Q3 2024 Federal Agricultural Mortgage Corp Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the farmer Mac third quarter 'twenty 'twenty four earnings conference call.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Farmer Mac 3rd 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. If at any time during this call you require immediate assistance, please press star zero for the operator.

Speaker Change: This time all lines in listen only mode. Following the presentation. We will conduct a question and answer session is with any time. During this call really quiet immediate assistance. Please press star as you know for the operator.

Operator: This call is being recorded on Monday, November 4th of 2024.

Speaker Change: This call is being recorded on Monday November four at the 'twenty 'twenty four.

Jalpa Nazareth: I would now like to turn the conference over to our Senior Director of Investor Relations and Finance Strategy, Ms. Jalpa Nazareth. Please go ahead. Good afternoon, and thank you for joining us for our third quarter 2024 earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Farmer Mac. As we begin, please note that the information provided during this call may contain forward looking statements about the company's business strategies and prospects, which are based on management's current expectations and assumptions. These statements are not a guarantee of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected.

Speaker Change: I would now like to turn the conference over to our senior director of Investor Relations and Finance strategy Ms. Chopping Dowser Ed. Please go ahead.

Chelsey Nazareth: Good afternoon, and thank you for joining us for a third quarter 2024 earnings conference call on shelf in Nazareth Senior director of Investor Relations and finance strategy here at farmer Mac as we begin. Please note that the information provided during this call may contain forward looking.

Speaker Change: Shipments about the company's business strategies and prospects, which are based on management's current expectations and assumptions. These statements are not a guarantee of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected please refer to farmer Mac's 2023 annual rip.

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

Speaker Change: Port and subsequent SEC filings for a full discussion of the company's risk factors.

Speaker Change: On today's call. We will also be discussing certain non-GAAP financial measures disclosures and reconciliations of these non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on farmer Mac's website farmer Mac Dot com under the financial information portion of the investors section joining.

Jalpa Nazareth: Joining us from management this afternoon is our President and Chief Executive Officer, Brad Nordholm, who will discuss third 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.

Speaker Change: As for management. This afternoon is our president and Chief Executive Officer, Bryan Donohoe, who will discuss third quarter business and financial highlights and strategic objectives, and Chief Financial Officer of Parnell, Ramesh, who will provide greater detail on our financial performance.

Speaker Change: 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 Tilden normal bread.

Bradford Nordholm: 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 for joining us. Our third quarter 2024 results demonstrate that Farmer Mac remains well positioned to achieve sustainable earnings and profitability. The strength of our capital base positions us well to continue investing in our long term strategic initiatives to power our growth into the future. We continue to successfully navigate industry change and economic cycles while growing earnings, underscoring the strength of our unique business model. Our total revenues year to date improved over $10 million to $270 million over the same period last year, primarily due to higher net effective spread.

Brad Tilden: Thank you Joe Good afternoon, everyone and thank you for joining us.

Bryan Donohoe: Our third quarter 2024, our results demonstrate that farmer Mac remains well positioned to achieve sustainable earnings and profitability.

Bryan Donohoe: The strength of our capital base positions us well to continue investing.

Bryan Donohoe: Long term strategic initiatives to power our growth into the future.

Bryan Donohoe: We continue to successfully navigate industry change and economic cycles, while growing earnings underscoring the strength of our unique business model.

Speaker Change: Our total revenues year to date improved over $10 billion to $270 million over the same period last year.

Speaker Change: Due to higher net effective spread.

Bradford Nordholm: That increase reflects the shift of new business volume towards higher spread business, such as renewable energy and the proactive management of our balance sheet and funding. Core earnings year-to-date improved $1.8 million to $128 million compared to the prior year period. Excluding credit expense, court earnings has improved nearly $7 million, over 5%, year over year. As we previously mentioned on prior calls, the nature of our credit events and charge-offs have tended to be idiosyncratic. We believe that our credit profile remains strong overall, and that we're well buffered given our strong levels of capital. Operating efficiency has been better than our long term target of 30% throughout 2024, a reflection of our disciplined approach to expense management.

That increase reflects the shift of new business volume towards higher spread business such as renewable energy.

Speaker Change: Proactive management of our balance sheet and funding.

Earnings year to date improved $1 $8 million to $128 million compared.

Speaker Change: Compared to the prior year period.

Speaker Change: Excluding credit expense core earnings has improved nearly $7 million over 5%.

Speaker Change: Over a year.

Speaker Change: As we've previously mentioned on prior calls.

Speaker Change: But how do you get there.

Speaker Change: And charge offs have tended to be idiosyncratic.

Speaker Change: We believe that our credit profile remains strong overall and that we're well buffered given our strong levels of capital.

Bryan Donohoe: Operating efficiency has been better than our long term target of 30% throughout 2024, a reflection of our disciplined approach to expense management.

Bradford Nordholm: We achieved this while implementing the Securities Treasury Accounting Reporting System, also known internally as STARS. This platform is the largest systems and process implementation project in Farmer Mac's It is a comprehensive transformation of our core infrastructure that facilitates transactions for more than two-thirds of our balance sheet, including some of our largest loan exposures. This is a significant capital investment that will enable us to scale our business over the next decade. This platform was redesigned to support more complexity in our hedging and debt offerings, modernize our $750 billion payment flow and enable new product offerings in alignment with our multi-year growth objectives.

Speaker Change: We achieved this while implementing the securities Treasury accounting reporting system also known internally as stars.

Speaker Change: This platform is the largest systems and process implementation project and farmer Mac's history. It is a comprehensive transformation of our core infrastructure that facilitates transactions for more than two thirds of our balance sheet included some of our largest loan exposures.

Speaker Change: This is a significant capital investment that will enable us to scale our business over the next decade.

Speaker Change: Platform was redesigned to support more complexity in our hedging and debt offerings modernize our 750 billion dollar payment flow and enable new product offerings and alignment with our multi year growth objectives.

Bradford Nordholm: The end-to-end streamlining of our legacy systems with the addition of seven commercial off-the-shelf core infrastructure platforms. should strengthen our business resilience. enhance our security, safeguard our data, and increase our efficiency. Thanks to the coordinated execution by teams across the enterprise, working with capable industry partners. Stars went live just this past week. This is a testament to the company's expertise and dedication of bringing complex technology projects to flourish. and Strengthening Our Competitive Advantage in the Marketplace. I mentioned that we have achieved operating efficiency of below our long-term target of 30% throughout the year. It's projects such as STARS that enable a company of our size and our balance sheet with fewer than 200 employees.

Speaker Change: The end to end streamlining of our legacy systems with the addition of seven commercial off the shelf core infrastructure platforms.

Speaker Change: <unk> strengthened our business resiliency.

Speaker Change: Hence our security.

Speaker Change: Our data and increase our efficiency.

Speaker Change: Thanks to the coordinated execution by teams across the enterprise.

Speaker Change: Working with capable industry partners first.

Speaker Change: Went live just this past week.

Speaker Change: This is a testament to the company's expertise and dedication to bringing complex technology projects to fruition and.

Speaker Change: And strengthening our competitive advantage in the marketplace.

Speaker Change: I mentioned that we have achieved operating efficiency.

Speaker Change: Below our long term target is 30% throughout the year.

Speaker Change: Projects, such as stars that enable a company of our size and our balance sheet with fewer than 200 employees.

Bradford Nordholm: who continue to utilize technology to make us efficient and bring all the other benefits of resiliency, security, and safeguard of data to bear. Turning to business volume, we closed $2 billion of new business volume this quarter and $4.9 billion year-to-date. driven largely by loan purchase volume in the renewable energy and farm and ranch segment. We surpassed $1 billion in total renewable energy volume in the third quarter, reflecting the continuing strong demand for renewable power generation and storage and the dedication and commitment from our organization to grow the segment in alignment with our long term initiative.

Speaker Change: To continue to utilize technology to make a sufficient and then all the other benefits of resiliency security and safeguard of data to bear.

Speaker Change: Turning to business volume, we closed $2 billion of new business volume this quarter and $4 $9 billion year to date driven.

Speaker Change: Driven largely by loan purchase volume in the renewable energy and farm and ranch segments.

Speaker Change: We surpassed $1 billion in total renewable energy volume in the third quarter, reflecting the continuing strong demand for renewable power generation and storage and the dedication and commitment from our organization to grow this segment and alignment with our long term initiatives.

