that it's likely to reverse both in terms of spread but also earnings as we start to move into a Fed easing cycle. Just to expand a little bit on that, you know, just in the past month, we've seen the 10-year treasury come down by close to And so, as we've lengthened our investment portfolio, we will start to see the benefit of that because that's really locked in over the medium to long term.

Speaker Change: Some of those gains that we picked up last year. So most of that, you know, about four basis points or so is driven by, you know, funding.

Brad Norham: And the funding dynamic is such that it's likely to reverse both in terms of spread, but also earnings as we start to move into a said easing cycle. You know, just expand a little bit on that. You know, in the past month, we've seen the ten-year treasury come down by close to 50 basis points. And so, as we've lengthened our investment portfolio, we will start to see the benefit of that because that's, that's really locked in over the medium to long term. On a spread basis, it's really hard to project exactly how much that's going to be because that's going to depend just on, you know, the compositional shifts overall in terms of our asset portfolio, but everything else remaining equal.

Speaker Change: And the funding dynamic is such that it's likely to reverse, both in terms of spread but also earnings, as we start to move into a Fed easing cycle. You know, just to expand a little bit on that, you know, just in the past month we've seen the 10-year Treasury come down by close to 50 basis points.

Speaker Change: And so as we've lengthened our investment portfolio, we will start to see the benefit of that because that's really locked in over the medium to long term.

Aparna Ramesh: On a spread basis, it's really hard to project exactly how much that's going to be because that's going to depend just on, you know, the compositional shift overall in terms of our asset portfolio, but everything else remaining equal. If you were to just extrapolate from where we are today and account for that dynamic, you should see a pickup both in terms of earnings as well as in terms of just NES spread.

Speaker Change: On a spread basis, it's really hard to project exactly how much that's going to be because that's going to depend just on, you know, the compositional shifts overall in terms of our asset portfolio, but everything else remaining equal.

Brad Norham: If you work to just extrapolate from where we are today, and account for that dynamic, you should see a pick up both in terms of earnings as well as in terms of just NES spread. You know, I'll just mention one more thing, and that is we did see a little bit of what I would call a deceleration in our spread because we funded in advance of earnings, but, or I'm sorry, in advance of volume, so we should really start to see a little bit of a pick up there as well, but it's hard to project exactly when that might happen.

Speaker Change: If you were to just extrapolate from where we are today, and account for that dynamic, you should see a pickup both in terms of earnings as well as in terms of just NES spread.

Aparna Ramesh: I'll just mention one more thing, and that is, we did see a little bit of what I would call a deceleration in our spread because we funded in advance of earnings, but, I'm sorry, in advance of volume. So we should, we should really start to see a little bit of a pickup there as well, but it's hard to project exactly when that might be.

Speaker Change: You know, I'll just mention one more thing and that is.

Speaker Change: We did see a little bit of what I would call a deceleration in our spread because we funded in advance of earnings, but I'm sorry, in advance of volume. So we should, we should really start to see a little bit of a pickup there as well. But it's hard to project exactly when that might occur.

Bose George: Okay. Great. That's helpful. Thanks.

Bose George: Okay, great. That's helpful. Thanks. And I wanted to ask also just about the mortgage loan, not the charged-up one, but the one that was sold during the quarter. What's the status of that? How did the borrower, what work was done with the borrower for them to be current and just comfortable in that loan going forward?

Bose George: And I wanted to ask also just about the mortgage loan, not to charge up one, but the one that was sold during the quarter. You know, what status of that? How did the borrower, you know, what work was done with the borrower for them to be current and just yet, comforting that loan going forward?

Speaker Change: Okay, great. That's helpful. Thanks. And I wanted to ask also just about the mortgage loan, not the charge-off one, but the one that was sold during the quarter.

Speaker Change: You know, what's the status of that? How did the borrower, you know, what work was done with the borrower for them to be current and just, you know, comfort in that loan going forward?

Brad Norham: Yeah, Bose, I'll, this is Brad. A nice happy on the call.

Bradford Nordholm: Yeah, Bose, this is Brad, and nice to have you on the call. I'll turn to Zach Carpenter to give you a little color on that decision process. Of course, hindsight is, you know, always a wonderful thing to have.

Speaker Change: Yeah, Bose, this is Brad. Nice to have you on the call. I'll turn to Zach Carpenter to give you a little color on that decision process. Of course, hindsight is, you know, always a wonderful thing to have.

Zach Carpenter: I'll turn to Zach Carpenter. You give you a little color on that decision process. Of course, hindsight is, you know, always a wonderful link to have. Yeah, thanks, Brad. Yeah, in this specific situation, the borrowers heading into 2024 with some industry headwinds, they had some adverse events and some of their manufacturing facilities and giving kind of that overall view of that specific situation. We decided to tactfully reduce our exposure to what I would say is a more palatable level, given that increase in risk. Post that sale, the borrower was able to restructure its facilities with 100% lender support and has completely rectified those adverse situations in this manufacturing plants, in addition to the easing in the industry headwinds that was facing last year.

Zachary Carpenter: Yeah, thanks, Brad. Yeah, in this specific situation, the borrower is heading into 2024 with some industry headwinds. They had some adverse events in some of their manufacturing facilities. And given this kind of overall view of that specific situation, we decided to tactfully reduce our exposure to what I would say is a more palatable level given that increase in risk. Post that sale, the borrower was able to restructure its facilities with 100% lender support and has completely rectified those adverse situations in its manufacturing plants.

Zach Carpenter: Yeah, thanks, Brad. Yeah, in this specific situation, the borrower is heading into 2024 with some industry headwinds.

Zach Carpenter: They had some adverse events in some of their manufacturing facilities and given kind of that overall view of that specific situation we decided to tactfully reduce our exposure to what I would say is more palatable level given that increase in risk.

Speaker Change: Post that sale, the borough was able to restructure its facilities with 100% lender support.

Speaker Change: and has completely rectified those adverse situations in its manufacturing plants.

Zachary Carpenter: In addition, we see some easing in the industry headwinds it was facing last year. So we feel comfortable with our exposure currently, and we feel optimistic that this individual borrower is moving in the right direction from an industry perspective as well as from its individual manufacturing facility perspective. Okay, great. Thank you.

