Federal Agricultural Mortgage - Earnings Call - Q4 2018

Transcript

Speaker 0

Good day, and welcome to the Farmer Mac Fourth Quarter twenty eighteen Investor Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr.

Brad Nordholm, President and CEO. Please go ahead.

Speaker 1

Good morning. I'm Brad Nordholm and I'm very pleased to welcome you to our twenty eighteen fourth quarter and twenty eighteen year end investor conference call. We posted a slide deck to our website that we'll refer to throughout today's call. This morning's press release includes information about where the slides can be found. We do have a number of positive developments to discuss today, but before I begin to summarize those, I'd like to ask Steve Fowleri, our General Counsel, to comment on the forward looking statements that management may make today as well as Farmer Mac's use of non GAAP financial measures.

Thanks, Brad.

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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, and 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 2018 annual report on Form 10 ks filed with the SEC this morning.

In analyzing its financial information, Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with generally accepted accounting principles of The United States, also known as non GAAP measures. The three non GAAP measures that Farmer Mac uses are core earnings, core earnings per share, and net effective spread. Farmer uses these non GAAP measures to measure corporate performance and to develop financial plans. In management's view, they are useful alternative measures for understanding Farmer Mac's business. These non GAAP measures may not be comparable to similarly labeled non GAAP measures disclosed by other companies.

Farmer Mac's disclosure of non GAAP measures is intended to be supplemental in nature. These measures are not meant to be considered in isolation from, as a substitute for, or as more important than, the related financial information prepared in accordance with GAAP. Disclosures and reconciliations of Farmer Mac's non GAAP measures can be found in the most recent Form 10 ks and earnings release posted on 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

Thanks, Steve. Well, I'm happy to report another year of strong earnings growth, for 2018. As you saw in our press release this morning, we also made a couple of notable announcements. First, we announced a dividend increase of more than 20% for the first quarter twenty nineteen to $0.70 per share. This highlights that we are confident in our business outlook and in our future earnings prospects.

We also announced a significant purchase of seasoned rural utility loan participations from CoBank, a farm credit system bank. This reflects the first time we've done any type of business with CoBank. We're very pleased to establish this constructive working relationship with a leading farm credit system bank and to book a material, accretive portfolio of seasoned loans to rural electric cooperatives. And really to highlight our mutual commitments, both co banks and ours, to our missions of serving rural America. Regarding the stock dividend, the Board of Directors has authorized an increase to our common stock dividend payout target, which we express as a percentage of our annual core earnings from 30% for 2018 to 35% for 2019.

And the Board has declared a quarterly dividend of $0.70

Speaker 3

per share on all three classes of our common stock for the 2019, reflecting that target. This represents an increase of $0.12

Speaker 1

per common share or 21% over the quarterly dividend payout in 2018. In deciding to increase Farmer Mac's common stock dividend and payout target, the Board of Directors considered our strong capital position and the consistency of an outlook for our earnings and balanced against the need for capital to fund the rather significant growth objectives identified in our strategic plan and to meet all of our regulatory capital requirements and capital metrics established by our Board of Directors. I should add that these actions are also consistent with Farmer Mac's goal of providing a competitive return on its common shareholders' investments through the payment of cash dividend and a payout ratio of core earnings more in line with those of our financial institutional peers with the s and within the S and P Financial Index and the Nasdaq Bank Index. Many of those, comparable institutions have made significant increases in their common stock dividends during the past two years. The objectives outlined in our long term strategic plan require organization to continue to be innovative in acquiring new customers and developing new products that further our mission.

A strong example of this is the announcement that I just mentioned that we've entered into a master purchase agreement with CoBank on February 1339, and subsequently purchased $546,000,000 of seasoned rural utility loan participation. As I mentioned, this is our first direct loan participation with CoBank or any farm credit system institution. As I mentioned last November on my first investor call as Farmer Mac's president and CEO, I have been spending some time traveling to meet with key customers of the organization to understand their financing needs and how we can better serve them. Over the last four months, I've had an opportunity to engage with many financial institutions and current and prospective institutional customers. These meetings have allowed me to identify the evolving needs of our customers and the borrowers that we serve and to determine the areas in which Farmer Mac can successfully fulfill their changing needs.

Our work to find innovative solutions has been the primary driver of the organization's past success. And I believe that a more formalized and scalable approach, which we're really embarking on now, will prove to be critical in driving future growth and achievement of our strategic objectives. I'd like to turn now to our 2018 results. As you saw in our press release this morning, Farmer Mac grew its core earnings per share 28% over the same period last year. Credit quality improved from 2017 year end and remained favorable.