Bradford Nordholm: Diversifying our loan portfolio into newer lines of business, such as renewable energy and corporate aid finance, have been key priorities over the last several years. And that diversification is benefiting us through changing market cycles. Our pipeline within the renewable energy segment remains strong, as our robust efforts and investments to grow this portfolio remain one of our top priorities over the foreseeable future. Within our farm and ranch segment, we closed nearly $1 billion of new farm and ranch loan purchase volume year to date, compared to a total of $780 million in the full year. 2023. We believe we'll see this positive momentum continue in the fourth quarter as tightening bank liquidity and an adjustment to a higher rate environment with a near-term expectation of policy.

Speaker Change: Diversifying our loan portfolio into newer lines of business, such as renewable energy and corporate finance have been key priorities over the last several years.

Speaker Change: And that diversification is benefiting us through changing market cycles.

Speaker Change: Our pipeline within the renewable energy segment remains strong as our robust efforts and investments to grow this portfolio remain one of our top priorities over the foreseeable future.

Speaker Change: Within our farm <unk> Ranch segment, we closed nearly $1 billion.

Speaker Change: Our new farm <unk> ranch loan purchase volume year to date.

Speaker Change: <unk> to a total of $780 million and the full year 2023.

Speaker Change: We believe we will see this positive momentum continue in the fourth quarter.

Speaker Change: <unk> bank liquidity and an adjustment to a higher rate environment with a near term expectation of policy easing that's taken hold.

Bradford Nordholm: has taken hold. The forecasted decline in farm income relative to prior years is expected to drive more loan volume, including potential pool purchases similar to those acquired during 2024. We are incredibly pleased to see strong momentum in the farm and ranch segment. It is a segment that is so core to our mission and growth in the segment continues to propel our securitization program, where we have seen strong investor demand. Offsetting volume growth this year has been maturities with several large ag vantage counterparties. A trend we have seen over the last nine months is the overall slower market for loan growth and a tightening of credit market spreads have resulted in reduced liquidity needs.

Speaker Change: The forecasted decline in farm and farm income relative to prior years.

Speaker Change: As expected to drive more loan volume and floating potential pool purchases similar to those acquired during 2024.

Speaker Change: We are incredibly pleased to see strong momentum in the farm <unk> Ranch segment.

Speaker Change: It is the segment that is so core to our mission and growth in this segment continues to propel our securitization program, where we have seen strong investor demand.

Speaker Change: Offsetting volume growth. This year has been maturities with several large AG vantage counterparties a trend we have seen over the last nine months is the overall slower market for loan growth.

Speaker Change: Tightening of credit market spreads have resulted in reduced liquidity needs particular for one of our larger farm <unk> Ranch Counterparties.

Bradford Nordholm: Particular for one of our larger farm and ranch countries. In early October, we acquired a $122 million pool of farm and ranch loans from single agricultural lenders. This acquisition underscores Farmer Mac's secondary market track record of providing agricultural lenders solutions for their capital planning, especially as there is uncertainty about how capital regulation will evolve over the next few years. We have consistently presented our product offering. Capital Efficiency and Liquidity Tool for our customers in both the agricultural finance and rural infrastructure lines of business. We believe that this is because the relative value that Farmer Mac brings to our banking and financial services partners, and ultimately the agricultural and rural borrowers.

Speaker Change: In early October we acquired $122 million pool of farm <unk> ranch loans from single agricultural lender.

Speaker Change: This acquisition underscores farmer Mac's secondary market track record of providing agricultural lenders.

Speaker Change: <unk> for their capital planning, especially as there is uncertainty about how capital regulation.

Speaker Change: Evolve over the next few years.

Speaker Change: We have consistently presented our product offerings, because the capital efficiency and liquidity tool for our customers in both the agricultural finance and rural infrastructure lines of business.

Speaker Change: We believe that this is because the relative value that farmer Mac brings to our banking and financial services partners and ultimately the agricultural and rural borrowers.

Bradford Nordholm: is even greater when credit is a bit tighter.

Speaker Change: There is even greater when credit is a bit tighter.

Bradford Nordholm: We're working towards our fifth overall farms series securitization transaction later this year, where I continue to explore the opportunity to introduce a new securitization product for our customers that has the potential to transform the agricultural mortgage market industry with new efficiencies that benefit both the lenders and the borrowers. While we are in the preliminary stages of development and broader market discussion, We are very pleased by 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 a set of securitization products that align with both our borrower and investor interests.

Speaker Change: We are working towards our fifth overall farms series securitization transaction later this year.

Speaker Change: Turning to explore the opportunity to introduce a new securitization product breadth.

Speaker Change: Customers that has the potential to transform to a cultural mortgage market industry with new efficiencies that benefit both the lenders and the powers.

Speaker Change: While we are in the preliminary stages of development and broader market discussion.

Speaker Change: We are very pleased by the tremendous support we're seeing from our customers and investors for this program and we remain committed to being a regular issuer in the market with a set of securitization products.

Speaker Change: Aligned with both our borrower and investor interest.

Bradford Nordholm: As we look ahead, we are confident our underlying business model, strong capital position, and uninterrupted access to the debt capital markets will continue to uniquely position us to partner with our customers. to help them grow and manage any capital and liquidity risks they might face in the future. including risks related to ongoing market uncertainty and potential regulatory policy change. Our ability to navigate all environments positions us well to continue to create more opportunities for enhanced shareholder value. while at the same time fulfilling our mission.

Speaker Change: As we look ahead, we're confident our underlying business model strong capital position and uninterrupted access to the debt capital markets.

Speaker Change: Continue to uniquely position us to partner with our customers to help them grow and manage any capital and liquidity risks they might face in the future.

Speaker Change: Including risks related to ongoing market uncertainty and potential regulatory policy change.

Speaker Change: Our ability to navigate all environments.

Speaker Change: Thus well to continue to create more opportunities for enhanced shareholder value.

Speaker Change: While at the same time fulfilling our mission.

Aparna Ramesh: And now I'd like to turn the call over to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail. Aparna. Thank you, Brad, and good afternoon. Our third quarter 2024 results once again highlight are diversified streams of business. stemming from our disciplined approach to asset liability.

Speaker Change: And now I'd like to turn the call over to our partner Rhemish, Our Chief financial officer to discuss our financial results in more detail.

Speaker Change: A part of.

Speaker Change: Thank you Brad and good afternoon, everyone.

Rhemish: Third quarter 2020 full results once again highlight our consistent financial and operational execution, coupled with proactive management of our balance sheet and funding sources.

Rhemish: Our diversified streams of business revenue.

Speaker Change: Funding in hedging capabilities stemming from our disciplined approach to asset liability management.

Aparna Ramesh: Allow us to fulfill our mission and generate consistent shareholder returns through market while staying in tight alignment with a long. Outstanding Business Volume. $5 billion as of September 30th, a net. $290,000,000 from June 30th, 2024. The Agricultural Finance Line primarily from a single, large, farm and ranch country. During the quarter, $460 million Farm and Ranch Advantage Securities, Matured, without Reflecting, Counterparties evaluating their liquidity. The changes in the quarterly advantaged securities volume are primarily driven by the larger transaction sizes. Scheduled maturity amounts for The Liquidity and Loan Growth Office. at Grandjoy County. The changes in the pricing and availability of wholesale funding and the relative value of our wholesale financing product versus other financial services.

Speaker Change: All of us to fulfill our mission and generate consistent shareholder returns through market cycles, while staying in tight alignment with our long term strategic initiatives.

Speaker Change: Outstanding business volume with 28 5 billion.

Speaker Change: September 30th a net decrease of $290 million from June 30 of 2020 full due to scheduled maturities and repayments in the agricultural finance line of business, primarily from a single large farm and ranch counterparty.

Speaker Change: During the quarter $460 million in farm <unk> Ranch advantaged securities matured without refinancing.

Speaker Change: Reflecting counterparties evaluating their liquidity needs and overall slower loan growth.

Speaker Change: In the quarterly advantaged security volume, primarily driven by the larger transaction sizes for the product.

Speaker Change: Maturity amounts for particular quarter, the liquidity and loan growth opportunity meets a farmer Mac's advantage counterparties changes in the pricing and availability of wholesale funding and the relative value of our wholesale financing product versus other funding alternatives.

Aparna Ramesh: Thanks to all of these facts. Specht, Advantage Business Volume. In both lines.

Speaker Change: And all of these factors, we expect our advantage business volume in both lines of business to continue to be volatile as we navigate the evolving needs of all stakeholders.

Aparna Ramesh: continue to be volatile as we navigate the evolving need for And as the yuletide steepens and While business volume declined on the net. in our renewable energy and farm. The activity in segments included strong loan purchase volume. are generally more accretive and higher spread relative to the actual population. The shift in business com- to higher spread business has been one of the drivers. in that effective spread. Core earnings were $44.9 million. $4.10 per share in third quarter. And this reflects a $5.1 million investment. and a $300,000. A sequential increase in core earnings was primarily due to a $1.8 million increase in net effect costs.