Speaker Change: In addition, we see some easing in the industry headwinds it was facing last year, so we feel comfortable with our exposure currently and we feel optimistic that this individual borrower is moving in the right direction from an industry perspective as well as an individual manufacturing facility perspective.

Zach Carpenter: So we feel comfortable with our exposure currently. And we feel optimistic that this individual borrower is moving in the right direction from an industry perspective, as well as this individual manufacturing facility perspective.

Bose George: Okay, great. Thank you.

Speaker Change: OK, great. Thank you.

Bill Ryan: Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead. Good afternoon, Brad and the Partner. First question, just on the loan that you had the charge-off on of 3.9 million. If you can maybe talk a little bit more color about the nature of the loan, what makes it idiosyncratic relative to the rest of your portfolio. Maybe what's it an older loan, and then I also know you have a history of recognizing charge off, and then somewhere down the line you end up posting recovery. So, you know, has this loan fully resolved, or is it still kind of going through a process.

Operator: Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead.

Speaker Change: Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead.

William Ryan: Good afternoon, Brad and Aparna. First question, just on the loan that you had the charge off on, $3.9 million. If you can maybe talk a little bit more about the nature of the loan, what makes it idiosyncratic relative to the rest of your portfolio? Maybe it was an older loan? And then I also know you have a history of recognizing charge-offs, and then somewhere down the line, you end up posting recoveries. So has this loan been fully resolved, or is it still kind of going through a process?

Speaker Change: Good afternoon Brad and Aparna. First question just on the loan that you had the charge off on.

Bill Ryan: of $3.9 million. If you can maybe talk a little bit more color about the nature of the loan, what makes it

Bill Ryan: idiosyncratic relative to the rest of your portfolio? Maybe was it an older loan? And then I also know you have a history of recognizing charge offs. And then somewhere down the line, you end up posting recovery. So, you know, has this loan fully resolved? Or is it still kind of going through a process? Unknown Attendee

Bradford Nordholm: Yeah, again, great to have you on, and I'm going to turn to Marc Crady to give you a little color on some of the additional analysis we've done relative to sector exposure. But what made this one a bit unusual, really two things. One is that, you know, we've been closely monitoring the drought in California for the last four years, and we have extensive analysis about all of our crops, the sources of water they have, whether they have multiple sources of water, etc, etc. And I hope that, you know, you felt that we gave you a lot of insight into that and our work to stay on top of it.

Brad Norham: Yeah, again, great to have you on, and I'm going to turn to Mark Brady to give you a little color on some of the additional analysis we've done relative to sector exposure. But what made this one a bit unusual really two things. One is that, you know, we've been closely monitoring the drought in California the last four years; extensive analysis about all of our powers. The sources of water they have with their multiple sources of water, et cetera, et cetera, and I hope that, you know, you've felt that we gave you, you know, a lot of insight into that and our work to stay on top of it.

Bill Ryan: Yeah, again, great to have you on and I'm going to turn to Marc Crady to give you a little color on some of the additional analysis we've done relative to

Speaker Change: sector exposure, but what made this one a bit unusual, really two things.

Speaker Change: One is that, you know, we've been closely monitoring.

Speaker Change: The drought in California the last four years, extensive analysis about all of our bowers, the sources of water they have, whether they have multiple sources of water, et cetera, et cetera, and I hope that, you know, you felt that we gave you, you know, a lot of insight into that and our work to.

Bradford Nordholm: It's a bit ironic, but this bower actually suffered from too much water this last winter, because the moisture cycle kind of reversed itself. And more specifically, a lot of their plots were in areas in Delta country in California, where the combination of rising groundwater from the recharge as well as some issues with salinity resulted in the roots of the shoots, frankly, rotting. And that's something that you couldn't even see months in advance; it happened very, very quickly.

Brad Norham: Is a bit ironic, but this power actually suffered from too much water this last winter. Is that moisture cycle kind of reversed itself, and more specifically, a lot of their plots were in areas in the delta country. In California, where the combination of rising ground water from the recharge as well, some issues with the salinity resulted in the roots of the grows, frankly, rotting, and that's something you can even see months in advance that happened very, very quickly. So it was marginally located land and, frankly, operator that in retrospect made some decisions that were, you know, frankly, the wrong decisions.

Speaker Change: to stay on top of it.

Speaker Change: is a bit ironic, but this power actually suffered from

Speaker Change: too much water this last winter.

Speaker Change: is that moisture cycle kind of reversed itself.

Speaker Change: and more specifically, a lot of their plots were in areas in the Delta country.

Speaker Change: in California where the combination of rising groundwater from the recharge as well as some issues with salinity resulted in the roots of the grows frankly rotting.

Bradford Nordholm: So it was marginally located land and, frankly, an operator that, in retrospect, made some decisions that were, you know, frankly, the wrong decisions. So that's why we are characterizing this as idiosyncratic. We do not feel that our permanent crop portfolio has other issues, including systemic issues associated with that. Let me just turn to Marc to give you some insight into the analysis we've done to get to that conclusion as of today

Speaker Change: And that's something that you couldn't even see months in advance, it happened very, very quickly. So it was marginally located land, and frankly, an operator that, in retrospect, made some decisions that were, you know, frankly the wrong decisions.

Brad Norham: So that's why we are characterizing this as use and credit. We do not feel that our permanent crop portfolio has other issues, including systemic issues associated with that.

Speaker Change: So that's why we are characterizing this as idiosyncratic.

Speaker Change: We do not feel that our permanent...

Mark Grady: portfolio has other issues, including systemic issues associated with that. Let me just turn to Marc to give you some insight into the analysis we've done to get to that.

Mark Brady: Let me just turn to Mark to give you some insight into the analysis we've done to get to that conclusion as of today. I'll start off by talking about this loan in particular. You know, it turns out this borrower was a poor operator. That happens on occasion. Brad mentioned that this borrower had a number of acres in what I'll describe as poor growing regions; ironically, too much water instead of not enough in this past last six months or so. In addition, this borrower was in bankruptcy, and as part of that bankruptcy, there was an auction that was held under a pretty tight time frame.