We also saw healthy net growth in certain products within several of our lines of business. More specifically, we grew our outstanding business volume by $717,000,000 to $19,700,000,000 during 2018. This increase was driven by healthy net growth of $478,000,000 in the institutional credit line of business, net growth of $366,000,000 in the farm and ranch line of business and net growth of $163,000,000 in the USDA, thus United States Department of Agriculture guaranteed loans line of business. This growth was partially offset by a net decrease in the Rural Utilities line of business of about $290,000,000 Dale Lynch will describe this and our other financial results in more detail very shortly. But now I'd like to turn to Curt Covington, our Chief Credit Officer, to give you

Speaker 3

an update on the current agricultural environment. Thanks, Brad. For many producers and lenders, the winter months offer an opportunity for reflection, a chance to take stock of the year behind and a plan for the year ahead. They also marked the start of many and varied farm lender conferences across the country where lenders can hear from industry experts in trade, agricultural economics, commodity marketing, and risk management. Perhaps just as valuable, though, these conferences afford Farmer Mac's business and credit teams the opportunity to talk with hundreds of boots on the ground lenders, credit officers, and CEOs to get their often unfiltered view of the credit conditions at their financial institution and the overall financial health of rural America.

Invariably, seasoned lenders weave references to the nineteen eighty farm financial crisis into the discussion. Many of them feel there may be pain to come, but few, if any, expect a repeat of the nineteen eighties for a number of reasons. Number one, while balance sheet liquidity is shrinking, balance sheet solvency remains very healthy. Two, farmers in the Midwest have come to recognize the current commodity price cycle is perhaps the new normal and have worked very hard to reduce their expenses accordingly. And three, farmers that are in distress see opportunities to sell their land at reasonable prices in a supportive market.

Trade also remains a hot topic for many of these in the agricultural industry. Retaliatory tariffs remain in place for many of The United States' top trading partners such as China, Mexico, and Canada. But there are signs that trade negotiators are making inroads to better, stronger, and more comprehensive agreements. Many lenders also expressed optimism over how their borrowers benefited from a combination of above average yields in many areas, pulling the trigger on marketing opportunities earlier in the year and much needed market facilitation program payments in late twenty eighteen and early twenty nineteen. Lenders and producers are talking about the improvements and protections offered in the 2018 Farm Bill.

President Trump signed the Agricultural Improvement Act of 2018 into law this past December. The new farm bill brings a degree of relief because it continues the farm programs created in 2014 farm bill and protects the increasingly important federal crop insurance program. There was also notable increases to the Farm Service Agency loan guarantee and direct loan program. The loan guarantee changes are especially impactful to lenders and that the higher limits help them serve borrowers and extend additional credit support for existing borrowers with need. Many lenders are also discussing the health of the agricultural lending industry itself.

According to the FDIC Bank Performance Report, commercial and community banks with agricultural concentrations routinely outperform banks with concentrations in commercial, mortgage, and consumer lender, reporting lower charge off rates, lower loan loss reserves, and similar return to capital providers through the first nine months of 2018. Similarly, Farm Credit Administration data suggests that loans within the Farm Credit institutions continue to exhibit excellent performance with nonaccrual loan rates, loan charge off rates, and loan loss reserves well within historical experience. Institutional customers also see strong demand for wholesale financing, demonstrating the vitality in virtually all corners of the rural credit landscape. Strong loan

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in

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the credit markets is an essential element for farm balance sheet solvency and access to debt capital during a prolonged decline in on farm income. Although the long run strength and opportunities in the food and farm sector far outweighs the weaknesses and the threats, short term disruptions are likely. In the age of amplified market volatility, a prudent and pragmatic approach to lending is an important ingredient to long term success. Farmer Mac continues to maintain a tempered approach to ag lending, a steady hand on the wheel of the secondary market for rural credit. Our underwriting standards, tune with the nineteen eighty farm financial crisis squarely in the rearview mirror, looks through the cycles and are designed to provide a stable but practical baseline for access to the secondary market.

Our portfolio maintains exceptional levels of diversity by industry, geography, and borrower name, reducing loan performance correlation and yielding a very stable asset base. Whatever phase of agricultural economic cycle we find ourselves in, Farmer Mac's pragmatic approach and solid portfolio foundation will allow us to continue to support the capital needs of rural America for generations to come. And with that, I'll turn it back to Brad.