Speaker Change: And as the Yieldco steepens and interest rates stabilize.

Speaker Change: While the business volume declined on a net basis.

Speaker Change: So strong activity in our renewable energy and farm <unk> Ranch segment.

Speaker Change: The activity in these two business segments included strong loan purchase volume.

Speaker Change: Generally more accretive and highest spread relative to be advantaged product.

Speaker Change: This shift in business composition to highest spread business has been one of the drivers of the increase in net effective spread quarter over quarter.

Speaker Change: Turning to core earnings now.

Speaker Change: With $44 9 million or.

Speaker Change: $4.10 per share in third quarter 2024, and this reflects a $5 $1 million increase sequentially and a $300000 decrease year over year.

Speaker Change: Sequential increase in core earnings was primarily due to a $1 $8 million increase in net effective spread.

Speaker Change: Kris and preferred dividends as a result of the.

Speaker Change: Our redemption of the series C preferred stock in July and a $2 8 million decrease in credit expense.

Aparna Ramesh: Sequential Improvement and Net Effective Spread from 114 to 116 basis points this quarter was driven by the compositional shift. new business volume towards higher yield. As we've mentioned on prior calls, our Treasury and Funding Desk has opportunistically taken advantage of favorable market conditions. by calling More Expenses Fixed Rate Debt.

Speaker Change: The sequential improvement in net effective spread from 114 basis points to 116 basis points. This quarter was driven by the compositional shift I mentioned, new business volume towards higher yielding loans and a decrease in our funding costs.

Speaker Change: As we've mentioned on prior calls.

Speaker Change: And funding desk has opportunistically, taking advantage of favorable market conditions and the.

Speaker Change: The first half of this year.

Speaker Change: My colleague more expensive fixed rate debt.

Aparna Ramesh: Reissue those at We've seen now the benefits of this dynamic play out in the third quarter, and we expect to continue to see more of this benefit playing out throughout the rest of the year. Modest decline in core earnings year over year was primarily due to a provision in the third quarter of 2024 compared to a recovery in the prior year. The $3.3 million provision to the Allowance for Losses this quarter was attributable to overall volume growth in telecommunications. and a large permanent planting loan that is currently in place. Poor earnings, net of credit, however.

Speaker Change: We issued those at lower rates.

Speaker Change: We've seen now the benefits of this dynamic play out in the third quarter and we expect to continue to see more of this benefit playing out throughout the rest of 2024 and likely into the first quarter of 2025 as well.

Speaker Change: The modest decline in core earnings year over year was primarily due to a provision in the third quarter of 2020 full compared to a recovery in the prior year period.

Speaker Change: $3 3 million dollar provision to the allowance for losses. This quarter was attributable to overall volume growth in telecommunications and renewable energy.

Speaker Change: And a large permanent planting loans that is currently delinquent.

Speaker Change: For earnings net of credit however, increased by 6% year over year.

Aparna Ramesh: By 6% you're. with 2023 being an exceptionally strong. with our long-term strategic plan. Our liquidity and capital positions remain well in place. Our projections show minimal change in up... with limited exposure to movement. The market rates go up. as of September 30th. Farmer Mac had three hundred and ninety-five acres of land. held approximately 800.

Speaker Change: With 2023, being an exceptionally strong earnings and credit to you.

Speaker Change: This growth is also very consistent with our long term strategic plan target key metrics.

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

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

Speaker Change: As of September 30th 2020, full farmer Mac had 390 days of liquidity and we held approximately $850 million in cash and other short term instruments in our investment portfolio.

Aparna Ramesh: I expect to be well-positioned in the As we move into the anticipated and we're confident in our resiliency against potential short We also project flat-to-higher earnings if rates decline in the future. to a proactive equity capital allocation. where we are laddering and layering duration to minimize. These are all practices that are. with our disciplined asset liability management approach. Designed to help minimize earning volunteers. over the medium. that have affected many primary issuers of debt. We continue to see strong access to debt capital. and a flight to quali- All of these factors, coupled with opportunistic debt issuances, allow us to be very well positioned to accretively fund new assets.

Speaker Change: We expect to be well positioned in the medium term as we move into the anticipated fed easing cycle and we're confident in our resiliency against potential short and medium term market disruption.

Speaker Change: He also project Sop to higher earnings if rates decline in the future and this is due to our proactive equity capital allocation strategy.

Speaker Change: Where we are lowering and leering duration to minimize volatility.

Speaker Change: These are all practices 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 issuance of debt securities.

Speaker Change: Continue to see strong access to debt capital markets and a flight to quality investments all of these factors coupled with opportunistic debt issuances allow us to be very well positioned to Accretively fund new asset opportunities as they arise.

Aparna Ramesh: Now turning to operating These have been relatively flat. as the increased headcount and increased stock compensation expenses were largely offset by a decrease in consulting costs related to our very Operating efficiency was 20. the editor for Third Quarter 2024, and 27% That is better than a long-term strategic plan. And it's a reflection of our disciplined approach to expense management at Bradford. We continue to monitor and manage our expense growth very proactively again.

Speaker Change: Now turning to operating expenses.

Speaker Change: These have been relatively flat sequentially.

Speaker Change: <unk> head count.

Speaker Change: Stock compensation expenses were largely offset by decrease in consulting costs related to our various strategic initiatives.

Speaker Change: Operating efficiency was 26% for third quarter, 2024, and 27% year to date that is better than our long term strategic plan target and it's a reflection of our disciplined approach to expense management as Brad noted and we continue to monitor and manage our expense growth very proactively against incoming.

Speaker Change: Revenue streams.

Aparna Ramesh: I, too, am very...

Speaker Change: I too am very pleased to announce the substantial completion of our multiyear technology investment.

Aparna Ramesh: to announce the substantial. of Amalthea Technology. to enhance our trading hedging. This large-scale investment to modernize the treasury infrastructure and a front-end loan platform positions as well to mitigate. We embarked on this journey 19 months ago. set the foundation for Farmer Mac to scale its book. continue. that are enabled by modern treasury capital markets and cash. We are very proud of the many teams across the organization that exist. Many organizations, I'll note, take several years. such a large scale and company. We have given our disciplined approach to expense management. We wanted to compress the time.

Speaker Change: Treasury and cash management systems.

Speaker Change: Handset trading hedging and reporting platform.

Speaker Change: This large scale investment to modernize the treasury infrastructure.

Speaker Change: Front end loan platform systems positions us well to mitigate risk increase efficiency and enhanced deal flow.

Speaker Change: We embarked on this journey 19 months ago to set the foundation for farmer Mac to scale its portfolio and continue to introduce diversified REIT and product offerings.

Speaker Change: That are enabled by modern Treasury capital markets at cash management infrastructure.

Speaker Change: Proud of the many teams across the organization that executed on this initiative. Many organizations I would note. It takes several years to complete such a law.

Speaker Change: <unk> scale and complex initiatives, but given our disciplined approach to expense management and a capable teams. We wanted to compress the timeline and cost structure, we were able to accomplish that without compromising on functionality we.

Aparna Ramesh: We were able to accomplish that without competition. We do have other technologies. such as Modernizing a Loan Purchase. We remain committed to bringing cutting-edge technology and new capabilities to our customers. We will continue to invest in finding ways to build innovative systems that accelerate while adding process efficiencies for all of. As we look ahead, we will continue to closely monitor our. And manage it such that we expect to remain at or below a long run average of 30% and be disciplined in keeping our efficiency ratios in line. are total allowance for loss. $21.9 million as of September 30, 2011.

Speaker Change: We do have other technology initiatives ahead, such as modernizing our loan purchase platforms.

Speaker Change: We remain committed to bringing cutting edge technology and new capabilities to our customers.

Speaker Change: To invest and finding ways to build innovative systems that accelerate crews.

Speaker Change: Adding process efficiencies for all of our customers in market.

Speaker Change: As we look ahead, we will continue to closely monitor our efficiency ratio.

Speaker Change: Manage it such that we expect to remain at or below our long run average of 30%.

Speaker Change: And be disciplined in keeping our efficiency ratios in line with our growth expectations.

Speaker Change: Let's turn to credit.

Speaker Change: Our total allowance for losses was $21 9 million as of September 30th 2024, and this reflects a $3 3 million increase from the prior quarter.