Marc Crady: Yeah, I'll start out by talking about this loan in particular. It turns out this borrower was a poor operator. That happens on occasion.

Mark Grady: Conclusion as of today.

Mark Grady: Yeah, I'll start out by talking about this loan in particular. It turns out this borrower was a poor operator. That happens on occasion. Brad mentioned that this borrower had a number of acres in what I'll describe as poor growing regions. Ironically, too much water instead of not enough.

Marc Crady: Brad mentioned that this borrower had a number of acres in what I'll describe as poor growing regions, and ironically, too much water instead of not enough in these past six months or so. In addition, this borrower was in bankruptcy, and as part of that bankruptcy, there was an auction that was held under a pretty tight time frame. Our view is that that tight time frame may have suppressed, you know, buyer interest and potentially reduced sale prices.

Mark Grady: in this past last six months or so.

Speaker Change: In addition, this borough was in bankruptcy, and as part of that bankruptcy, there was an auction that was held under a pretty tight time frame. Our view is that that tight time frame may have suppressed...

Mark Brady: Your view is that that tight time frame they have suppressed, you know, buyer interest and potentially have reduced sale prices. And the borrower was a relatively large producer, and many thousand acres were put on the market all at once. Had we had a little bit more input into the way that auction would have been held, we would have sort of had those acres sort of sold over time rather than all at once. And Bill, I'll address your question around the charge-off, and we have had a history of where we've charged and then recovered. In this case, we don't think that's going to happen as part of the most recent sale of land. About 90% was sold, not all of it, but about 90%.

Speaker Change: You know buyer interest and and potentially have reduced sale prices

Marc Crady: And the borrower was a relatively large producer, and many thousands of acres were put on the market all at once. You know, had we had a little bit more input into the way that auction would have been held, we would have sort of, you know, had those acres sort of sold over time rather than all at once. And Bill, I'll address your question about the charge off. And we have had a history of where we've charged and then recovered.

Speaker Change: And the borrower was a relatively large producer, and many thousand acres were put on the market all at once. You know, had we, you know, had a little bit more input into the way that auction would have been held, we would have...

Speaker Change: sort of, you know, had those acres sort of sold over time rather than all at once.

Speaker Change: and Bill I'll address.

Bill Ryan: Your question around the charge off, and we have had a history of where we've charged and then recovered. In this case, we don't think that's going to happen.

Marc Crady: In this case, we don't think that's going to happen. As part of the most recent sale of land, about 90 percent was sold. Not all of it, but about 90 percent. And so we have pretty good insight into where we think our recovery is going to be. And therefore, we decided to take a charge rather than an allowance. And so, given a lot of the issues that I mentioned, we don't think we don't think this sale is representative of other situations in our portfolio. But, of course, we're keeping a close eye on all that.

Speaker Change: As part of the most recent sale of land, about 90% was sold, not all of it, but about 90%.

Bill Ryan: And so we have pretty good insight into where we think our recovery is going to be, and therefore we decided to take a charge rather than an allowance. And so, given a lot of those issues that I mentioned, we don't think this sale is representative of other situations in our portfolio, but of course we're keeping a close eye on all that. Okay, thanks for all that detail.

Speaker Change: And so we have pretty good insight into where we think our recovery is going to be. And therefore, we decided to take a charge rather than an allowance. And so given a lot of those issues that I mentioned, we don't think we don't think this is going to happen. Thank you.

Speaker Change: This sale is representative of other situations in our portfolio, but of course we're keeping a close eye on all that.

William Ryan: Okay, thanks for all that detail. And then, one follow-up question for Brad. Just, you know, an update on the farm bill, if you will. I've been reading that its passage looks like it's unlikely in 2024 and that the 2018 version is likely to be re-extended. Is that the case as you read it now, or might there be any modifications to the 2018 version?

Brad Norham: And then I, one follow-up question for Brad, just, you know, update on the farm bill, if you will. You know, I've been reading that it's passage. It looks like it's unlikely in 2024, and that's 2018. 2018 version is likely to be already extended. Is that the case that you're reading it now, or might there be any modifications to the 2018 bill? Yeah, well, first of all, our current business, current business does not depend on changes to the farm bill. As we've discussed, the couple, two, three matters in which we're potentially pursuing some changes, as we envision them, would be potential upsides to our business.

Speaker Change: Okay, thanks for all that detail and then one follow-up question.

Speaker Change: For Brad, just, you know, update on the farm bill, if you will. I've been reading that its passage looks like it's unlikely in 2024 and that the 2018 version is likely to be extended. Is that the case that you're reading it now, or might there be any modifications to the 2018 bill?

Bradford Nordholm: Yeah, well, first of all, our current business does not depend on changes to the Farm Bill, as we've discussed. The A couple, two, three matters in which we're potentially pursuing some changes as we envision them would be potential upsides to our business, but we really haven't baked that into our 2024 or even 2025 plan at this point.

Speaker Change: Aparna Ramesh, Bradford Nordholm, Jalpa Nazareth

Bradford Nordholm: Yeah, well, first of all, our current business, current business does not depend on changes to the Farm Bill. As we've discussed...

Bradford Nordholm: The

Speaker Change: A couple, two, three matters in which we're potentially pursuing some changes, as we envision them, would be potential upsides to our business, but we really haven't baked that into our 2024 or even 2025 plan at this point.

Brad Norham: But we really haven't backed that, baked that into our 2024 or even 2025 plan at this point. It's, it relates to where is the farm bill? It sounds like you've been staying abreast of it. And our reading, many of the same things we are taught bad, of course, is spending a lot of time on Capitol Hill. But you're correct. Getting debates scheduled, much less, you know, agreement coming out of the Senate version with, in their ability to release a draft bill, it just hasn't happened. And frankly, it's unlikely to happen as our analysis between now and the election.

