Federal Agricultural Mortgage - Earnings Call - Q1 2021
May 6, 2021
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the Farmer Mac's First Quarter twenty twenty one Earnings Results. All lines have been placed on a listen only mode and the floor will be opened for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Brad Norholm. Sir, the floor is yours.
Speaker 1
Good afternoon. I'm Brad Norholm, and I'm very pleased to welcome you to our twenty twenty one first quarter investor conference call. We have a great report and a number of positive developments to discuss today. But before I begin, I'd like to ask Steve Mullery, our General Counsel, to comment on forward looking statements that we may make today as well as Farmer Mac's use of non GAAP financial measures.
Speaker 2
Thank you, Brad. Some of the statements made on this conference call may be forward looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance. We may not be obligated to update these statements after this call. We caution you that forward looking statements are subject to risks and uncertainties.
Actual results may differ materially from the results expressed or implied by the forward looking statements. In evaluating Farmer Mac, you should consider these risks and uncertainties as well as those described in our 2020 annual report on Form 10 ks filed with the SEC in February and in our quarterly report on Form 10 Q filed with the SEC earlier today. In analyzing its financial information, Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with generally accepted accounting principles in The United States, also known as non GAAP measures. Disclosures and reconciliations of Farmer Mac's non GAAP measures can
Speaker 3
be
Speaker 2
found in the most recent Form 10 Q and earnings release posted to Farmer Mac's website, farmermac.com, under the Financial Information portion of the Investors section. A recording of this call will be available on our website for two weeks starting later today.
Speaker 1
Well, you, Steve, and good afternoon, everyone, and thank you for joining us. Today, I would like to provide you with a high level overview of our first quarter results. Then I'm going to turn the call over to Zach Carpenter, our Chief Business Officer, who is going to discuss customer and market developments. Jackson Takash, our Chief Economist, will provide an update on the current agricultural environment And Aparna Ramesh, our Chief Financial Officer, will conclude with a more detailed review of our financial results. Our consistent performance in the 2021 demonstrates the strength and stability of our business model, and that's a full year into the pandemic.
We reported court earnings of $25,900,000 a 29% increase over the first quarter twenty twenty results and a net effective spread of 97 basis points, which compares with 89 basis points in the same period last year. While the overall size of our portfolio was little changed in the quarter compared to year end, we continue to benefit from excellent funding, maintain our disciplined asset liability management and continue to see a shift in the composition of our portfolio towards higher spread loan purchase products. As a result, our net effective spread has remained above 90 basis points, plus or minus five basis points, the guidance we have previously provided. We do, however, expect our funding levels to revert to historic levels as the economy recovers and our business mix adjusts. The overall condition of the agricultural real estate market remains positive.
We provided $1,500,000,000 in new credit to rural America in the first quarter, furthering our mission of finding innovative ways to increase access to capital and reduce the cost of credit. Farmer Mac remains well capitalized with solid liquidity, a strong balance sheet, and high standards of credit quality. While there is widespread optimism for our economy due to the fiscal stimulus and vaccine distribution, we are continuing to closely monitor the impact of COVID nineteen on our portfolio. As of 03/31/2021, we have approximately $51,000,000 of unpaid principal balance still in deferments that we approved. That compares with a peak of about $430,000,000 So it's now less than 12% of the peak and less than 0.6 of the farm and ranch line of business.
Although we've not seen any significant effect on our financial results or on the ag and rural infrastructure portfolios, we are continuing to monitor the ongoing effects of the extreme cold weather event that occurred during February in Texas in the ERCOT power region. Our rural utilities portfolio exposure in Texas is approximately $416,000,000 as of 03/31/2021. And that $416,000,000 is split between electric distribution and generating and transmission electric cooperatives. We believe that the electric cooperatives in our portfolio that are located in ERCOT entered into this period of stress in a strong financial position, able to absorb cost increases. And many of these electric cooperatives have fuel or power pass through cost provisions in their rate making and cooperative form of business governance systems, which provide flexibility to recoup market price fluctuations.