Aparna Ramesh: Ford, and this reflects a $3.3 million increase from the prior year. High Yielding Telecommunications and Renewable Energy Products. Single Permanent Plant.

Speaker Change: Increase was primarily attributable to new business volume and the higher yielding telecommunications and renewable energy products and the previously mentioned single permanent planting loans that are currently delinquent.

Aparna Ramesh: Please turn on a... It's important to note that the issues involved with this delinquent loan are borrower specific and are not... While this loan was placed into a non-accrual status. He did receive payoffs from a prior non-account.

Speaker Change: Based on our analysis, it's important to note that the issues involved with this the liquid loan borrowers specific and are not indicative of any broader systemic risk in our portfolio.

Speaker Change: While this loan was placed into a non accrual status. We did received payoffs from a prior non accrual loan that.

Aparna Ramesh: that more than favorably offset the revenue decline from this one during This illustrates the strength and resiliency of our business. and how a long-term orientation with our customers allows us to fulfill our mission, but also Ninety-day delinquencies were 51 basis points across the entire portfolio as of September Full, compared to 22 basis points at the end. Approximately half of the sequential... driven by the Single Permanent Plant. These are the factors that we noted that we believe are borrower-specific and not independent. We also believe that we are adequately collateralized. Also contributing to the increase in the third quarter is the seasonal pattern of Farmer Mac's 90 days of delinquency.

Speaker Change: More than favorably offset the revenue decline from this one during the quarter.

Speaker Change: This illustrates the strength and resiliency of our business model and how our long term orientation with our customers allows us to fulfill our mission, but also maintain our profitability.

Speaker Change: 90 day delinquencies were 51 basis points across the entire portfolio as of September 32024, compared to 22 basis points at the end of June 30th 2024.

Speaker Change: Approximately half of the sequential increase in 90 day delinquencies is driven by the single from planting balloons mentioned above due to factors. We noted that we believe are borrowers specific and not endemic across our portfolio.

Speaker Change: We also believe that'd be a adequately collateralized on this exposure.

Speaker Change: Also contributing to the increase of the third quarter is the seasonal pattern of farmer Mac's 90 days delinquencies with higher levels generally observed at the end of the first and third quarters and lower levels generally observed at the end of the second and fourth quarters of each year.

Aparna Ramesh: with higher levels generally observed at the end of the first and third and Lower Levels generally observed at the end of the second and fourth quarters. This seasonal pattern is due to the annual and semi-annual payment dates on the majority of farmers.

Speaker Change: This seasonal pattern is due to the annual and semi annual payment dates on the majority of farm <unk> ranch loans.

Aparna Ramesh: Our overall credit profile in summary. Cross, our Agricultural and Rural Infrastructure... And it's reflective of our rigorous credit policies and our diligent. Turning to capital, Farmer Mac $1.5 billion of core capital as of September 30, 2024. by $580 million. A Tier 1 Capital Ratio with 14.5% as of September 30.

Speaker Change: Our overall credit profile. Its summary continues to be stable across our agricultural and rural infrastructure portfolios third quarter, 'twenty, four and it's reflective of our rigorous credit policies and our diligent underwriting practices.

Speaker Change: Turning to capital Farmer Mac's, one $5 billion of core capital as of September 30th 2024 exceeded our statutory requirement by $580 million or 66%.

Speaker Change: Tier one capital ratio was 14, 2% as of September 30 of 2020 full compared to 15, 3% as of June 30th 2024.

Aparna Ramesh: Vaughan Okay. After a 40-minute recording, we will continue with comma jam. Let us know if you have any technical questions. Redemption of the Ceres C-Preferred Stock in July, which drove 71%. a hundred and ten basis points sequential decline in the tier one. We considered several factors prior to the decision to redeem the $75 million. A Robust Capital Issue Dividend Strategy, and Recapitulation. We remain confident that our strong capital... Wilelawa Grow, remain resilient in volatile credit environments, and allow us to offer a source of low-cost liquidity for our customers and borrowers, even. So once again, our team delivered strong, consistent quality.

Speaker Change: The sequential decrease in core capital was primarily due to the redemption of the series C preferred stock in July which drove 71 basis points of the 110 basis points sequential decline in the tier one capital ratio.

Speaker Change: We considered several factors prior to the decision to redeem the $75 million of series C preferred stock, including a robust capital position securitization program that provides capital efficiency, a dividend strategy and recapitalization that has come from consistent earnings growth.

Speaker Change: We remain confident that our strong capital position will allow us to continue to grow remained resilient and volatile credit environment and allow us to offer a source of low cost liquidity for our customers and borrowers even in difficult times.

Speaker Change: Once again, our team delivered strong consistent quarterly results maintaining key metrics that'd be highlight on each call, while staying within our credit framework, which emphasizes loan to value and cash flow metrics.

Aparna Ramesh: Maintaining key metrics that we highlight on each call while staying within our credit framework, which emphasizes loan-to-value. Notably, we delivered a 17% return on equity this quarter and an efficiency ratio.

Speaker Change: We delivered a 17% return on equity this quarter and an efficiency ratio of 26%, which is below our strategic target of 30%.

Speaker Change: Believe that our balance sheet is well positioned for market uncertainty and we are more optimistic than ever to continue to deliver on our long term strategic priority.

Aparna Ramesh: are more optimistic than ever to continue to deliver.

Bradford Nordholm: With that, Brad. Thank you, Aparna. But we are very pleased with our third quarter results and also of the significant milestone we've reached in our infrastructure modernization journey. We believe our performance provides yet another example of the dynamic and enduring nature of Farmer Mac's business model, which continues to be well positioned for earnings growth going forward. We have a solid long-term strategic plan that we're executing on consistently and a proven track record of delivering strong financial results. We continue to deliver on our mission throughout the agricultural economic cycles, as reflected by our financial results over the last few years.

Speaker Change: Brad Let me turn it back to you.

Brad Tilden: Thank you Arnaud.

Brad Tilden: We are very pleased with our third quarter results and also of the significant milestone we reached in our infrastructure modernization journey.

Brad Tilden: We believe our performance provides yet another example of the dynamic and the drink nature of farmer Mac's business model, which continues to be well positioned for earnings growth going forward.

Speaker Change: We have a solid long term strategic plan.

Speaker Change: We're executing on consistently.

Speaker Change: A proven track record of delivering strong financial results.

Speaker Change: We continue to deliver on our mission.

Speaker Change: The agricultural economic cycles as reflected by our financial results over the last few years.

Bradford Nordholm: Our capital base is strong and growing, providing capacity for further growth and creating more opportunities. More opportunities for us to enhance shareholder value.

Speaker Change: Our capital base is strong and growing.

Speaker Change: Adding capacity for further growth and creating more opportunity.

Speaker Change: Or opportunities for us to enhance shareholder value.

Bradford Nordholm: Before turning to Q&A, I'd like to add that we will be closely monitoring the election results. We have ongoing efforts. to assess how any administration policy may affect Farmer Mac's business, and we don't currently foresee any material changes from either changes in administration, but we certainly will be monitoring and providing any relevant updates on our future earnings calls.

Speaker Change: Before turning to Q&A I'd like to add that we will be closely monitoring the election results tomorrow.

Speaker Change: We have ongoing efforts.

Speaker Change: To assess how any administration policy may affect farmer Mac's business and we don't currently foresee any material changes from either changes in administration.

Speaker Change: But we certainly will be monitoring and providing any relevant updates on our future earnings calls.

Operator: And now, operator, I'd like to see if we have questions from anyone on the line today. I would like to remind everyone, if you would like to ask a question, please press star followed by the number one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

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

Speaker Change: I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad. If you are using a speaker phone. Please.

Brad Tilden: Make sure your mute function is turned off to allow your signal to reach our equipment.

Brad Tilden: Again, Please press star one to ask a question and no pause for just a moment to allow everyone an opportunity to signal for questions.

Bose George: Our first question comes from the line of Bose George from KBW. Please go ahead. Hey, everyone. Good afternoon.

Speaker Change: Our first question comes from the line of <unk> George from <unk>. Please go ahead.

Speaker Change: Hey, everyone. Good afternoon.

Bradford Nordholm: I wanted to start with a question just on the spread. You know, what drove the increase in the farm and ranch, the yield there? And then on the corporate ag finance side was the decline, that one loan you mentioned or anything else that we need to think about?

Speaker Change: I wanted to start with a question just on the spread.

Speaker Change: So what drove the increase in the farm and ranch the yields there.

Speaker Change: And then on the corporate finance side was the decline.

Speaker Change: That one loan you mentioned or anything else that we need to.

Speaker Change: Thanks.