Bradford Nordholm: As it relates to where the farm bill is, it sounds like you've been staying abreast of it and are reading many of the same things we are. Todd Batt, of course, is spending a lot of time on Capitol Hill, but you're correct. Getting debates scheduled, much less, you know, agreement, coming out of the Senate version with their ability to release a draft bill. It just hasn't happened.

Speaker Change: As it relates to where is the farm bill, it sounds like you've been staying abreast of it.

Speaker Change: and are reading many of the same things we are.

Todd Bata: Todd Bata, of course, is spending a lot of time on Capitol Hill, but you're correct. Getting debates scheduled, much less, you know, agreement.

Speaker Change: coming out of the Senate version with in their ability to release a draft bill it just hasn't happened and frankly it's unlikely to happen is our analysis between now and the election. There's a slight possibility that

William Ryan: And frankly, it's unlikely to happen in our analysis between now and the election. There's a slight possibility, depending on the outcome of both the presidential and general elections, as well as control of the House and the Senate, that there's a window between the election and the inauguration and the seating of the new Congress when it actually could get some floor time and possibly be pushed through. That would be a scenario under which Republicans don't feel that they're going to sweep or control all three institutions.

Brad Norham: There's a slight possibility that, depending on the outcome of both the President and General Austria, as well as control of the House and the Senate, that there's a window between the election and the inauguration and the seating of the new Congress when it actually could get some floor time and possibly be pushed through. That would be a scenario under which Republicans don't feel that they're going to sweep or control all three institutions. But, of course, that remains to be seen. So our attitude right now is to continue to stay abreast of what's going on with both the House and the Senate committees.

Speaker Change: depending on the outcome of both the presidential elections as well as control of the House and the Senate.

Speaker Change: that there's a window between the election and the inauguration and the seating of the new Congress.

Speaker Change: when it actually could get some floor time and possibly be pushed through that would be a scenario under which Republicans don't feel that they're going to sweep or control all three institutions.

William Ryan: But, of course, that remains to be seen. So our attitude right now is to continue to stay abreast of what's going on with both the House and the Senate committees. We're not expecting anything new out of them right now, but to stay in touch with the various parties interested in what we're pursuing and, frankly, what we may be interested in what they're pursuing and to be prepared to answer questions and support any actions if that window does open up between the election and the inauguration. Otherwise, we're resigned. This will be 2025 and probably well into 2025. Thanks for taking my question.

Speaker Change: But, of course, that remains to be seen.

Speaker Change: Stay abreast of what's going on with both the House and the Senate committees. We're not expecting anything new out of them right now.

Brad Norham: We're not expecting anything new out of them right now, to stay in touch with the various parties interested in what we're pursuing. And frankly, what we may be interested in is what they're pursuing. And to be prepared to answer questions and support any actions if that window does open up between the election and the inauguration. Otherwise, we're resigned. This will be 2025 and probably well into 2025.

Speaker Change: to stay in touch with...

Speaker Change: The various parties interested in what we're pursuing and frankly what we may be interested in what they're pursuing.

Speaker Change: and to be prepared.

Speaker Change: to answer questions and support any actions if that window does open up.

Speaker Change: between the election and the inauguration. Otherwise, we're resigned. This will be 2025 and probably well into 2025.

Bill Ryan: Okay, thanks for taking my questions.

Operator: Okay, thanks for taking my questions.

Speaker Change: Okay, thanks for taking my questions.

Speaker Change: Aparna Ramesh, Bradford Nordholm, Jalpa Nazareth

Brendan Mccarthy: Your next question comes from the line of Brandon McCarthy from CIDOTE. Please go ahead. Hey, good afternoon, everybody. Thanks for taking my questions. I just wanted to start off at the corporate ag finance loan that was sold; I think it was a $1.1 million loss. I believe you mentioned it was due to borrower concentration, but it's warning if you can walk us through that process. And if you feel there are any other borrower capacity concerns in the portfolio.

Brendan Mccarthy: Your next question comes from the line of Brendan McCarthy from Sidoti. Please go ahead.

Speaker Change: Your next question comes from the line of Brendan McCarthy from Sidoti. Please go ahead.

Brendan Mccarthy: Hey, good afternoon, everybody. Thanks for taking my question.

Brendan Mccarthy: I just wanted to start off with the corporate ag finance loan that was sold. I think it was a $1.1 million loss. I believe you mentioned it was due to borrower concentration, but just wondering if you can walk us through that process and if you feel there are any other borrower capacity concerns in the portfolio.

Brandon McCarthy: Hey, good afternoon, everybody. Thanks for taking my questions.

Brandon McCarthy: I just wanted to start off at the corporate ag finance loan that was sold, I think it was a $1.1 million loss.

Speaker Change: I believe you mentioned it was due to borrower concentration, but just wondering if you can walk us through that process and if you feel there are any other borrower capacity concerns in the portfolio.

Bradford Nordholm: Yeah, certainly, you know, it's an interesting one because here we have a situation where we had the secondary market, an active secondary market for the loan. So that gave us an ability, based on analysis at the time, to sell, albeit at a loss. But I'll turn to Zach for a little bit more color on why we are holding a particular level of exposure that we ended up wanting to sell down, and why we're comfortable today as well.

Zach Carpenter: Yeah, certainly, you know, it's an interesting one because here we have a situation where we had the secondary market, an active secondary market for the loan, so that gave us an ability based on analysis at the time to sell, albeit at a loss, but I'll turn to Zach for a little bit more color on why we were holding a particular level of exposure that we ended up wanting to sell down and why we're comfortable today as well. Yeah, thanks, Brad. So I want to say that for this individual borrower, we were not comfortable at the origination of the loan at the concentration level.

Speaker Change: Yeah certainly you know it's an interesting one because here we have a situation where we had the secondary market an active secondary market for the loan so that gave us an ability based on analysis at the time to sell albeit at a loss.

Zach Carpenter: But I'll turn to Zach for a little bit more color on why we are holding a particular level of exposure that we ended up wanting to sell down and why we're comfortable today as well.

Zachary Carpenter: Yeah, thanks, Brad. So I want to say that for this individual borrower, we were not comfortable with the origination of this loan at the concentration level. As we moved forward and understood more about some of the industry headwinds and borrower-specific headwinds this individual obligor was facing, we felt it prudent, given there was a liquidity market, to sell this loan to right-size our exposure, knowing that there were some, I'd say, individual borrower issues that they were facing.