It is unknown at this time what magnitude of cost pass throughs will be required to pay for these additional energy costs. That will largely depend on the period of time over which these costs are recouped or amortized. We believe that the current internal risk ratings that we have at Farmer Mac and that are applied to our rural infrastructure portfolio are appropriate for the risk as we assess it today. Throughout this recovery and beyond, we will remain steadfast in our commitment to maintain the availability and flow of credit to rural communities. We will continue to focus on initiatives designed to achieve our growth, enhance our technology and strengthen our core profitability objectives so that we can deliver long term value to our shareholders while maintaining our underwriting standards.
And to that end, our new Chief Credit Officer, Mark Reddy, joined us in March after spending more than a decade at Fifth Third Bank and its food and agribusiness and leveraged finance groups. Mark will play an integral role in developing and continuing the development of our prudent underwriting standards for our new areas of growth. He brings strengths that are particularly complementary to those we already have with Farmer Mac, particularly as it relates to large and complex transactions. We are thrilled to have Mark join our executive team and his support for our efforts to grow our business. With that, I'd like to turn the call to Zach Carpenter, our Chief Business Officer, to give you an update on our customer and market developments.
Zach?
Speaker 3
Thanks, Brad. Total outstanding business volume was $21,900,000,000 as of 03/31/2021, a modest decrease of $61,600,000 from 12/31/2020, primarily due to a $206,800,000 decrease in certain fee based products such as pass through securitization or loans held in trust and other off balance sheet products, specifically long term standby purchase commitments. This net decrease was partially offset by exceptional growth in our farm and ranch loan purchase business, which I will review in a moment. The institutional credit line of business decreased $97,700,000, primarily reflecting the continuation of trends we saw in the 2020 as one large counterparty moderately reduced its amount of outstanding credit by letting $175,000,000 of AgVantage securities mature. However, we did successfully refinance $225,000,000 of AgVantage securities with one counterparty and added new volume of $125,000,000 with another, which reflects our ability to execute transactions while tactically managing the impact to our net effective spread.
As we continue into 2021, we do remain cautious about prospects for incremental institutional credit business given the favorable capital markets environment and strong access to alternative funding by many of our AgVantage counterparties. And we could see a continued decrease in our institutional credit portfolio as long as the market maintains elevated levels of liquidity. Turning to our Farm and Ranch line of business, the $48,200,000 of net growth is attributable to a $239,000,000 net increase in loan purchase volume, which more than offset the decrease in other fee based and off balance sheet products. The 5% quarter over quarter growth in our Farm and Ranch loan purchase portfolio continues to reflect the success of our customer acquisition and retention initiatives, our ability to provide competitive interest rates across our product set and our efficient and effective execution in the loan approval and purchase process. Our results also reflect our ability to once again overcome a seasonally heavy prepayment quarter, primarily related to the January 1 payment date associated with the majority of our loan portfolio.
Our Farm and Ranch loan purchase portfolio has increased over 34% from the 2020, resulting in over $1,300,000,000 in net loan purchase volume. In addition, included in this quarter's net farm and ranch loan purchase growth is a growing proportion of exposures to agri producers and agribusinesses that support agricultural production, food and fiber processing, and other supply chain production. This continues to reflect a new area of growth for Farmer Mac, and we are excited about its growth potential given the favorable market spreads and added diversification those loans bring. Our pipeline across all farm and ranch portfolios remains at healthy levels as we continue to broaden and deepen relationships that will provide Farmer Mac with borrower and sector diversity and accretive yields. As previously discussed, partially offsetting the strong growth in our Farm and Ranch loan purchase business were net decreases of $112,500,000 in loans held in trust and $78,400,000 in our long term standby purchase commitment product.
These decreases primarily reflect the continued favorable lending environment resulting in increased levels of loan refinancing activity as well as strong capital positions of our customers reducing the need for utilizing these risk mitigation products. However, these products generate lower revenue due to the fee based structure and thus do not impact our net effective spread and generally do not affect core earnings to the same degree as our purchased loan product. Overall, our farm and ranch growth continues to outpace the broader agricultural credit market. Our agricultural mortgage loan portfolio or net loan purchases in our farm and ranch line of business, including loans held in trust, grew 17.6% over the last twelve months compared to the year over year growth rate of the total agricultural mortgage loan market of approximately 6% through December 2020. Excluding loans held in trusts, our loan purchase portfolio increased approximately 34% over the last twelve months.