Bradford Nordholm: Well, it's Brad here. Very nice to hear from you.

Brad Tilden: Well, it's Brad here.

Brad Tilden: Nice to hear from you I'm going to turn to Zack Carpenter to give you that.

Zachary Carpenter: You know, I'm going to turn to Zach Carpenter to give you that color on those portfolio matters. Yeah, specifically on the farm and ranch spread information, if you recall, last quarter, we did purchase a pool of loans about $60 million. Those have very strong accretive spreads as it pertains to the farm and ranch loan purchase segment. As we highlighted on their prepared remarks, we are seeing a greater increase in loan purchase opportunities, specifically in farm and ranch, reflecting the tightening ag cycle and the need for bank to focus on liquidity and capital. And you know, our farm and ranch product is, you know, one of our more accretive products.

Brad Tilden: Color on those portfolio matters.

Zack Carpenter: Yes, specifically on the farm <unk> ranch spread information if you recall last quarter, we did purchase a pool of loans about $60 million those had very strong accretive spreads as it pertains to the farm <unk> Ranch loan purchase segment as we highlighted in their prepared remarks, we are seeing a greater increase in.

Brad Tilden: Loan purchase opportunities specifically in farm <unk> ranch, reflecting the tightening cycle and the need for bank to focus on liquidity and capital and our farm and ranch product is one of our more accretive products and so.

Zachary Carpenter: And so as we look to be competitive and provide strong opportunities and products for our customers, we are seeing the opportunity to take advantage of some increasing spreads in the right environment, especially with some of these one-off strategic initiatives that we've been working on, such as the pool purchase opportunities.

Brad Tilden: As we look to be competitive in price it provides strong.

Brad Tilden: Opportunities in products for our customers, we are seeing the opportunity to take take advantage of some increase in spreads in the right environment, especially with some of these one off strategic initiatives that.

Brad Tilden: We've been working on such as the pool purchase opportunities as it pertains to the corporate AG finance spreads that you noted in our Q.

Zachary Carpenter: As it pertains to the corporate ag finance spreads that you noted in our queue, the impact of that is solely related to the single permanent planting loans we mentioned in our prepared remarks.

Brad Tilden: Impact of that is solely related to the single permanent planting loans, we mentioned on our <unk>.

Brad Tilden: Repaired remarks.

Zachary Carpenter: Can I just add one point in the farm and ranch polls? All of the factors hold. And then in addition, we did see a reversal of non-accruals that hit our farm and ranch portfolios.

Speaker Change: Can I just add one point on the Tommy Ranch Booth.

Speaker Change: All of the factors hold and then in addition, we did see a reversal of non accruals suffered a farm and ranch portfolio for that.

Zachary Carpenter: So that did actually give us a little bit of a pause, I would say, in terms of the sequential inclusion idea.

Speaker Change: Did actually give us a.

Speaker Change: Little bit of a pop I would say sequentially.

Speaker Change: Yes.

Bose George: Okay, great. Thanks.

Speaker Change: Okay, great. Thanks, and then partner you noted that you expect flat to higher earnings with lower rates if rates remained more range bound.

Aparna Ramesh: Aparna, you noted that you expect flat to higher earnings with lower rates. If rates remain more range-bound, do you expect a similar sort of earnings profile? Yeah, absolutely. I think, you know, if rates are generally sort of trending down, and obviously, we've seen a little bit of volatility, you know, as rates settled. But Zach noted that we're starting to see an increase in loan purchase volume. And we're seeing that mainly in anticipation of the fact that the yield curve is deepening, and borrowers are, you know, one, just getting a little bit more used to an elevated rate cycle.

Speaker Change: Do you expect.

Speaker Change: A similar sort of earnings profile.

Speaker Change: Yeah, absolutely I think.

Speaker Change: Uh huh.

Speaker Change: He waits agenda leaves sort of trending down and obviously, we've seen a little bit of volatility.

Speaker Change: As we settle.

Speaker Change: Zach noted that we're starting to see an increase in loan purchase volume and we're seeing that mainly in anticipation of the fact that the yoga with Steepening and borrowers are one just getting a little bit more used to an elevated rate cycle and so youre seeing some of that borrower activity increased we'd start to come down we also have an opportunity.

Aparna Ramesh: And so you're seeing sort of that borrower activity increase.

Aparna Ramesh: As rates start to come down, you know, we also have an opportunity to call a lot of the bonds that we'd issued during the peak of the rate cycle. And, you know, you saw a little bit of that effect come to play both this quarter in particular, for example, you saw a widening of our NES and you just look sequentially. And a good portion of that widening, you know, was related to the business compositional shift to NES. That's more accretive when you think about business volume. But the other 50% is really related to the fact that we were able to very proactively call some of the issuances that we had done, you know, callable bonds that were at much higher rates.

Speaker Change: <unk> to call a lot of the bonds that were issued during the peak of the rate cycle and you saw a little bit of that effect come to play. Both this quarter. In particular for example, you saw a widening of any ask when you just look sequentially and a good portion of that widening was related to the business compositional shift to and yes.

Speaker Change: That's more accretive when you think about business volumes, but the other 50% is really related to the fact that we were able to very proactively call. Some of the issuances that we had done callable bonds that were at much higher rates.

Aparna Ramesh: And we were able to rephrase downwards while the asset side of the house was able to bring in loan volume at higher rates. So that actually led to a little bit of margin expansion.

Speaker Change: And we were able to reprice downward while the asset side of the house was able to bring in loan volume at Haile.

Speaker Change: Actually led to a little bit of margin expansion.

Bose George: Okay, great. That's helpful.

Speaker Change: Okay, Great. That's helpful. Thank you.

William Ryan: Thank you. Our next question comes from the line of Bill Ryan from Seaport Research Partner. Please go ahead. Thank you and good afternoon. Couple of questions.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Bill O'brien from Seaport Research Partners. Please go ahead.

Bill O'brien: Thank you and good afternoon couple of questions first.

William Ryan: First, following your comments, Brad, about the politics, you know, in 2018, there were some tariffs put on various products. I know, I believe, China retaliated, putting some tariffs on, I believe, it was soy beans. Um, you know, I don't, I obviously wasn't following the company back then, but could you talk about, you know, if Terrace 2 come back into play in the next couple of years, you know, how did that play out? In 2018, there were tariffs and there were also some supplemental price and income support programs that the Trump administration put in place about the same time.

Bill O'brien: Following your comments Brad about politics.

Bill O'brien: In 2018, there are some tariffs put on various products I know I believe China retaliated, putting some tariffs on I believe it with soybeans.

Bill O'brien: I don't know obviously, what's you followed the company back then but could you talk about it.

Bill O'brien: Tariffs to come back into play in the next couple of years.

Speaker Change: How did that play out in 2018.

Speaker Change: From 2018, there were tariffs and there were also some supplemental.

Speaker Change: Price and income support programs that the Trump administration put in place about the same time that really began a cycle towards ever higher net income for the U S. Agricultural sector. As we've noted over the last two years there has been some reduction in the aggregate net income.

Bradford Nordholm: That really began a cycle towards ever higher net income for the U.S. agricultural sector. As we've noted over the last two years, there has been some reduction in the aggregate net income of the sector. I think at this point, Bill, it's difficult to speculate about the probability of tariffs or the exact effect that they will have, because keep in mind that another factor with U.S. agricultural trade is the strong dollar. And we've had a situation in the last two days where the agricultural balance of trade has actually been negative for the U.S. for the first time in decades.

Speaker Change: Sector.

Speaker Change: At this point Bill.

Speaker Change: Difficult to speculate about the probability of tariffs.

Speaker Change: The exact effect that they will have because keep in mind that another factor with U S. Agricultural trade is the strong dollar.

Speaker Change: And we've had a situation in last two days, where the agricultural balance of trade has actually been negative for the U S for the first time in decades.

Bradford Nordholm: And a good part of that is also attributable to the strong dollar. So you put together kind of strong dollar, the possibility of tariffs. It's hard to say exactly where that lands.

Speaker Change: And a good part of that is also attributed to the strong dollar. So you put together kind of a strong dollar has the possibility of tariffs it's hard to say exactly.

Bradford Nordholm: But I also would note that there are also proposed federal policies that actually enjoy broad bipartisan support that would increase demand for agricultural commodities, include sustainable aviation fuel and other types of five or two fuel conversion factors. We keep a close eye on all this, but our crystal ball does not really allow us to sort out the absolute net effect of that convergence of those potential policies.

Speaker Change: Our that lands, but I also would note that.

Speaker Change: There are also proposed federal policies that actually enjoy broad bipartisan support.