Zach Carpenter: Yeah, thanks, Brad. So I want to say that for this individual borrower, we were not comfortable at the origination of this loan at the concentration level.

Zach Carpenter: As we move forward and understood more about some of the industry headwinds and borrower specific headwinds, this individual obligor was facing, we felt the prudent, given there was a liquidity market to sell the loan to right size our exposure, knowing that there were some individual borrower issues that they were facing. So I think we felt tactical to potentially mitigate any further deterioration that this borrower may have by reducing our exposure to what we felt was a more palatable level at the time. Post that sale, as I mentioned, the borrower has restructured as credit facilities, is experiencing better industry dynamics, and has rectified the individual issues it was facing at some of its manufacturing plants.

Zach Carpenter: As we move forward and

Zach Carpenter: understood more about some of the industry headwinds and borrower specific headwinds.

Speaker Change: this individual obligor was facing.

Zach Carpenter: We felt it prudent given there was a liquidity market to sell this loan to right-size our exposure knowing that there were some, I'd say, individual borrower issues that they were facing.

Zachary Carpenter: So I think we felt tactical to potentially mitigate any further deterioration that this borrower may have by reducing our exposure to what we felt was a more palatable level at the time. Post that sale, as I mentioned, the borrower has restructured its credit facilities, has experienced better industry dynamics, and has rectified the individual issues it was facing at some of its manufacturing plants. So I think we're optimistic that the outcome here could be improved in the future.

Speaker Change: So I think we felt tactical to potentially mitigate any further deterioration that this borough may have by reducing our exposure to what we felt was a more palatable level at the time.

Speaker Change: Post that sale, as I mentioned, the borrower has restructured its credit facilities.

Speaker Change: has experienced better industry dynamics and has rectified the individual issues it was facing at some of its manufacturing plants.

Zachary Carpenter: We're comfortable with our exposure level, and we thought at the time it was just prudent to mitigate some further deterioration. In terms of the second part of your question, any additional borrower concerns or concentration, we actually feel pretty confident with our corporate portfolio that it's risk-managed appropriately. We have updated risk ratings on a quarterly and annual basis, and we don't see any other individual concerns at this time.

Zach Carpenter: So I think we're optimistic that the outcome here could be improved in the future or comfortable with our exposure level, and we thought at the time it was just prudent to mitigate some further deterioration.

Speaker Change: So I think we're optimistic that the outcome here...

Speaker Change: Jalpa Nazareth, Bradford Nordholm, Jalpa Nazareth, Jalpa Nazareth, Jalpa Nazareth, Jalpa Nazareth,

Zach Carpenter: In terms of the second part of your question, any additional borrower concerns or concentration, we actually feel pretty confident with our corporate act portfolio that it's risk managed appropriately. We have updated risk ratings on a quarterly and annual basis, and we don't see any other individual concerns at this time. I just add that for our exposure levels, we actually have very refined kind of matrix guidelines that are based on the sector and risk ratings that we fall for maximum exposures. This loan did not exceed those maximum exposures. There were no policy or regulatory concerns associated with this.

Zachary Carpenter: I might just add that for our exposure levels, we actually have a very refined kind of matrix guidelines that are based on the sector and risk ratings that we follow for maximum exposures. This loan did not exceed those maximum exposures. There were no policy or regulatory concerns associated with this. It just came down to, you know, judgment one day about, you know, what we thought was the right thing to do.

Speaker Change: and we don't see any other individual concerns at this time.

Unknown Attendee: Unknown Attendee.

Speaker Change: Brendan, I might just add that, you know, for our exposure levels, we actually have very refined

Speaker Change: kind of matrix guidelines.

Brendan: that are based on the sector and risk ratings.

Speaker Change: that we follow for maximum exposures. This loan was not, did not exceed those maximum exposures. There were no policy or regulatory concerns associated with this. It just came down to, you know, judgment one day about, you know, what we thought was the right thing to do.

Zach Carpenter: It just came down to judgment one day about what we thought was the right thing to do.

Brendan Mccarthy: Thanks, that's helpful insight. One more question, just looking at the Farm and Ranch outstanding volume. Apologies if I missed this, but what really drove the sequential decline there from the first quarter this year?

Brendan Mccarthy: Thanks, that's helpful insight.

Brendan Mccarthy: One more question, just looking at the farming ranch outstanding volume, apologies if I missed this, but what really drove the sequential decline there from the first quarter this year? Yeah, I could take that one. So, in the farming ranch line of business, the big decline in volume was the maturity of large ad-vanaged bonds that took place during the quarter. I'll just highlight the driver of growth and decreasing growth in ag-managed really is dependent on our counterparties that we work with, which are large farming ranch originators. As loan growth at those counterparties slows, the need for liquidity to support that growth also slows.

Speaker Change: Thanks, that's helpful insight. One more question, just looking at the Farm and Ranch outstanding volume. Apologies if I missed this, but what really drove the sequential decline there from the first quarter of this year?

Zachary Carpenter: Yeah, I could take that one. In the farm and ranch line of business, the big decline in volume was the maturity of large advantage bonds that took place during the quarter. And I'll just highlight that the driver of growth and decreasing growth and advantage really is dependent on our counterparties that we work with, which are large farm and ranch originators. As loan growth at those counterparties slows, the need for liquidity to support that growth also slows.

Speaker Change: Yeah, I could take that one. So in the farm and ranch line of business, the big decline in volume was...

Speaker Change: The maturity of large advantage bonds that took place during the quarter. And I'll just highlight that the driver of growth and decreasing growth and advantage really is dependent on our counterparties that we work with, which are large farm and ranch originators.

Speaker Change: As loan growth at those counterparties slows, the need for liquidity...