Speaker 1

Well, Kurt, thank you very much. And now I'm going to turn it right back over to Dale, our Chief Financial Officer, to get into the financial results in more detail.

Speaker 5

Thanks, Brad. Turning now to our 2018 results. As you can see on slide six, outstanding business volume increased $717,000,000 to $19,700,000,000 as of December 3138, after maturity and principal pay downs on existing business. We achieved net growth of $478,000,000 in our institutional credit line of business during 2018, as $3,300,000,000 of new business volume was offset in part by $2,800,000,000 of maturities and repayments. New business line was comprised of $800,000,000 of new AgVantage securities purchased, dollars 2,200,000,000.0 of refinances of maturing AgVantage securities, and the renewal of the $300,000,000 revolving AgVantage facility.

The maturities and repayments consisted of $2,500,000,000 of repayments on and maturities of AgVantage securities, and the expiration of the $300,000,000 revolving facility I mentioned. Our Farm and Ranch line of business experienced net growth of $366,000,000 during 2018, attributable to $961,000,000 of new loans purchased and $430,000,000 of loans added under purchase commitment. This was offset in part by loan repayments of $571,000,000 and purchase commitment repayments of $435,000,000 Our net growth in loan purchases did decrease $295,000,000 during 2018 as compared to 2017. This decrease, however, was primarily due to fewer opportunities to purchase large loans in the amounts greater than $15,000,000 this year as compared to

Speaker 1

last year. We believe this could be due

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to fewer eligible borrowers that are able to secure financing of that size, as well as potentially increased pricing competition for the highest credit quality borrowers of these larger loans. Also, increases in interest rates have reduced the demand for refinances in 2018. Nevertheless, we believe that our relative share of the overall agricultural mortgage market during 2018 remained consistent with prior years, and that our net growth of 9.3% in farmer ranch loan purchases does compare very favorably to the 4.9% net growth of total agricultural mortgage loan market, based on a review of bank and FCS call report data as of 09/30/2018. Net growth in loans added under purchase commitments within the Farm and Ranch line of business decreased by $67,000,000 during 02/2018. This decrease was primarily due to the absence of 2018 of certain customers who added large pools under purchase commitments in an effort to restructure their credit risk profile, which had occurred in 2017.

Turning to our USDA Guarantees line of business. The moderate decrease in new business volume in 2018 reflected an increase in competition for these loans, fewer refinances due to higher interest rates, and lower loan volume being processed through the USDA. However, we do not believe that this indicates a decline in borrower demand for USDA agricultural loan products. The decrease in our rural utilities line of business was primarily due to repayments on loans held and loans underlying purchase commitment. Capital expenditures have declined in the rural utilities industry, which we believe has decreased the overall demand for credit.

But as Brad mentioned earlier, we entered into a master participation agreement with CoBank last week, under which we purchased a portfolio of participations and seasoned rural utility loans in the amount of $546,000,000 So we will obviously have significant growth in the rural utility loan portfolio for first quarter twenty nineteen. Turning now to the financials on slide seven. Farmer Mac's net effective spread for 2018 was $151,000,000 a 7% increase from the $141,000,000 in 2017. The improvement was primarily due to growth in outstanding business volume, which increased net effective spread by $10,000,000 and a $1,500,000 increase in the amount of cash basis interest income received on non accrual farm and ranch loans. In percentage terms, effective spread was 0.91% for both 2018 and 2017.

As you can see on slide eight, core earnings for full year 2018 were $84,000,000 or $7.82 per diluted common share, a 28% increase from the $65,600,000 or $6.08 per diluted common share in 2017. The $18,000,000 year over year increase was primarily due to a $17,000,000 decrease in income tax expense resulting from the lower federal corporate income tax rate, and a 7,800,000 after tax increase and net effective spread resulting primarily from an increase in outstanding business volume. The increases to core earnings were partially offset by a $3,000,000 after tax increase in G and A expenses related to continued investments in technology and business infrastructure, and a $2,600,000 after tax increase in comp and benefit expenses. G and A and comp and benefit expenses increased by $7,000,000 or 17 point five percent 2018. Farmer Mac had previously disclosed its expectation that these expenses would increase by approximately 15 or $6,000,000 year over year.