Speaker Change: It would increase demand for agricultural commodities include sustainable aviation fuel and other types of.

Speaker Change: Fiber to fuel conversion factors.

Speaker Change: We keep a close eye on all of this but our crystal ball does not really allow us to sort out.

Speaker Change: Yes.

Speaker Change: The net effect of that convergence of those potential policies.

Bradford Nordholm: Okay, thanks for that answer and one follow-up for... You kind of mentioned a new securitization program or type of product that you might be putting out later this year. Any details you might be able to share with us? So, Bill, I think absolutely. So, you know, something we've, you know, we've consistently talked about with respect to our securitization program is, you know, we're at an inflection point now where we've done four transactions pretty successfully. We've cultivated the market with investors. It's been incredibly well received. We're poised to do a fifth transaction this year, but as we sort of make this pivot, it's also an excellent capital efficiency tool that can benefit not just Farmer Mac, but really takes us back more fundamentally to, you know, our mission around liquidity and why we were put in place, you know, when you go all the way back to when we were created.

Speaker Change: Okay. Thanks for that answer and one follow up for a partner.

Speaker Change: You kind of mentioned.

Speaker Change: Our new securitization program or type of product that you might be putting out later this year and into next year.

Speaker Change: Any details you might be able to share with us.

Speaker Change: So.

Speaker Change: I think absolutely so something.

Speaker Change: <unk> consistently talked about with respect to our securitization program is.

Speaker Change: At an inflection point now where we've done four transactions pretty successfully we've cultivated market with investors. It's been incredibly well received we're poised to do a fifth transactions this year.

Speaker Change: But as we sort of make this pivot. It's also an excellent capital efficiency tool that can benefit not just farmer Mac.

Speaker Change: It takes us back more fundamentally to our mission around liquidity and why we were put in place.

Speaker Change: When you go all the way back to when we were created and so that's an aspect of our mission.

Bradford Nordholm: And so that's an aspect of our mission. And given that we've cultivated this market, we do think that, you know, as Brad noted in his prepared remarks, this creates an opportunity for us to pivot from a solely financing strategy to also a product strategy.

Speaker Change: And given that we've cultivated this market, we do think that as Brad noted in his prepared remarks. This creates an opportunity for us to pivot from a solely financing strategy to also a product strategy and this is something that a number of folks across the organization led by Zach.

William Ryan: And this is something that, you know, a number of us across the organization led by Zach and others on his team are working actively towards thinking through how we could make this pivot from a financing strategy to a product strategy. Okay, thank you for taking my question.

Speaker Change: Others on his team are working actively towards thinking too.

Speaker Change: Could make this pivot from our financing strategy to our product strategy.

Speaker Change: Okay. Thank you for taking my questions.

Brendan Mccarthy: Our next question comes from the line of Brendan McCarthy from CIDHOTI. Please go ahead. Thanks. Good afternoon, everybody. Just want to ask a couple questions. Wanted to start off with the Renewable Energy Loan Portfolio. The growth there looks really strong. And I think it's roughly on pace to triple in 2024 compared to the end of 2023.

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

Brendan Mccarthy: Thanks. Good afternoon, everybody just wanted to ask a couple questions just wanted to start off with the renewed renewable energy loan portfolio.

Brendan Mccarthy: The growth there looks really strong and I think it's roughly on pace to triple in 2024 compared to the end of 2023, but just curious as to what kind of pace can can we expect going forward maybe.

Zachary Carpenter: But just curious as to what kind of pace can we expect going forward, maybe looking out the next year or two? Brendan, great question. Thanks for asking. Yeah, our renewable energy segment has seen tremendous growth. We eclipsed the $1.1 billion total business volume in the third quarter with a very strong pipeline. And I think your question resonates internally at Farmer Mac on a consistent basis. How do we think about resources? How do we think about our infrastructure to be able to support and scale this business unit consistently into the future? Clearly, we want to support our customers and be there through the cycle as a significant amount of investment takes place for these projects.

Speaker Change: Maybe.

Speaker Change: Looking out the next year or two.

Speaker Change: Hey, Brendan Great question, Thanks for asking yes, our renewable energy.

Speaker Change: Segment has seen tremendous growth, we eclipsed the $1.1 billion total business volume in the third quarter with a with a very strong pipeline and I think your question resonates internally at farmer Mac on a consistent basis, how do we think about resources, how do we think about our infrastructure to be able to support and scale. This business unit.

Speaker Change: Consistently into the future clearly want to support our customers and be there through the cycle as a significant amount of investment takes place for these projects and so we are constantly thinking and proactively looking for appropriate resources appropriate infrastructure to be able to meet that demand.

Zachary Carpenter: And so we are constantly thinking and proactively looking for appropriate resources, appropriate infrastructure to be able to meet that demand. You know, frankly, given the tailwinds we see in this space, given the significant amount of renewable energy products in the queue waiting for transmission hookups and to be built, we don't see a slowdown in this space. And frankly, with the growth in data centers, which is a key component of our growth in telco, power generation assets are going to be sought after demand across all types of power generation assets. So we see a lot of opportunities here.

Speaker Change: Frankly, given the tailwind we see in this space given the significant amount of.

Speaker Change: Renewable energy products in the queue waiting for transmission hookups and to be built we don't see a slowdown in this space and frankly with the growth in data centers, which is a key component of our growth in telco.

Speaker Change: Power generation assets are going to be.

Speaker Change: Sought after demand across all types of power generation assets. So we see a lot of opportunities here, we will continue to invest in infrastructure and resources to be able to meet that demand and we are optimistic about continued strong growth into the next year.

Zachary Carpenter: We will continue to invest in infrastructure and resources to be able to meet that demand.

Zachary Carpenter: And we're optimistic about continued strong growth into the next year.

Brendan Mccarthy: Great. Thanks, Zach.

Speaker Change: Great. Thanks Thats helpful.

Brendan Mccarthy: That's helpful.

Brendan Mccarthy: I want to ask a question on the operating efficiency ratio, the 30% target. Just considering some of the larger treasury investments are behind the company within your prepared remarks, do you still think that 30% target is prudent, or do you see a run rate below that number? for the foreseeable future. Brendan, keep in mind that for the STARS project and other large infrastructure projects, a portion of that will be capitalized and amortized, and part of it is current expense. So, when we look at that, we also look at the need for supporting additional resource commitments.

Speaker Change: Wanted to ask a question on the operating efficiency ratio the 30% target just considering some of the larger treasury investments are behind the company.

Speaker Change: In your prepared remarks.

Speaker Change: Still think that 30% target is prudent and where do you see your run rate below that number.

Speaker Change: For the foreseeable future.

Speaker Change: Yes Brendan.

Speaker Change: Keep in mind that for the <unk> project and other large infrastructure projects a portion of that will be capitalized and amortized. Some part of it is current expense. So when we look at that we also look at the need for supporting additional resource commitments. For example, Jack just talked about renewable energy.

Aparna Ramesh: For example, Zach just talked about renewable energy, a growth area. You have to spend money to grow that business. We don't think that kind of lowering that expectation down to just, for example, 25% really is prudent. We believe that to maintain safety and soundness, to properly support all of our businesses, it's going to continue to be something in the 30% or possibly slightly under range. But we do not currently foresee an opportunity to really ratchet that down. We think that would be imprudent for the overall organization.

Speaker Change: That growth area.

Speaker Change: You have to spend money to grow that business.

Speaker Change: We don't think that kind of lowering that expectation down to just for example, 25% really is prudent.

Speaker Change: <unk> believes that too.

Speaker Change: Maintain safety and soundness too.

Speaker Change: Properly support all of our businesses is going to continue to be something in the 30% or possibly slightly under range, but we.

Speaker Change: We do not currently foresee an opportunity to really ratchet that down we think that would be imprudent.

Speaker Change: For the overall.

Speaker Change: Organization.

Brendan Mccarthy: Got it. Thanks, Brad.

Speaker Change: Got it thanks, Brad one more question just on farm <unk> Ranch volume I know you've discussed the benefit of lower farm net income.

Bradford Nordholm: One more question just on farm and ranch volume. I know you've discussed the benefit of, you know, lower farm net income, you know, driving liquidity to farmers and ultimately driving loan volume growth. But do you just kind of look at a lower interest rate environment as a boost to loan volume growth as well? Or do you see, you know, potential conflicts between the two? Yeah, absolutely.

Speaker Change: Driving liquid needs of farmers and ultimately driving loan volume growth.

Speaker Change: But can you just kind of look at a lower interest rate environment.