Zach Carpenter: So what we saw over the last, I'd say, three months, was a deceleration of growth as certainly of these counterparties, unless they did not need to refinance those maturing bonds. So as we navigate this environment with tightening credit spreads, loan growth dynamics, we may see some volatility in refinancing some of those maturing bonds. I'll be, we still believe this product is a strong relative value to other funding sources, and as growth picks up, we expect to see potential growth opportunities arise. You know, Brendan, just something to add here. I think we've talked to you, you know, on previous calls as well as us find that, you know, in 2020, we certainly saw some volatility in the advantage portfolio, and a lot of this has to do with what other sources of funding opportunities are available to those counterparties and where we want to be on the pricing curve.

Zachary Carpenter: And so what we saw over the last, I'd say, three months was a deceleration of growth at certain of these counterparties, and thus, they did not need to refinance those maturing bonds. So as we navigate this environment with, you know, tightening credit spreads, and loan growth dynamics, we may see some volatility in refinancing some of those maturing bonds. Albeit, we still believe this product is a strong relative value to other funding sources. And as growth picks up, we expect to see potential growth opportunities arise, you know, and Brendan.

Speaker Change: to support that growth also slows. And so what we saw over the last, I'd say, three months was a deceleration of growth at certain of these counterparties, and thus they did not need to refinance those maturing bonds.

Speaker Change: So as we as we navigate this environment with, you know, tightening credit spreads

Speaker Change: loan growth dynamics. We may see some volatility in refinancing some of those maturing bonds. Albeit, we still believe this product is a strong relative value to other funding sources, and as growth picks up, we expect to see potential growth opportunities arise.

Aparna Ramesh: You know, and Brendan, just something to add here. I think we've talked to you on previous calls, as well as offline, that, you know, in 2020, we certainly saw some volatility in the Advantage portfolio, and a lot of this has to do with what other sources of funding opportunities are available to those counterparties and where we want to be on the pricing curve. I think Zach and the business development team made some strategic decisions then, which have actually come to fruition now.

Speaker Change: You know, Brendan, just something to add here. I think we've talked to you, you know, on previous calls as well as offline that

Brendan: In 2020, we certainly saw some volatility in the Advantage portfolio, and a lot of this has to do with what other sources of funding opportunities are available to those counterparties and where we want to be on the pricing curve, I think.

Brad Norham: I think, Zach and the business development teams had made some strategic decisions then, which actually have come to fruition now. So, on a relative value basis, what we offer those counterparties is still really values. So I think, you know, we don't obviously know whether projections are headed, but I think, I think Zach and calculated that well, we before see that to start to stabilize over time that we just don't. That makes sense. I guess that includes potentially lower industry environment. You still see the value proposition of that business remaining favorable. Yeah, absolutely. And that comes back to our funding advantage.

Brendan: and the Business Development teams had made some strategic decisions then, which actually have come to fruition now. So on a routed value basis,

Aparna Ramesh: So, on a relative value basis, what we offer those counterparties is still really good value. So, I think, you know, we don't obviously know where the projections are headed, but I think Zach encapsulated that well. We foresee that to start to stabilize over time, but we just don't know.

Zach Carpenter: What we offer those counterparties is still really good value, so I think, you know, we don't obviously know where the projections are headed, but I think Zach encapsulated that well. We foresee that to start to stabilize over time, but we just don't know that.

Aparna Ramesh: That makes sense. And that, I guess that includes a potentially lower interest rate environment, you know, you still see the value proposition of that business, you know, remaining.

Speaker Change: That makes sense and I guess that includes a potentially lower interest rate environment you know you still see the value proposition of that business you know remaining.

Aparna Ramesh: Yeah, absolutely. And that comes back to our funding advantage. And that's, you know, you hit the nail on the head. That's exactly right. So as we start to come down, the relative value proposition of what we might offer, given our funding dynamics start to improve, you know, that's just something to consider as well. Not making any projections, but that's just another.

Speaker Change: Remaining favorable.

Brad Norham: And that's, you know, you hit the bottom of the head, that's exactly right. So as we start to come down, relative value proposition of what we might offer, given our funding dynamics, start to improve, you know, that's just something to consider as well. Not making any projections, but that's just about a diamond.

Zach Carpenter: Yeah, absolutely. And that comes back to our funding advantage. And that's, you know, you hit the nail on the head. That's exactly right. So, as we start to come down, relative value proposition of what we might offer, given our funding dynamics start to improve, you know, that's just something to consider as well. Not making any projections, but that's just another dynamic.

Bradford Nordholm: Yeah, that's helpful. That's helpful. Thanks, Aparna. One more question, if I may, just out of curiosity, looking at the outlook for renewable energy, volume growth, there's, you know, seems really solid. Just curious as to whether that outlook may change if there were to be a change in presidential, or, I'm sorry, in the administration as a result of the U.S. presidential election.

Brendan Mccarthy: Yeah, that's helpful. That's helpful.

Brad Norham: Thanks, Barna. One more question. If I may, just, just out of curiosity, looking at the outlook for renewable energy, volume growth, there's, you know, seems really solid. Just curious as to if I think that outlook may change, if there were to be a change in presidential, or I'm sorry, in the administration as a result of a of the US presidential election. Yeah, it's an interesting question because we could see policy changes in Washington with the election of a President Trump, for example. Right now, our market share is tiny. And it's probably the largest addressable market we have.

Zach Carpenter: Yeah, that's helpful. That's helpful. Thanks, Aparna. One more question, if I may, just out of curiosity, looking at the outlook for renewable energy, volume growth, there's, you know, seems really solid.

Speaker Change: I'm just curious as to if you think that outlook may change if there were to be a change in presidential or, I'm sorry, in the administration as a result of the U.S. presidential election.

Bradford Nordholm: Yes, it's an interesting question because we could see policy changes in Washington with the election of President Trump, for example. Right now, our market share is tiny, and it's probably the largest addressable market we have. One of the nice things about our positioning is that the federal tax incentives for renewable energy are all available and put in place at the time a deal closes. So, for the existing portfolio, we don't have any concerns about deteriorating quality because of a change in federal policy, and that's really important to emphasize in terms of growth rates.

Speaker Change: Yeah, it's a good, it's an interesting question because

Speaker Change: We could see policy changes in Washington with an election of a President Trump, for example.