The incremental $1,000,000 increase in these expenses was primarily due to the nonrecurring hiring expenses of $600,000 primarily related to the search process for Farmer Mac's current president and chief executive officer, as well as two other key hires. Turning to Farmer Mac's fourth quarter twenty eighteen results now. As you can see on slide nine, outstanding business volume increased by $184,000,000 after maturities and principal paydowns. The increase was driven by net growth of 168,000,000 in Farm and Ranch loan purchases, dollars 44,000,000 in the USDA securities line of business, and $18,000,000 in net new institutional credit business from financial fund counterparties. The $168,000,000 of net growth in farm and ranch loan purchases was primarily due to an increase in borrower demand for long term real estate financing against the backdrop of fears of a rising rate environment.

We also purchased a large loan over $50,000,000 and did retain a $38,000,000 portion of that this quarter. Our USDA Guarantees line of business experienced net growth of $44,000,000 during fourth quarter twenty eighteen, as $90,000,000 of new business volume was offset in part by $46,000,000 of maturity and repayment. The new business was comprised of $68,000,000 of new USDA securities purchased and the issuance of $22,000,000 of Farmer Mac guaranteed USDA securities. The repayments and maturities consisted of $45,000,000 of repayments on USDA securities and $1,000,000 of repayments on USDA securities underlying Farmer Mac guaranteed USDA securities. The $18,000,000 of net growth within the institutional credit line of business this quarter was attributable to $33,000,000 of new AgVantage securities purchased from financial fund counterparties and $500,000,000 in refinances of maturing AgVantage securities.

These purchases were offset in part by $516,000,000 of amortization of existing AgVantage securities and repayments on maturing AgVantage bonds. Outstanding business volume within the rural utilities line of business decreased by $40,000,000 during fourth quarter twenty eighteen, primarily due to repayments on loans held and loans underlying purchase commitment. As you can see on slide 10, net effective spread was $39,000,000 for fourth quarter twenty eighteen, a $1,400,000 increase from the $38,000,000 in the prior year period. The increase was primarily due to growth in outstanding business volume, which increased net effective spread by approximately $2,000,000 In percentage terms, net effective spread was 0.93% for both fourth quarter twenty eighteen and fourth quarter twenty seventeen. Core earnings for fourth quarter twenty eighteen, as you can see on slide 11, was $20,500,000 or $1.9 per share, a 14% increase from the $17,900,000 or $1.65 per diluted common share for fourth quarter twenty seventeen.

The $2,600,000 year over year increase was primarily due to a $5,000,000 decrease in income tax expense resulting from the lower federal corporate income tax rate, and a $1,000,000 after tax increase in net effective spread, resulting primarily from outstanding business volume growth. The increases to core earnings were partially offset by a $1,000,000 after tax increase in g and a, again, related to continued investments in technology and business infrastructure, and a $2,000,000 after tax increase in comp and benefits expense. Notably, significantly contributing to this increase in the comp and benefits expense line is the absence in 2018 of the $1,000,000 recouped by Farmer Mac in December 2017 on the termination of its former CEO. Turning now to credit on slide 12. Our overall credit quality improved during 02/2018.

Our total provision for losses and our ninety day delinquencies each decreased year over year, while our total allowance for losses in substandard assets as a percent of our farm and ranch portfolio each remained the same year over year. While we expect that over time, our ninety day delinquencies and substandard asset rates will revert closer to Farmer Mac's historical norms, our overall credit quality did not deteriorate in 2018, because borrowers had sufficient capacity to meet their financial obligations. Specifically, ninety day delinquencies improved to $27,000,000 or 0.37% of the Farm and Ranch portfolio as of year end, compared to $48,000,000 or 0.71% of Farm and Ranch portfolio in the prior year. The improvement is primarily due to two permanent planting loans to one borrower for a total of approximately $15,000,000 that became current during 2018. As of year end 2018, Farmer Mac's substandard assets were $233,000,000 or 3.2% of the Farmer Range portfolio, compared to $221,000,000 or 3.2% of the Pharma Ranch portfolio as of year end 2017.

The entire increase in the dollar amount of substandard assets was due to growth in Farmer Mac's total Pharma Ranch portfolio this year. Farmer Mac's ninety day delinquency rate and substandard asset rate during 2018 each remained well below Farmer Mac's historical averages of 14%, respectively. Turning to capital on slide 13. Farmer Mac's $728,000,000 of core capital as of 12/31/2018 exceeded our statutory requirement of $545,000,000 by $183,000,000 or 34%. This compares to core capital of $657,000,000 or $137,000,000 of capital above the requirement as of year end 2017.

