Earnings Call Transcript - AGM Q4 2022

Operator, Conference Operator

Good day, and welcome to the Farmer Mac Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Jalpa Nazareth, Director of Investor Relations. Please go ahead.

Jalpa Nazareth, Director of Investor Relations

Good afternoon and thank you for joining us for our fourth quarter and full year 2022 earnings conference call. I'm Jalpa Nazareth, Director of Investor Relations and Finance Strategy here at Farmer Mac. As we begin, please note that the information provided during this call may contain forward-looking statements about the company's business strategies and prospects which are based on management's current expectations and assumptions. These statements are not a guarantee of future performance and are subject to the risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Farmer Mac's 2022 Annual Report on Form 10-K filed with the SEC earlier today 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 2022 Form 10-K and earnings release posted on Farmer Mac's website under the financial information portion of the Investors section. Joining us from management this morning is our President and CEO Brad Nordholm, who will discuss 2022 business and financial highlights and strategic objectives, and CFO, Aparna Ramesh, who will provide greater detail on our financial performance. Select members of our management team will also be joining us for the question-and-answer period. At this time, I'll turn the call over to President and CEO Brad Nordholm. Brad?

Brad Nordholm, CEO

Thanks, Jalpa. Good afternoon, everyone, and thank you for joining us. I'm very pleased to announce that we had a record year for revenue, earnings, net effective spread, and outstanding volume in nearly all of our business segments while maintaining strong credit quality. Throughout 2022, we continued execution on our strategic initiatives, building partnerships with our customers, maintaining asset liability management discipline, and continuing to diversify our revenue streams while maintaining a single focus on our mission. More specifically, we concluded the year with 16% year-over-year growth in net effective spread, 10% growth in core earnings, and 10% growth in outstanding business volume for assets under management. I'm incredibly proud of the contributions of our 158 team members. It starts with them and their passion for American agriculture and rural infrastructure, and they deliver because of their expertise and specialization that differentiates us. I believe that it is this passion, expertise, and specialization coupled with our exceptional access to debt, securitization, market funding, and asset liability management that enables us to deliver consistently strong financial results. One of our strategic initiatives has been to broaden our business, those segments that we report to you, and the benefits of that increasing diversification were apparent in our 2022 results. When rapidly rising interest rates had a more immediate impact on our Farm & Ranch segment, it had the opposite impact on our wholesale funding, our AgVantage product, because we were comparatively more competitive with Federal Reserve Bank alternatives than we were during the pandemic. Similarly, our Rural Infrastructure segment showed less interest rate sensitivity, and we've booked record amounts to telecom and renewable energy project finance loans. Diversifying our loan portfolio has been a key priority over the last few years, and that diversification is benefiting us through changing market cycles. In 2022, we provided a gross $9 billion in liquidity and lending capacity to lenders serving rural America, reflecting net year-over-year outstanding business volume growth of $2.3 billion. The Agricultural Finance line of business grew $1.7 billion last year, which is predominantly driven by growth in the Farm & Ranch AgVantage Securities portfolio and loan purchase volume. The overall growth in the wholesale financing space continues to reflect many of our institutional counterparties, adding longer-term AgVantage Securities to manage their asset-liability maturity profiles, given the recent increases in interest rates and the comparative competitiveness of Farmer Mac AgVantage pricing relative to other market and Federal Reserve Bank-derived options. We added a net $880 million in New Farm & Ranch AgVantage Securities in 2022 compared to $300 million in 2021. Looking ahead, we believe that especially in this volatile interest rate environment, Farmer Mac can continue to be viewed as a crucial relative value for refinancing and possibly for incremental borrowing for our longstanding AgVantage counterparties. To add some additional detail, our Farm & Ranch loan purchase volume growth of 8% year-over-year was modest compared to prior years, as we were adjusting to higher rate environments and being more opportunistic. We're optimistic the potential increases in loan purchase opportunities in 2023 will happen given the strong cash position of farmers and ranchers as they head into their 2023 planning and planting seasons. Our Corporate AgFinance segment grew $65.7 million to $1.6 billion, which is year-over-year from 2022 to 2021. This is a relatively new business initiative for Farmer Mac that supports loans to larger, more complex agribusinesses focused on entities that span the food supply chain. The persistent volatility and uncertainty in the market slowed deal opportunities in 2022 with many transactions on pause waiting for signs of market stabilization. While net gross saw only a modest increase in 2022, primarily due to sizable payoffs, we were able to purchase approximately $330 million of new loans at very accretive spreads, which supported a very strong increase in revenues for this segment. Over in the fourth quarter of 2022 and so far in the first quarter of 2023, we've seen an increase in deal flow in the market and are starting to build a strong pipeline for this year. These deals continue to be very accretive from an NES standpoint and a key component of our diversification strategy. 2022 was a very strong year for Rural Infrastructure as the diversification of this line of business is providing significant growth opportunities across numerous key sub-segment markets. During the year, we added $608 million of business, reflecting year-over-year growth of about 10% in the Renewable Energy, Telecommunications, and core Rural Utilities sub-sectors. Loan purchase volume in the Rural Utilities sector increased 22% in 2022, primarily due to borrowers' normal course capital expenditures that were related to maintaining and upgrading the utility infrastructure as well as investments in broadband infrastructure. Farmer Mac acquired over $230 million in telecommunication loans in 2022, and there is a growing investment in fiber and broadband in rural America and an increasing recognition of the need for widespread investment in these areas. We remain committed to increasing investment and to reduce the cost of capital for telecommunication providers and we look forward to providing updates on this new avenue of growth for Farmer Mac. Our Renewable Energy portfolio had an exceptional year with over $140 million in net growth in solar and wind transactions from a number of counterparties. Our participation in a few broadly syndicated renewable energy transactions has increased potential counterparties to source transactions from us in future years. The pipeline remains strong in the near term as we continue to focus on upsizing existing deals and bringing on new renewable energy opportunities. As I've said on prior calls, renewable energy is both an important economic development opportunity for rural America and a business opportunity for us. As you may have seen yesterday afternoon, I'm very pleased to announce that we have successfully closed on our third $300 million, approximately $300 million agriculture mortgage-backed securitization transaction. Securitization continues to be a tremendous opportunity for Farmer Mac and offers us many long-term benefits. One example is that since the successful introduction of the FARM series program, we've met with customers who have shown interest in potential securitization products that help them achieve their return objectives. While we're still in the early stages of building the program, our return to the market shows our commitment to being a regular issuer for the set of securitization products that align with both our borrower and investor interests. Developing this capital flow to American agricultural producers exemplifies Farmer Mac's core mission to lower costs for the end borrower, and improve credit availability in rural America while also creating a well-received new investment opportunity for leading institutional investors. The U.S. agricultural economy continues to benefit from strong export demand and elevated commodity prices. Farmland values reached record highs in many states in 2022, primarily due to record levels of farm income over the last couple of years. While input costs are expected to remain elevated in 2023, limited global annual crops should continue to support commodity prices. We believe our portfolio is sufficiently balanced to withstand the market volatility that could arise should the U.S. economy move into a recessionary period, as agriculture, food, and infrastructure industries tend not to be directly correlated or positively correlated with the general economy. We believe these sectors are generally well-positioned to withstand an economic downturn due to ample consumer demand as well as government support. Now, before turning to Aparna, I'm very pleased to announce a 16% increase of $0.15 per share in our quarterly common stock dividend, which will take it to $1.10 per share starting in the first quarter of 2023. In deciding to increase Farmer Mac's common stock dividend and maintain our payout target, our Board of Directors considered our strong capital position and the consistency of and outlook for our earnings, all to support our business and to exceed our regulatory capital requirements. This is the 12th consecutive year that Farmer Mac has increased its quarterly dividend. Looking ahead, we'll strive to continue to be a source of stability to our customers by remaining adaptive and flexible to meet their needs in this changing environment while remaining vigilant about any implications of potential market interactions. The foundation of our strategy is our strong financial position and proactive management of our balance sheet and funding sources, which positions us well in changing credit environments and enables us to continue to deliver on our mission and create more opportunities for us to enhance shareholder value for you. And with that, I'll turn it to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail.