This consistent and large growth rate we have seen in our farm and ranch loan purchase over the last twelve months continues to reflect our customer relationship and retention strategies as well as our growing share of larger, more complex agro producer and agribusiness loan. Our Rural Utilities line of business decreased $12,400,000 during the quarter, which primarily reflects scheduled payments and maturities. The results this quarter compared to the net loan growth achieved during the 2020 primarily reflects the higher interest rate environment in 2021 coupled with the impact of the Texas Arctic freeze that Brad spoke about earlier. Both events slowed customers looking to execute and close on transactions during the quarter. However, looking ahead, the prospects for loan growth within the rural utilities line of business overall appear to be positive given the ongoing investments in capital expenditures for generation, transmission and distribution assets as well as with Federal Communication Commission's Rural Digital Opportunity Fund Auction, which awarded $9,200,000,000 in broadband related operation cost subsidies to winning bidders in December 2020.
This may provide a catalyst for capital demand from rural electric cooperatives who seek to develop and deploy broadband services. We have approximately $140,000,000 in loans made to electric distribution cooperatives where portions of the loan proceeds were utilized to develop broadband infrastructure for rural America. We expect expect this to be a growing area of focus for Farmer Mac over the next few years. As of 03/31/2021, the total outstanding loan purchase balance of our renewable energy portfolio was $82,900,000 And during the quarter, we closed an additional $22,000,000 renewable energy commitment. The pipeline in renewable energy remains strong as we continue to build relationships and enhance our infrastructure to build our reputation as a key player in the renewable energy market.
Our ongoing conversations with customers reflect optimism about further economic recovery and growth. We are focused on continuing to execute a straightforward customer oriented strategy, which we believe will enable long term growth and create value for all of our stakeholders. And with that, I'll turn it back to you, Brad.
Speaker 1
Thanks very much, Zach. Now I'd like to turn the call to Jackson, our chief economist, to give you an update on current economic and credit conditions. Jackson?
Speaker 4
Thank you, Brad. By most measures, conditions in the agricultural and general economy showed marked improvements in the 2021. Higher commodity prices in the 2020 and the 2021 as well as record levels of government support payments lifted farm incomes in 2020. In March 2021, the USDA released the details of another round of support for America's food, fuel and fiber sectors with more than $12,000,000,000 dedicated for direct payments and market support, demonstrating the strong political commitment to a healthy and vital agricultural economy. These conditions combined to support land values during the quarter with limited supplies and strong demand, particularly in the western markets.
The general economy is also showing signs of a resiliency after a challenging 2020. Consumer spending, manufacturing indices and unemployment rates continue to improve in the 2021, and rural economies have experienced above average performance in several of these metrics. Asset values climbed in the 2021, with housing values rising approximately 12% annually according to the February 2021 data from the Federal Housing Finance Authority and S and P CoreLogic. Efforts continue to increase rural community connectivity and opportunity through access to high speed broadband Internet and investment in energy projects continued at a strong pace to start the year. The overall level of interest rates rose during the quarter, but credit spreads tightened showing the strength in the financial markets and improving outlook for business conditions.
While the bulk of the news in the ag, food and rural connectivity sectors was positive, there remained some risks to the economic outlook for these industries. COVID-nineteen continues to cast a shadow on the global economic recovery and some agricultural and food products like tree nuts and fruits are more reliant on export markets for demand. Furthermore, The US economic recovery is not yet complete and consumer mobility while increasing is not consistently back to pre pandemic levels. The impact of the pandemic on food, fuel and fiber producers were also not evenly distributed and thus there are still farmers and ranchers experiencing financial stress from the twenty twenty recession. Finally, weather risks remain a source of volatility to the ag and rural energy markets.
The February polar vortex event in Texas, which Brad described earlier, is a prime example of this risk. Electricity providers, regulators and lawmakers are continuing to work together to solve the immediate financial burden of the Texas Arctic trees, but also put forward improvements to the regional electric grid and market. Despite these few headwinds, the overall economic narrative had a net positive effect on the credit quality and performance of Farmer Mac's portfolio. Portfolio substandard rates and default rates were elevated for much of 2020, but these rates fell back to or at or below historical levels as conditions improved. Loans rated substandard represented 1.5% of the total portfolio with risk rating downgrades in permanent plantings and crop loans driving a slight uptick in substandard loans from the fourth quarter.