Our tier one capital ratio was 13.4% as of year end 2018, compared to 12.6% last year. The increase in core capital was primarily due to an increase in retained earnings. More complete information about Farmer Mac's 2018 performance is in the 10 k we filed today with the SEC. And with that, Brad, I'll

Speaker 0

turn it back to you.

Speaker 1

Dale, thanks very much. I hope you can hear in our voices today that our management team is really proud of the results we've achieved during 2018 as well as the future earnings prospects for this company. Our credit quality remains very favorable. Our capital base is strong, and our earnings support the higher common stock dividends that we discussed earlier during the session today. For me, it's been an incredible time working with our team as I fully transitioned into our into my new role.

I've had an opportunity to engage with key stakeholders across the company, and I continue to be impressed by the caliber, energy, and commitment of the people that are part of this mission driven organization. There are big opportunities ahead for Farmer Mac to expand its market share, and I'm confident that our ability to execute will position us to continue to drive strong earnings results. Coming off the first four months of my time as president and CEO, I can offer without a doubt a few observations. First, the Farmer Mac is in strong financial condition with excellent credit fundamentals, exceptional access to competitive cost capital, strong earnings, good cost management discipline, and a very strong capital position. Second, I can offer that we have an extremely dedicated group of employees, smart, capable, mission driven, and eager, and they're also able and interested and capable to do much more.

Third, Farmer Mac's suite of products have inherent competitive advantages attributable to our cost competitive funding and efficient delivery systems that we have in place. Take note that we have about a 100 employees supporting about a $20,000,000,000 balance sheet. And all of these suites of products have the potential for further improvement and efficiency. I believe that we have an opportunity to drive organic growth at rates well ahead of the agricultural credit market and to better fulfill our mission of serving rural America. So I'd just like to conclude by saying that I could not be more excited than to be leading this organization at this time.

Expectations are high. And with that, I'd like to, turn to the operator to see if we have any questions from you today.

Speaker 0

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. Our first question comes from Scott Valentin with Compass Point. Please go ahead.

Speaker 4

Thank you, operator. Good morning, everyone. Thanks for taking my question. Just with regard to CoBank, it seems like an interesting opportunity there. You guys did a pretty sizable transaction in the first quarter.

Just wondering, are there opportunities for similar sized transactions going forward? Is it just focused on utility sector? Or is there other opportunities, with CoBank? And then also other opportunities within the Farm Credit System in addition to CoBank. Just trying to get a sense of how big the participation, volumes could get if you start expanding into either other participants or if it can expand beyond just the utilities segment.

Speaker 1

Yeah. Thanks for that, Scott. I mean, it's it's an obvious question given the magnitude of this transaction that we just announced. First of all, we've we've enjoyed, wonderful, wonderful business relationship with the National Rural Utility Finance Corporation. And, through a decade worth of business with them, developed an expertise in underwriting rural utility, electric cooperative loans.

And so we approached this opportunity with CoBank with a very, very high degree of confidence. We expect to do, continue to do significant business with CFC in the future. They are a very important partner for us. But as it relates to CoBank, they are a new partner, and, we very much look forward, to exploring other opportunities. More specifically, you'll see in the eight ks filing that it was an announcement about a master purchase agreement, an MPA.

That MPA is written to really, contemplate, to provide a framework for doing a broad variety of business together. It could include agribusiness loans. It could, include new types of emerging rural infrastructure loans, project finance loans. These are all possibilities. As of today, we have no specific discussions underway, that would result in a live transaction or imminent announcement.

But now that we have this transaction booked, we do anticipate beginning very serious discussions with CoBank about additional ways that we can work together under that master purchase agreement. Our focus really is is with CoBank right now. We do do some business with other farm credit institutions. We've worked hard over the last months to, make sure that, the farm credit system understands who Farmer Mac is and our strong capitalization and our common mission of serving rural America. And I think we're optimistic, although without specific plans, that we will find additional ways to work with Farm Credit System banks, first and foremost with CoBank, but others in the future.

Speaker 4

Okay. Thank you. That's very, very helpful. And then when I think about just kind of big picture, you mentioned, you know, there's opportunities to do other other type loans with CoBank. But looking at the the the net spread table on Page 18 of the press release, it looks like utility loans are one of the higher spread products, I guess, second to just the farm and ranch.