Speaker Change: Boost loan volume growth as well or do you see.

Speaker Change: Potential conflicts between the two.

Speaker Change: Yes, absolutely I think a combination of many factors that we believe are going to contribute to increasing opportunities in farm <unk> ranch.

Bradford Nordholm: I think a combination of many factors that we believe are going to contribute to increasing opportunities in farm and ranch. I mean, you know, first and foremost, the tightening in the ag space is, you know, requiring liquidity for working capital and other needs. We have seen lower rates. I mean, as Aparna mentioned, we expect a steepening of the yield curve and our rate products have decreased this year, albeit volatile, and that is providing increased demand for farmers and ranchers, especially in this volatile cycle to take out some new farm loans to support their facilities.

Speaker Change: First and foremost the tightening in the AG spaces or acquiring liquidity for working capital and other needs. We have seen lower rates I mean as a partner mentioned, we expect a steepening of the yield curve.

Speaker Change: Our rate products have decreased this year, albeit volatile and that is providing increased demand for farmers and ranchers, especially in this volatile cycle to take outs.

Speaker Change: Some new farm loans to support their facilities.

Bradford Nordholm: And I think the other piece that's important is to remember that our customers are financial institutions. They need to continually manage their liquidity and their capital needs. Many of those organizations, which we commented on past calls, were holding loans on their balance sheet in the last couple of years, just given the significant amount of capital they have. That tide has reversed and we're seeing the need for more capital efficiency, more liquidity for our customers, the financial institutions, and thus they may want to at this point in time as these loans reset to sell to Farmer Mac to free up some liquidity and capital.

Speaker Change: The other piece that's important is to remember that our customers are financial institutions, they need to continually manage their liquidity and their capital needs. Many of those organizations, which we commented on past calls we're holding loans on their balance sheet in the last couple of years, just given the significant amount of capital they have that.

Speaker Change: Tight has reversed and we're seeing the need for more capital efficiency more liquidity for our customers the financial institutions and thus they may want to at this point in time as these loans reset to sell to farmer Mac to free up some liquidity and capital and is upon I mentioned on the call.

Bradford Nordholm: And as Aparna mentioned on the call, the new loan purchase pool that we executed in October, that's a direct example of a counterparty needing to free up a liquidity for capital reasons. And we see more of that potentially coming into the future. That makes sense.

Speaker Change: The new loan purchase pool that we executed in October.

Speaker Change: That's a direct example of counterparty need to freed up liquidity for capital reasons, and we see more of that potentially coming into the future.

Speaker Change: That makes sense. Thanks, everybody that's all from me.

Brendan Mccarthy: Thanks, everybody.

Gary Gordon: That's all for me. Our next question comes from the line of Gary Gordon. Please go ahead. Okay, thank you. Good questions. First I want to follow up on Bill Ryan's question about the securitizations. Brad used the term transformative or transformed. related to this, so that suggests to me. big or important, and I could see it. Spread, Reducing Capital Requirements, and I heard the... Financing, but a product tool, maybe take market share. One are the benefits in all three of those lines. too, if you give a sense for. Yeah, thank you, Gary. There's a lot to unpack there, but let me just try to simplify.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Gary Gordon. Please go ahead.

Gary Gordon: Okay. Thank you.

Gary Gordon: Two questions first I wanted to follow up on Bill Ryan's question about the securitization. So Brad you used the term transformative or transform.

Gary Gordon: Related to this.

Bill Ryan: To me that this is bill.

Gary Gordon: Big or important and I could see it helping the spread reducing capital requirements and.

Gary Gordon: I heard the.

Gary Gordon: Become a.

Gary Gordon: Not just a financing better product tool, maybe take market share one of the benefits in all three of those lines and maybe two if you could give a sense for financing.

Gary Gordon: Pool of loans on balance sheet and securitization whats the difference in capital requirements.

Speaker Change: Well. Thank you guys I'd love to unpack there, but let me just try to simplify I think both your questions really really pretty well to each other so.

Bradford Nordholm: I think both your questions really relate pretty well to each other.

Bradford Nordholm: So, you know, this does come down to us, I would just say, you know, as an enterprise, we're aiming pretty high here, because we do think that securitization is a terrific opportunity for Farmer Mac as a whole to essentially take what is a fairly capital efficient tool and offer that to borrowers to reduce, you know, ultimately the cost of borrowing for the end borrower. And this is true in the farm and rent segment. And the only way we can really accomplish that is if we, you know, have, and we have tested the market, and we've seen that investors do see this as an incredible opportunity to own a slice of American agriculture.

Gary Gordon: This does come down to us.

Gary Gordon: I'd, just say as an enterprise, we're aiming pretty high because we do think that securitization is a terrific opportunity for farmer Mac as a whole to essentially take what is a fairly capital efficient tool.

Gary Gordon: And off with that.

Gary Gordon: Borrowers to reduce ultimately the cost of borrowing for the end Bartlett and this is true in the pharma segment.

Gary Gordon: And the only way we can really accomplish that is this we have when we have tested the market and we've seen that investors.

Gary Gordon: You see this as an incredible opportunity to own a slice of American agriculture will be tested. This we know that it exist. So let's get right to the heart of your question.

Bradford Nordholm: So we've tested this, we know that it exists. So this gets right to the heart of your question, you know, around market share. You know, we try not to think about this so much in terms of market share as we try to think about this in terms of, you know, providing that low cost liquidity and creating an opportunity to work in partnership with other entities that could use some of that same measure of capital efficiency, because this is a very capital efficient tool. So, there's many ways to sort of slice this, but we aren't trying to take these loans and put them on our balance sheet, but we're trying to create a frictionless way to finance loans that could be made by us or by any other entity to offer capital relief so that ultimately investors are able to invest in a security that's backed by these pools of agricultural loans.

Gary Gordon: Market share.

Gary Gordon: Turning now to think about this so much in terms of market share as we try to think about this in terms of.

Gary Gordon: Providing that low cost liquidity and creating an opportunity to work in partnership with other entities that could use some of that same measure of capital efficiency. Because this is a very capital efficient tool. So there's many ways to sort of slice this but we aren't trying to take these loans and put them on our balance sheet.

Gary Gordon: But we're trying to create a frictionless way to finance loans that could be made by us or by any other entity to offer capital relief. So that ultimately investors are able to invest in.

Gary Gordon: And in a security that's backed by these pools of agricultural loans and the more demand there is from investor.

Bradford Nordholm: And the more demand that there is from investors will result to a low price and ultimately a low cost of borrowing to the end borrower. So, what does this mean for PharmaMac? I think what it means for PharmaMac, and I think this gets to the second part of your question, is it converts the revenue stream from net effective spread to fee income. And when we think about our balance sheet, or the financing capability that we offer the market, I think we're pretty agnostic about whether it's an asset that we hold on balance sheet, or whether it is a stream of fee income that would be akin to something like assets under management.

Gary Gordon: Results were a little price and ultimately low cost of borrowing to be to the end.

Gary Gordon: To the end borrower. So what does this mean for farmer Mac I think what it means for farmer Mac and I think that gets to the second part of your question is it converts.

Gary Gordon: The revenue stream from net effective spread to fee income.

Gary Gordon: And when we think about our balance sheet or the financing capability that we offer the market I think we're pretty agnostic about whether it's an asset that we hold on balance sheet or whether it is a stream of fee income that would be akin to something like assets under management. So when we think about market share I think.

Bradford Nordholm: So, when we think about market share, I think we think about market share as either loans held on balance sheet or fee income that's generated by holding assets under management, you know, for example, in a securitized trust. So, that's really the pivot that we're trying to make, and maybe just a more specific point, the four transactions that we've done so far are loans that have been originated that we had held on our balance sheet that we've then securitized, and they've been a little bit of a market test to see how investors perceive this opportunity. We now think that we're at a point to actually offer this as a securitization program for other customers or other financial institutions that could be seeking capital efficiency, and they can actually offer this program to their borrowers, perhaps at a lower rate, which could essentially increase the amount of volume that flows into the conduit.

Gary Gordon: We think about market share is either loans held on balance sheet or fee income that's generated by holding assets under management for example in the Securitized Trust. So that's really the pivot that we're trying to make and the maybe just a more specific point the four transactions that we've done so far.

Gary Gordon: Our loans that had been originated that we had held on our balance sheet that we have been securitized and they've been a little bit of a market test to see how investors perceive this opportunity.

Gary Gordon: We now think that we're at a point.

Gary Gordon: To actually offer this as a securitization program for other customers or other financial institutions that could be seeking capital efficiency and they can actually offer this program to their borrowers, perhaps at a lower rate, which could which could essentially increase the amount of volume that flows in.