However, 39% of the loans past due ninety days or more in the 2020 cured or paid off by 03/31/2021. The overall delinquency rate rose from 0.21% of the total portfolio as of 12/31/2020 to 0.33% of the total portfolio by 03/31/2021. That increase is in line with the seasonal rise consistently observed during the first quarter of each year related to that first January payment date on most loans. There remains a concentration in seriously delinquent loans as the top 10 borrower exposures represent more than half of the ninety day delinquencies as of 03/31/2021. There were no loan charge offs during the first quarter, which is further evidence of the strong performance and credit quality of Farmer Mac's growing portfolio.
While 2020 has taught us that economic conditions and cycles can change quickly, the food, agricultural and rural energy sectors have experienced a healthy first quarter, and Farmer Mac is well positioned to help the sectors build on that momentum. And now I'll turn it back to you, Brad.
Speaker 1
Thanks very much, Jackson. And now I'd like to turn to Aparna to discuss our financial results in more detail. Aparna?
Speaker 5
Thank you, Brad. Farmer Mac's first quarter twenty twenty one earnings reflects the strength of our underlying business model and our ability to adapt to the changing market environment. Earnings were strong and driven by growth in higher spread business volume and substantially lower funding costs, given our continued strong access to debt capital markets. Our access to the capital markets, as I mentioned, remains strong. We've issued debt daily and we continue to maintain our disciplined asset liability management practices.
As of 03/31/2021, the average balance of interest earning assets was $22,200,000,000 and that's comprised of about $4,800,000,000 in cash and investments and $17,400,000,000 worth of loans and securities. Farmer Mac's net effect spread for the 2021 was $53,900,000 This represents a 22% increase from $44,200,000 in first quarter twenty twenty. In percentage terms, net effective spread improved to 97 basis points compared to 89 basis points in the same period last year. This reflects the overall compositional shift to farm and ranch and agribusiness loan purchase products that was mentioned by Brad. The $9,700,000 year over year increase in NES in dollars was primarily due to an increase of 6,100,000 from new business volume and a $3,500,000 decrease in non GAAP funding costs.
And this resulted from our continuing to effectively use our callable debt instruments to mitigate prepayment risks as a result of the low interest rate environment. As a yield curve steepens, we're also successfully extending our liabilities in preparation for this rising rate environment. And what we're seeing are pricing levels that are very attractive. We're also actively analyzing our duration and our convexity matches to ensure that we minimize our interest rate risk as rates rise. Core earnings for first quarter twenty twenty one grew 29% to $25,900,000 or $2.39 per diluted common share compared to $20,100,000 or $1.87 per diluted common share for first quarter twenty twenty.
The year over year increase in core earnings was primarily due to a $7,700,000 after tax increase in NES and a $3,100,000 after tax decrease in the total provision for credit losses. This increase was partially offset by a $2,100,000 after tax increase in operating expenses and $1,800,000 increase in preferred stock dividends. Operating expenses increased by 16% year over year and this was primarily due to increased headcount and high spending on software licenses and information technology consultants to support both core and strategic initiatives. These increases were offset by lower levels of expenses related to consulting fees, travel and conferences. However, these decreases are likely temporary and expected to normalize post pandemic once normal travel and other activities resume.
We plan to continue investments for the foreseeable future, and this is primarily to modernize our infrastructure, enhance our technology platforms to support our revenue strategies, and also to add relevant talent across the organization. While we expect these efforts to increase over the next twelve to eighteen months as we innovate and grow our business, we also expect to see a tapering off in expense growth. We've also instituted a disciplined approach to controlling personnel and non personnel costs by closely monitoring our operating efficiency ratio and through a rigorous review of our results each quarter. Our efficiency ratio ended first quarter twenty twenty one at 31%. This is one percentage point higher than our targeted 30% level, And this was mainly as a result of the seasonal nature of expenses that occurred in the first quarter, which we expect to see smoothening out.