And just wondering, 93 basis points, I think, was a net spread for the quarter. Just wondering if you're adding higher yielding product or higher spread product, should we expect net spread to increase going forward?

Speaker 5

So Scott, if you're referring to sort of the purchase we just made yesterday regarding CoBank, given that this is a secondary market purchase, typically those secondary market purchases are going to be at spreads a bit tighter than you would see perhaps in a primary transaction wise in the market. So I wouldn't necessarily look at that 90 basis points as being representative of what we're going to earn on this current purchase. Having said that, we looked at the purchase price, the purchase spread, and it easily met, you know, come at our hurdle rates of return. So, yeah, we look at it as attractive business, but the spreads will be somewhat less than the 90 ish that you see, you know, within our our disclosures for that line of business.

Speaker 4

Okay. So so the overall spread, though, I think you guys have, in the past, kind of thought it's stable in the low 90 range for net effective spread for the entire business. Is that still a fair kind of assumption going forward?

Speaker 5

And our spreads have been really stable for going on two years now. We haven't haven't changed our primary asset pricing in in two years. You know, on one off deals, may tighten pricing on an institutional credit deal to win the business,

Speaker 4

you know,

Speaker 5

subject to our hurdle rates, but, no, we really haven't seen a generic macro change in our pricing. We are looking at things all the time. You know, our credit team is evaluating how we can price for credit, and we are looking perhaps at more differentiated pricing over time, but we haven't seen any changes like that yet. So, you know, as far as as you guys are concerned, everything our spreads seem to be, you know, pretty stable across each line of business and then in total.

Speaker 4

Okay. Alright. Thanks. And then just in terms of the you mentioned excess capital, regulatory capital, dollar amount of excess capital is up year over year. I forgot which slide it was in the presentation.

It's Slide 13 in the presentation. Is the plan there to lever that capital through faster growth given kind of co bank and maybe opportunities for additional participations? Or is there another plan to return capital in a different fashion?

Speaker 5

Well, I it's twofold, Scott. One, we did increase the payout from 30% to 35%, which was a 21% escalator in the dividend. That's on top of a a roughly 60% increase in the dividend in 02/2018. So in two years, our dividend's up, you know, 80%. That's a pretty you know, compare that to the market, that's, you know, off off the scale.

So we're trying to balance return of capital to our investors, you know, return on capital to investors with our growth opportunities. We we do have plenty of retained capital, retaining 65% of our earnings annually to fund our growth. We could fund well over $2,000,000,000 of net balance sheet growth a year simply from our one year's retained earnings. So, you know, we feel really good about that. If if if growth would go beyond those kinds of numbers and we had to raise capital to fund the growth, that's kind of a rich man's problem.

We'd love to have that at some level. But, yeah, I think we want to balance our growth with trying to get a dividend payout ratio perhaps, you know, more in line with what you see with the bank index, which is sort of in the high 30% range.

Speaker 4

Okay. Thank you for that. And then one final question. For credit, you you guys pointed out credit still remains strong. It's better than it has been or or below where it it better than it has been historically.

And just wondering where we are, you think we are in the credit cycle. You see obviously the news reports and a lot of data points to stress in the agricultural sector, but you're not seeing it really in your credit numbers. Just wondering if you think we're kind of in the early stages, mid stages. And then secondly, what would alleviate your concerns on credit? Would it be agricultural prices being the primary driver?

Speaker 3

So this is Kurt. You know, I would say when it comes to credit quality, concerns we have today are the same concerns we had over the past year. I think trade and tariffs is probably on everybody's mind, whether you're a producer or whether you're a lender. There's a lot of optimism around that, particularly in the last couple of days in terms of potentially getting a trade deal done with China. I think that from a psychological standpoint helps both the markets and also helps the lenders and the producers.

Speaker 1

In terms

Speaker 3

of kind of the hard credit numbers, our credit metrics remain incredibly strong. There's still we we still see deals coming through our door today that are that are very strong deals. Good decent liquidity, good leverage positions on the balance sheet. So if you were to ask me specifically, would just say, I were a a corn or a soybean or a dairy producer, I I I would be anxious to see that the trade and tariff deal get dealt with and get dealt with in the next probably ninety days.

Speaker 4

Okay. That helps. And then just one last question. If we were I think the Farm and Ranch reserve for loans is, I think, 13 basis points. If we return to kind of a more normal, let's say, 1% delinquency rate, how high would that that reserve level have to go?