Speaker Change: Right now, our market share is tiny, and it's probably the largest addressable market we have.

Brad Norham: One of the nice things about our positioning is that the federal tax incentives for renewable energy are all available and put in place at the time a deal closes. So, for the existing portfolio, we don't have any concerns about deteriorating quality because of a change in federal policy. And that's really important to emphasize. In terms of growth rates, we've been putting in place additional teams, additional resources, and you see a direct response of that to growing levels of origination, both on a percentage basis as well as a notional dollar basis. And that's our near-term expectation here that we're going to continue to grow this.

Speaker Change: One of the nice things about our positioning is that the federal tax incentives for renewable energy are all available and put in place at the time a deal closes.

Speaker Change: So, for the existing portfolio, we don't have any concerns about deteriorating quality because of a change in federal policy, and that's really important to emphasize. In terms of growth rates...

Bradford Nordholm: We've been putting in place additional teams, additional resources, and you see a direct response to that in growing levels of origination, both on a percentage basis, as well as a notional dollar basis. And that's our near-term expectation here, that we're going to continue to grow this. It's going to provide us opportunities in the future for potential additional types of securitization opportunities. You've seen the very positive accretive NES, including accretive NES on a capital-adjusted basis.

Speaker Change: We've been putting in place additional teams, additional resources.

Speaker Change: and you see a direct response of that to growing levels of origination both on a percentage basis as well as a notional dollar basis.

Brad Norham: It's going to provide us opportunities in the future of potential additional types of securitization opportunities. You've seen the very positive, a creative NES, including a creative NES on a capital adjusted basis. So it's something easy for us to commit to continue growing if there is a change in policy in Washington that it would result in it slowing down. It's also something that we can just slow down very easily without any negative consequences to the portfolio. But right now, it's a good opportunity, and it balances out the increases in volume for new farming ranch, originations, and overall stability in other areas of rural infrastructure.

Speaker Change: And that's our near-term expectation here, that we're going to continue to grow this.

Speaker Change: provide us opportunities in the future.

Speaker Change: of potential additional types of securitization opportunities.

Speaker Change: You've seen the very positive accretive NES, including accretive NES on a capital-adjusted basis.

Bradford Nordholm: So it's something easy for us to commit to continue growing if there is a change in policy in Washington that would result in it slowing down. It's also something that we can just slow down very easily without any negative consequences to the portfolio. But right now, it's a good opportunity, and it balances out the increases in volume for new farm and ranch originations and overall stability in other areas of rural infrastructure. So we're very happy with where it is, keeping an eye, of course, on federal legislative changes that could come about.

Speaker Change: So, it's something easy for us to commit to continue growing if there is a change in policy in Washington that would result in it slowing down. It's also something that we can just slow down very easily without any negative consequences to the portfolio.

Speaker Change: But right now it's a good opportunity and it balances out the increases in volume for New Farm and Ranch.

Speaker Change: originations, and overall stability in other areas of rural infrastructure. So we're very happy with where it is, keeping an eye of course on federal legislation changes that could come about.

Brad Norham: So we're very happy with where it is, keeping an eye, of course, on federal legislation changes that could come about.

Brendan Mccarthy: That's helpful. Thank you, Brad. That's all from me.

Brendan Mccarthy: That's helpful. Thank you, Brad. That's all for me.

Speaker Change: That's helpful. Thank you, Brad. That's all for me.

Gary Gordon: Your last question comes from the line of Gary Gordon. Please go ahead. Hi, thanks for taking the question. Two questions on the charged off loan. One is, my understanding is the general loan to value ratio, you do is around 55%. So this implies some material to climb in the value of that land. If you could add some color to that. And then two, you mentioned that you seem to have not as much control as you wanted at the bankruptcy process. As the first mortgage lender, you know, so what are your rights there? You know, this normally what happens that you wouldn't have as much control, or was there something unusual here?

Operator: Your last question comes from the line of Gary Gordon.

Speaker Change: Your last question comes from the line of Gary Gordon.

Gary Gordon: Hi. Thanks for taking the question. Two questions on the charged-off loan. One is, my understanding is the general loan-to-value ratio you do is around 55%. So this implies the charge-off implies some material decline in the value of that land. If you could add some color to that, would you?

Speaker Change: Please go ahead.

Gary Gordon: Hi, thanks for taking the question. Two questions on the charged-off loan. One is, my understanding is the general loan-to-value ratio you do is around 55%.

Gary Gordon: This implies, the charge-off implies some material decline in the value of that land.

Gary Gordon: And then two, you mentioned that you seem to not have as much control as you wanted about the bankruptcy process as the first mortgage lender, you know, so what are your rights there, you know? Normally, what happens is that you wouldn't have as much control, or is there something unusual here?

Speaker Change: If you could add some color to that. And then two, you mentioned that you seem to have not as much control as you wanted about the bankruptcy process. As the first mortgage lender, you know, sort of what are your rights there?

Speaker Change: Normally what happens that you wouldn't have as much control or is there something unusual here?

Brad Norham: Yeah, those are both really, really two questions, Gary. You know, on the first, imagine that you have a permanent crop land that is improved that has an orchard of almonds, for example. And imagine that in a period of just a couple of months, the water situation results in the death of all those almond trees, leading you with bare land. So that's how you navigate from what appears to be a modest loan to value to one that actually could result in one of the loss.

Bradford Nordholm: Yeah, those are both really, really astute questions, Gary. You know, on the first imagine that you have a permanent crop land that is improved and that has an orchard of almonds, for example. And imagine that in a period of just a couple of months, the water situation results in the death of all those almond trees, leaving you with bare land. So that's how you go from what appears to be a modest loan to value to one that actually could result in one with the law.

Speaker Change: Yeah, those are both really, really astute questions Gary. You know, on the first...

Speaker Change: Imagine that you have a permanent crop land that is improved, that has an orchard of almonds for example.

Speaker Change: And imagine that in a period of just a couple of months, the water situation results in the death of all those almond trees, leaving you with bare land.

Speaker Change: So that's how you navigate from...

Speaker Change: What appears to be a modest loan to value to one that actually could result in one with a loss.