As we complete our CRATE swap platforms and investments over a multi year period, as we make these technology commitments that will ultimately improve customer service in our competitive position, we do expect that our efficiency ratios will stabilize at historical levels and ultimately revert to under 30%. As of 03/31/2021, total allowance for loan losses was 17,500,000, and this reflects a modest release of $31,000 from 12/31/2020. During the quarter, we recorded a net $1,000,000 provision to the allowance for rural utility loan losses due to the impact of rating downgrades on multiple rural utilities that were negatively impacted by the polar vortex that struck Texas in February 2021. This was discussed by Brad in, detailed a little bit earlier. This includes a single cooperative downgraded to special mention during the quarter with a total exposure of approximately $24,000,000 The increase in provision to the rural utilities portfolio was offset by a $1,000,000 release in the farm and ranch portfolio due to ratings upgrades, and we also updated our loss default assumptions.
All of this was partially offset, of course, by net growth in our loan portfolio. As I mentioned on prior calls, the highly specialized nature of power generation and transmission utility results in significant losses given default estimates that drive our CECL model assumptions, even though the actual probability of default is very low. It's therefore important to note that as of 03/31/2021, Farmer Mac's $2,800,000,000 in outstanding rural utilities loan purchases and long term standby purchase commitments have no historic or current delinquencies. Let me now turn to capital. As Brad mentioned earlier, we remain a well capitalized financial institution with strong liquidity and a robust balance sheet.
Farmer Mac's $1,000,000,000 of core capital as of 03/31/2021, exceeded our statutory requirement by $348,000,000 or 51%. Our Tier one capital ratio was 14% as of 03/31/2021, and this was a modest decline from 14.1% as of year end. And this is primarily due to growth in risk weighted assets that outpaced our capital growth during the quarter. Our liquidity also remains strong as evidenced by quarter end position of $1,000,000,000 far exceeding our regulatory requirements. We expect to continue to maintain a higher than required level of cash and liquidity as we've done through 2020 going into 2021 so that we can weather any unexpected cash flow shocks given the continuing economic uncertainties, but we also will retain the flexibility to maintain lower but ample levels of liquidity as market conditions change.
Overall, we're very pleased with the consistency in our results this quarter, and this is reflected in our credit quality, profitability and capital adequacy. More complete information about Farmer Mac's first quarter twenty twenty one performance is in our 10 Q that we filed today with the SEC. And with that, Brad, let me turn it back to you.
Speaker 1
Aparna, thank you very much. Well, certainly the pandemic abruptly changed the way we work, the way we communicate, and also the way we serve our customers. Our results over the last year, I think, have reflected our success at really adjusting to those changes and providing uninterrupted support for agricultural and rural communities. That's our mission, after all. We experienced a strong start to 2021, and we commend the drive and determination of really all the team members at Farmer Mac who continue to work remotely.
We'll be announcing plans for a partial reopen of our office in the next couple of months and probably a fuller reopen later this year. We are executing well on all of our initiatives, and we believe we are well positioned to deliver strong financial performance and consistent returns to our shareholders over the rest of 2021. And with that, operator, I'd like to see if there are any questions from anyone on the line today.
Speaker 0
Thank you. The floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. Questions will be taken in the order they were received. If at any time your question has been answered, you can remove yourself from the queue by pressing 1.
Again, ladies and gentlemen, if you do have a question, please press star one on your telephone keypad at this time.
Speaker 1
Okay.
Speaker 0
Our first question comes from Greg Tindi with Sidoti. Please state your question.
Speaker 6
Hi, Thanks for taking my questions. Just two questions. One, can you just describe, given the rural utility exposure in Texas and the adoption of CECL, how we should potentially be thinking about it? Because I know historically, you haven't had losses there, but under CECL, you've been taking losses. So how should we be thinking about this exposure?
And if there are losses incurred here, would that change how you would be accounting for it on a go forward basis?
Speaker 1
Yeah. Hey, Greg. It's it's Brad. Great to hear from you. Appreciate the question very much.
First, keep in mind that CECL provides a very sophisticated method for estimating future potential losses. So it really establishes a reserve against estimated future losses. They are not realized losses at all. And so the way the models work and the impact of the Texas freeze was that we had rural electric cooperative and more specifically generation and transmission electric cooperative borrowers who are investment grade rated by S and P and other rating agencies. And their ratings were cut.
They were lowered after the freeze because their liquidity was strained by the high prices they were having to pay for purchased electricity. In the case of the generating transmission electric cooperative, they're still investment grade. So we the way that works into our model is that results in adjustments to the CECL model and the and formulaically provides for a new and higher reserve. Given the high quality of these customers, I think as we said in our comments, we're actually not expecting losses. We expect them to work through this and recover and eventually be, upgraded.