Or I guess, where has it been, in the past when you've had that 1% type of delinquency rate?

Speaker 5

No. That's that's a tough call, Scott.

Speaker 0

I mean, if you look I mean,

Speaker 5

you the data's public. You can look at our long term average. You know? Excluding ethanol, you know, it's probably in the mid teens, 15 to 17 basis points. We're we're currently at 13.

So you you you might migrate, but this stuff is is is a bit lumpy, right, just because it's really gonna be driven more by substandard assets than it's gonna be driven by, you know, a ninety day delinquency rate. So really keep your eye on the substandard as to, you know, what's likely to happen with the allowance. But, you know, again, the cycle today, as Kurt mentioned in his comments, is is is very different than I think we've ever seen before in agriculture. The health of of of the farmer coming into the cycle has been so strong relative to previous periods. It's just it's not playing out like past cycles have.

Right? I mean, our credit costs this year were $300,000 on a 7 and a half billion dollar portfolio. I mean, that's almost unbelievable.

Speaker 4

No. Agreed. The credit performance has been has been better than that than I would have expected given, you know, the the income trend of of the farming economy. That's the only questions I had. Thanks very much.

Speaker 5

Thanks, Scott.

Speaker 0

Our next question comes from Carl Hoffman, private investor. Please go ahead.

Speaker 6

Good morning, ladies and gentlemen, I assume. I've been trying to get through to you for several times and I think this is the first time you have cell phone method to get through to you. I've been have been on a landline. But regardless, I'm a private investor and I would just like to say that I've held the stock from the low low sevens up to $99.00 dividend to now 70¢ a quarter. And your stock has actually been an unbelievable stock over the years.

My biggest problem is an example of today. Less than 10,000 shares have traded and the stock is down $2.30. And I assume that there's really nothing that can be done because of the small number of shares outstanding. Is there any possibility of being able to control or or have a shareholder just decide to sell and stock goes down $2? It's very frustrating to see.

So, with that, thanks again for another dividend increase and and, good luck.

Speaker 5

Sure. Thank you for the thanks for the question. And we obviously share your I mean, the points you make are pretty good points. We're well aware of it. Some of the regulatory changes within the capital markets specifically related to banking versus research and MiFID in particular, and some of the migratory changes around passive investing, sort of the black box quantitative and past other passive kinds of investors, they're roughly three quarters to to, you know, 80% of our top 20 shareholders right now.

The fundamental investors like you are a smaller proportion of what they were, say, even five years ago, meaningfully so, maybe 20 percentage points. So we're doing a number of things. We've engaged an IR consulting firm to help leverage that to try to disintermediate the sell side and go directly to the buy side. We're seeking to schedule 12 non deal roadshows this year directly with the buy side and not being dependent upon the sell side. We're trying to revamp our investor disclosure materials.

Our IR slide deck, you'll see on our website shortly. Our press release here is a bit different today. So we're doing a lot of things. We still have our buyback program effective, as as you know, in our disclosure. I think there's roughly $5,000,000 left in that program.

If the stock were to fall below the the thresholds for that, obviously, we could use that program to to support the stock and provide liquidity. But the real answer is to get more long term fundamental investors back interested in the story, and we can do that. Two years ago, our market cap, we were trading 4 to $5,000,000 a day. Right now, we're trading something in the order of a million to 2 and a half million dollars a day. So we can get back there.

I think it's a confluence of concerns about the macro ag economy combined with some of the technicals you see in the market. If we can get through the concerns with the macro ag economy and continue to do some of the things on the investor relations side that Delta's working on, You know? But this is job one for us. We understand it's an issue. So stay tuned, I guess.

Speaker 6

Okay. Great. I'd also like to say I really appreciate being able to discuss things with JELPA, who has new investor relations. I don't think you had that in the past. Just a good person to hold hands with as an individual investor, but I think as the dividend increases, more people have got to start looking at this as a long term income producing stock as well as just a growth stock.

So maybe that will help solve some of the volatility. With that, thank you. You guys have done a great job.

Speaker 0

This concludes our question and answer session. I would like to turn the conference back over to Mr. Brad Nordholm for any closing remarks.

Speaker 1

Well, thank you all for joining us today. It's been a good call. We sincerely appreciate the questions and we're here to discuss any other questions you have any time. So, do stay in touch. Thank you very much.

Speaker 0

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.