Mark Brady: In terms of the second part of the question with the control, Mark, maybe you can take Gary through kind of a discussion of where we were relative to other lenders in the size of the facilities. Yeah, I think that's the first thing to note, Gary, is that we were part of a bank group. And we were a relatively small part of the bank group. I mentioned that Barbara was a large producer, lots of acreage. We were a small part of that. And so other lenders, you know, had a voice and a view on the bankruptcy process.

Bradford Nordholm: In terms of the second part of the question with, [inaudible] Marc, maybe you can take Gary through a kind of discussion of where we were relative to other lenders in this and the size of the facilities.

Speaker Change: In terms of the second part of the question with

Speaker Change: The control.

Mark Grady: Marc, maybe you can take Gary through kind of a discussion of where we were relative to other lenders in this and the size of the facilities. Yeah, I think that's the first thing to note, Gary, is that we were part of a bank group and we were a relatively small part of the bank group. I mentioned that

Marc Crady: Yeah, I think that's the first thing to note, Gary, is that we were part of a bank group, and we were a relatively small part of the bank group. I mentioned that borrower was a large producer, lots of acreage; we were a small part of that. And so other lenders, you know, had a voice and a view on the bankruptcy process. And so that's why it played out the way it did.

Mark Grady: borrower was a large producer, lots of acreage. We were a small part of that. And so other lenders had a voice and a view on the bankruptcy process. And so that's why it played out the way it did.

Mark Brady: And so that's why it played out the way it did. To give us perspective, I think the largest lender mark was over $100 million. Yeah, that's right. Yeah, we were about 10%. I would say round numbers of the overall bank facility. Okay, got it.

Marc Crady: To give us perspective, I think the largest lender, Marc, was over $100 million.

Gary Gordon: To give us perspective, I think the largest lender, Marc, was over a hundred million dollars. Yeah, that's right.

Marc Crady: Yeah, that's right. Yeah, we were about 10%, I would say, round numbers of the overall bank facility. We got it.

Marc: Boy, we were about 10%, I would say, around numbers of the overall bank facility.

Gary Gordon: Okay, I got it. Thank you very much.

Gary Gordon: Thank you very much.

Speaker Change: Okay, got it. Thank you very much.

Bill Ryan: Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead. Thanks, just to follow up for a partner. I was looking at the NES in the corporate Ag Finance business went from 205 points down to 191. I'm kind of guessing that might have related to the charged-off loan, but anything you could call out there would be helpful. Yeah, absolutely. There's there was some non cruel non accrual portion that has sort of built up. And so that's exactly right.

Operator: Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead.

Speaker Change: Your next question is from the line of Bill Ryan from Seaport Research Partners, please go ahead.

William Ryan: Thanks, just a follow-up for Aparna. I was looking at the NES in the corporate ag finance business went from 205 base points down to 191. I'm kind of guessing that might be related to the charged-off loan, but anything you could call out there would be helpful.

Bill Ryan: Thanks, just a follow-up for Aparna.

Bill Ryan: I was looking at the NES in the corporate ag finance business went from 205 base points down to 191. I'm kind of guessing that might have related to the charged off loan, but anything you could call out there would be helpful.

Aparna Ramesh: Yeah, absolutely. There was some non-accruing portion that, you know, has sort of built up. And so that's exactly right. That is one of the, you know, one of the drivers and, you know, just the sale that we talked about, that's, you know, that's a component of having reduced our exposure within the corporate ag portfolio. Just on an NES, you know, just from a math perspective, that's been the largest driver, I would say. Okay. Thanks.

Speaker Change: Yeah, absolutely. There was some non-accruing

Aparna Ramesh: portion that you know has sort of built up and so that's exactly right.

Aparna Ramesh: That is one of the, you know, one of the drivers and, you know, just to feel that we talked about that's, you know, that's a component of having reduced our exposure within the corporate Ag portfolio. Just on an NES, you know, from a math perspective that's been the largest driver. I would say of, you know, of that sequential. Franklin. Okay, thanks.

Speaker Change: That is one of the, you know, one of the drivers and, you know, just the sale that we talked about, that's, you know, that's a component of having reduced our exposure within the corporate ad portfolio, just on an NES, you know, from a math perspective, that's

Speaker Change: has been the largest driver, I would say, of that sequential decline.

Speaker Change: Okay, thanks.

Operator: There are no further questions at this time.

Jalpa Nazareth: and Jalpa Nazareth.

William Ryan: There are no further questions at this time. I'll hand the call over to Brad Nordholm for closing remarks. Sir, please go ahead. Good, we will.

Brad Norham: I'll hand a call over to Brad at Nordholm for closing remarks. Sir, please go ahead. Good. Well, thank you. And thank you again, everyone, for joining us today. Good discussion. Good presentation. As always, if you have a follow-up question, please, please get in touch with Jalpa. Otherwise, we look forward to speaking with you at our regular scheduled call in November. And hope that you have a terrific completion of the summer and in early fall. Hopefully, these markets will show some stabilization in the next few days. But again, thank you very much, and good day.

Jalpa Nazareth: There are no further questions at this time. I'll hand the call over to Brad Nordholm for closing remarks. Sir, please go ahead.

Bradford Nordholm: Well, thank you. And thank you again, everyone, for joining us today. Good discussion, good presentation. As always, if you have follow-up questions, please, please get in touch with Jalpa. Otherwise, we look forward to speaking with you at our regular scheduled call in November and hope that you have a terrific completion to the summer and early fall. Hopefully, these markets will show some stabilization in the next few days. But again, thank you very much and have a good day.

Brad Nordholm: Good. Well, thank you. And thank you again, everyone, for joining us today.

Brad Nordholm: Good discussion, good presentation. As always, if you have follow-up questions...

Speaker Change: Please get in touch with Jalpa.

Speaker Change: Otherwise, we look forward to speaking with you at our regular scheduled call in November .

Speaker Change: and hope that you have a terrific completion of the summer and early fall. Hopefully these markets will show some stabilization in the next few days. But again, thank you very much and good day.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.

Speaker Change: Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation. You may now disconnect.