That is our current best outlook for them. And we, absolutely do not expect at this point, to, based on any information we have today, to actually take losses on those credits. But given how the CECL model works, it's formulaic, those downgrades in their investment grade ratings results in an automatic increase in the reserve, and that's what we're dealing with. So as you heard in our comments, we had additional reserving associated with those some of those credits in that portfolio, And that was largely offset by less than a lower reserve in other parts of the portfolio attributable to very positive economic conditions. So it kind of netted out.
But just to be clear, nothing that we have seen to date from the credits that we have in the Texas portfolio caused us to think that either we've had realized losses or that realized losses are imminent or even likely.
Speaker 6
Great. And then just one more. Just can you talk to us, you know, the lower funding costs, I think this is the second quarter in a row that you've seen lower funding costs. What in the environment, you know, might get those more to normalized levels? Because your spreads have been very good, but you've called out, I guess, lower funding for two quarters now.
So could you
Speaker 1
just talk us through? Absolutely. And I'm going turn to Parna. When you see that show up in part in NES, I mean, the improvement in NES is attributable in a small part to that and also in part to a shift in the composition of the portfolio to higher margin assets. I think we've discussed it in the past, but given how we price virtually every loan we make to the current cost of funding that based on current debt market spreads, we can manage that with considerable precision and we're being opportunistic when we expanded out of it.
But having said that, the debt capital markets have been very favorable. Our credit spreads to widely followed indices such as US Treasures have been at record levels. And let me just turn to Aparna to provide you some color on, you know, how dramatic that change has been and what could cause it to reverse.
Speaker 5
Yeah, absolutely. Thank you for the question and job just giving you the overview on, you know, how we think about this. You know, I'll I'll just point out a couple of things. One, you know, there has been some market volatility more recently, very consistent last year. And, you know, as you noted rightfully so, you know, we were able to very successfully call our debt in response to prepayments.
But as the market conditions continue to become volatile and the yield curve steepens, what we're seeing is that some of those callable issuance spreads, you know, have, actually moved up a bit. But what's been working really in our favor, and especially in the in the more recent past is that there's been an overall low level of debt supply in the market, and that's kept our non callable issuance spreads near extremely, tight levels versus benchmark treasury. So just to give you a sense of, you know, our approach here, you know, as, the yield curve steepens, what we're really trying to do is We're trying to really extend our liability duration. So, you know, for our liability duration and our issuance have actually gone up relative to where we were, you know, in 2019 and 02/2018. And we believe that that will help us because as our assets have a shorter duration and reprice to the higher interest rate environment, we'll still be very favorable in terms of keeping our funding costs low.
And that will, in addition to the other factors that Brad noted in terms of compositional shift, help us maintain those those higher NES spreads. So let me just stop there, and and hopefully, that that gives you a little bit of a better sense of what we mean when we see the funding cost.
Speaker 1
Greg Greg, I know a partner was cutting out there just a little bit. Did you get all of her comments? Yeah. I think so.
Speaker 6
I mean, so, essentially, if I if I heard it correctly, as the yield curve steepens, you're looking to lengthen out your liabilities
Speaker 0
That's
Speaker 5
in
Speaker 0
a year
Speaker 6
But I mean, fully understanding that the majority of your spread is coming also from business mix. I just I wanted to understand a little bit of the funding side of it as well.
Speaker 5
Yeah. Absolutely. Yeah. And if you if you look at you know, maybe I'll just give you one additional point. You know, our average medium term issuance terms are about three point two years, you know, relative to 2019 where it was two point four years.
So if you think about that in relationship to shortening duration on the asset side, I think we should start to see more of that benefit really start to come through.
Speaker 6
Got it. Thanks a lot. That's very helpful.
Speaker 0
Again, ladies and gentlemen, if you have a question, please press star one or your telephone keypad. Our next question comes from Gary Gordon. Please state your question.
Speaker 7
Okay. Thank you. Thank you for your time. Most of my questions have been answered, but one on or two questions related to the institutional credits. One, after what you've seen in the first quarter with the decline in volume there, would this change your loan growth outlook from what you would have expected for the year the full year for what you would expect three months ago.