Gary Gordon: The conduit so that would convert from net effective spread for us into guaranteed fee income.

Bradford Nordholm: So that would convert from net effective spread for us into guaranteed fee income. And absolutely, that would also result in an increase in market share, but it would be more assets under.

Gary Gordon: And absolutely that could also result in an increase in market share, but it would be more assets under management.

Speaker Change: Okay. Thanks, very much okay. One question on capital.

Gary Gordon: Thanks very much. OK, one question on Kappa. So, I never know exactly which capital ratios to use, but let's say the... Access Capital Ratio. Without the preferred buyback, it would have been $73. thinking was over 70 percent. more than an adequate cushion. Baiback, The Preferred. is a number in that sort of 70% Yeah, that's absolutely a great way to think about it.

Speaker Change: Oh, I never know exactly which capital ratios to use but let's say the areas where you are.

Speaker Change: Excess capital ratio, which you said was 66%.

Gary Gordon: Without the preferred buyback it would've been 73%.

Gary Gordon: At least I'm thinking was over 70%.

Gary Gordon: More than an adequate cushion so you can afford to buyback.

Gary Gordon: Buyback the preferred.

Speaker Change: Is the number in that sort of 70% range.

Gary Gordon: Enough.

Gary Gordon: And if that capital ratio drifts back about the 70% that gives you more flexibility is that a reasonable way to think about it.

Speaker Change: Yes, that's absolutely a great way to think about it let me just decompose that for you a little bit we have two measures that we follow one is really akin to sort of a leverage ratio. So for every asset that we hold on balance sheet you have to hold 275 basis points of capital for on balance sheet assets and 75 basis points for anything Thats all.

Aparna Ramesh: Let me just decompose this for you a little bit. We have two measures that we follow. One is really, you know, akin to sort of a leverage ratio. So for every asset that we hold on balance sheet, we have to hold 275 basis points of capital for on balance sheet assets and 75 basis points for anything that's off balance sheet. So in this particular measure, nothing is risk weighted. And that's where we're getting to that over 550 million in excess capital. The second measure that we follow is the Basel measure for tier one capital ratios that follows, you know, a very traditional measure of risk weighted assets.

Speaker Change: Off balance sheet. So in this particular measure nothing as risk weighted and that's where we're getting to that over $550 million in excess capital.

Gary Gordon: The second measure that we follow is the Boswell measure for tier one capital ratios that followed a very traditional measure of risk weighted assets.

Aparna Ramesh: So what you saw, Gary, in this particular quarter was essentially a redemption that caused our risk-based capital ratio to fall from 15.3% to 14.2%. Lots of numbers there. But essentially, I'm trying to get to the heart of your question, which is, well, what's a good cushion? If in one quarter, we can fall by about 110 basis points, you might ask, well, 50% of that is a result of that preferred redemption that we did do, because we do have excess capital. That is true. But why do we still think that north of 14% is a good number for us?

Gary Gordon: You saw Gary in this particular quarter was essentially a redemption.

Gary Gordon: <unk>.

Gary Gordon: <unk> capital ratio to fall from 15, 3% to 14, 2% lots of numbers, there, but essentially I'm trying to get to the heart of your question, which is well what's a good cushion.

Gary Gordon: One quarter, we can fall by about 110 basis points, you might ask well 50% of that.

Gary Gordon: Out of that preferred redemption that we did do because we do have excess capital that is true.

Gary Gordon: So why do we still think that north of 14% is a good number for us well. The other 66 basis points of decline that we saw come through this quarter. A large portion of that has to do with the fact that we are now in businesses like renewable energy and telecom that consume more risky assets.

Aparna Ramesh: Well, the other 66 basis points of decline that we saw come through this quarter, a large portion of that had to do with the fact that we are now in businesses like renewable energy and telecom that consume more risk-based assets. They're also more accretive, but they also consume more capital. So I think you implied this in your question, but absolutely, having that buffer gives us more degrees of freedom because we can grow in a pretty unconstrained way, provided we see assets that fit our credit box as opportunities that we can bring on balance sheet. And we do not have to go into the market and raise capital when we need it because we already have this existing cushion.

Gary Gordon: Similar accretive, but they also consume more capital.

Gary Gordon: I think you implied this in your question, but absolutely having that buffer gives us more degrees of freedom, because we can grow in a pretty unconstrained way provided we see assets that fit our credit box as opportunities that we can bring on balance sheet and we do not have to go into the market and raise capital when we need it.

Gary Gordon: Because we already have with existing cushion. So this allows us to grow in a fairly unconstrained way that coupled with the securitization strategy that we just talked about gives us many degrees of freedom and we can rely a lot left on the preferred market.

Aparna Ramesh: So this allows us to grow in a fairly unconstrained way. That, coupled with the securitization strategy that we just talked about, gives us many degrees of freedom and we can rely a lot less on the preferred market.

Speaker Change: Okay. So if I could sort of summarize that.

Aparna Ramesh: So if I could sort of summarize that. where from where the capital ratios are today, so the other the earnings that you're generating. could go to the more capital and BiggerSpreadBiz. for every reason, you're still growing fast. that are, you know, further preferred buybacks, hired. Absolutely.

Speaker Change: Where from where are their capital ratios are today. So the other is the earnings that you are generating it could go to the more capital intensive but bigger spread businesses.

Speaker Change: Forever reason youre still growing faster than you can consider further preferred buybacks higher dividend something along those lines is that.

Speaker Change: Fair to say.

Aparna Ramesh: And, you know, I think that's the third component, you know, that I didn't mention, which is our dividend strategy. It allows us to be very measured in how we offer dividend growth to our shareholders. So that's not the only reward, I would say, that we would offer our shareholders. It's also the inherent growth that's fundamental to our business. So I think it's both. Being able to sustain that level of dividend growth is absolutely important. And we can't do that if we don't have a good cushion of capital, so both safety and soundness, but also to really enable the growth strategies that we love.

Speaker Change: Absolutely and I think that's the third component that I didn't mention which is our dividend strategy. It allows us to be very measured in how we offer dividend growth to our shareholders. So that's not the only.

Gary Gordon: Reward I would say that we would all fresh shareholders. It's also the inherent growth that is fundamental to our business. So I think it's both being able to sustain that level of dividend growth is absolutely important and we can't do that if we don't have a good cushion of capital safety and soundness, but also to really enable the growth strategy.

Aparna Ramesh: Okay, Gary, I just also note with the preferred Those are very nicely structured for us because they're perpetuals, so we're locked in and yet when they hit that period, usually five years out, where we can redeem without penalty, that becomes our option at that point. So it's a very kind of one-way option that is very favorable to us. And we can make that decision based on circumstances at that time.

Speaker Change: Yeah, Gary I'd, just also note with the preferreds.

Gary Gordon: Those are very nicely structured for us because they're perpetuals, so we're locked in and yet when they hit that.

Gary Gordon: Usually five years out where we can redeem without penalty that becomes our options at that point.

Gary Gordon: So it's a very kind of a one way option that is very favorable to us and.

Gary Gordon: And we can make that decision based on circumstances at that time.

Speaker Change: Okay. Thanks very much.

Operator: Thanks very much. Again, if you would like to ask a question, please press star 1 on your telephone keypad. There are no questions at this time.

Gary Gordon: Okay.

Gary Gordon: Yeah.

Speaker Change: Again, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: There are no question at this time presenters. Please continue.

Bradford Nordholm: Presenters, please continue. Well, thank you, operator.

Speaker Change: Well. Thank you operator, and thank you all for joining US today, we always enjoy and appreciate.

Bradford Nordholm: And thank you all for joining us today. We always enjoy and appreciate your participation and the questions that we get from you. If you do have follow up questions, please get in touch with Jalpa. And we will be in touch if there are any material developments before our next quarterly call. None are anticipated at this time.

Speaker Change: Your participation in the questions that we get from you.

Speaker Change: If you do have follow up questions. Please get in touch with Jamba.

Speaker Change: And we will be in touch if there are any material developments before our next quarterly call. None are anticipated at this time, we're very.

Bradford Nordholm: We're very confident and excited about the fourth quarter for 2024.

Speaker Change: Confident and excited about.

Speaker Change: The fourth quarter for 2024.

Operator: With that, we'll adjourn this call. Thank you. This concludes today's conference call.

Speaker Change: With that we'll adjourn this call. Thank you.

Speaker Change: This concludes today's conference call. Thank you and you may now disconnect.

Operator: Thank you and you may now disconnect.

Speaker Change: Okay.