Speaker 1
Yeah. Hey, Gary. I appreciate your participation in the call very much. You know, I think we've been pretty consistent now for about nine months that particularly in the institutional side of things with some of our advantage credits, and you saw it show up with our standbys this last quarter, that we are seeing some runoff in that. Some of it is business we've been willing to let go because of very low spreads that some of those customers have.
And we've evaluated whether not renewing or rolling over or pursuing a rollover would be detrimental to the relationship, and our conclusion is we it it won't. But I think for the outlook for 2021, it's certainly competitive. But we're seeing very, very strong numbers in our farm and ranch. Why don't I just turn this to Zach to give you some color on kind of how he's seeing the balance in the portfolio and both the challenges and opportunities for the remainder of the year.
Speaker 3
Yes. Thanks, Brad, and I appreciate the question, Gary. You know, we we did speak over the last couple quarters on the institutional credit line of business. I mean, looking back in in 2020, we did see, you know, fairly sizable roll offs there, and that's purely reflecting the liquidity in the market. You know, I will say we we were optimistic in the first quarter.
While it was down a 100, as noted in our disclosures, we did, we did roll some large, securities as well as upsize one of our large counterparties. So listen. We're being we're being cautious given the liquidity in the market, and and we're not chasing things to the the the bottom as Brad noted. But where we can, we're working with our counterparties to support them, tactically finding nice nice tenders that work for us and them, and seeing if we can roll and and keep some of that business. But, again, expect it to be competitive in the market.
You know, you know, shifting to the farm and ranch and the the agribusiness side, continuing to see very strong growth in the first quarter, which is very consistent with the last three quarters of twenty twenty. So, the pipeline looks strong there. It's it's competitive in the market, and and rates are and rates are pretty tight from a credit spread spread perspective. But, you know, we feel our business model and our execution can continue to see large growth in the the loan the farm and ranch loan purchase space.
Speaker 7
Okay. Good. And then along those same lines, it sounds like your new business mix will be even more farm and ranch, which is with the higher spreads. So I'd assume that versus, again, maybe, let's say, three, six months ago, the asset yield could be a little higher than you expect. You're saying that on the funding side, maybe it'll be a little worse.
So is there any reason that the current spread won't be maintained for the foreseeable future?
Speaker 1
Yeah. That that'll be an interesting mix. You know, the the the good thing about the, funding spreads is that, you know, we price off those. So, it's not a situation where we put something on the books and then just automatically get squeezed by that when it happens. It's considered when we price the new transaction.
So that helps us defend from that, that spread narrowing risk that you that you mentioned. The actual mix, yes, some farm and ranch is higher spread. To the extent we can continue to grow our renewable energy portfolio, that's higher spread. You know, on what you referred to as institutional and ag advantage, should some of that business start coming back, that could be slightly dilutive. But I think on balance, probably the best guidance that we can give you based on what we see today is that, you know, as we noted during the call, we have been just above that 90 basis point plus or minus five.
Specifically, we've been just above the 95 for two quarters now. And I think, you know, being at the top end of that range, Gary, the 90 basis point plus five basis point is probably, you know, a pretty good estimate as we look out the next quarter or two of where we might land. Thanks a lot.
Speaker 0
That was our final question. I'll turn it back over to Brad for closing remarks.
Speaker 1
Good. Well, thank you, operator, and thank you all joining. I know there are more on the line, so I hope that we have answered your questions during the call. Of course, if we have not, just get in touch with us after the call. We're always happy to have offline discussions with you and answer questions that maybe come up come up later.
But we we continue I hope you've heard it in our voices in our report today. We'll continue to be very bullish about the overall agricultural economy. We continue to be very bullish about Farmer Mac and some of the initiatives that we have made over the last year or two that are starting to show up and improve profitability of the organization. And as of today, it's one of those nice situations, nice times when we can't identify any huge threats on the horizon. Coming out of the pandemic is creating a sense of optimism, but so is the overall condition of our institution and the overall agricultural economy in The United States.
So, you know, no guarantee it lasts, but today we're enjoying it. I hope you do too. And we think that there's continued room for our growth at Pharmamax. So with that, well, thank you for your participation. And operator, this will conclude our call.
Speaker 0
Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.
Speaker 1
Thank you.