Aparna Ramesh, CFO

Thank you, Brad, and good morning everyone. 2022 was a remarkable year for Farmer Mac. Results were strong across the board, highlighting our balanced, well-measured approach, excellent credit quality, and resiliency throughout the market cycle. Our performance in the fourth quarter of 2022 enabled us to finish the year with very strong momentum. Core earnings were $34.4 million or $3.16 per share in the first quarter of 2022 and $124.3 million, or $11.42 per share in 2022, reflecting double-digit year-over-year growth driven by record net effective spread of $71.1 million in the fourth quarter and $255.5 million for the year, driven by the sequential improvement of the spread over the course of the year due to the compositional shift in our program assets and generally wider spreads across the board. We have particularly seen higher pricing on Corporate AgFinance loans and AgVantage volumes, partly driven by the higher rate environment. Another evolving factor that we have mentioned in prior calls that has contributed to net effective spread is that over the past few years, we opportunistically raised low-cost debt and capital. This excess capital reduces the need for us to raise more expensive term and callable debt in a rising rate environment. This is expected to continue to create downward pressure on our non-GAAP funding costs as the short end of the curve continues to increase with Fed actions and the reinvesting of excess capital generates additional returns. Our liability side of the balance sheet remains strong as we continue to benefit from the low-cost debt that we raised when rates were low and this insulates us as rates rise. The extension of debt has also strengthened our overall liquidity profile. We continue to maintain disciplined asset liability management. We carefully analyze the duration and convexity matches to minimize our interest rate risk as rates rise or ebb. Our forward-looking funding strategies, coupled with a prudent approach to hedging, have allowed us to maintain enhanced profitability despite an inversion in the yield curve. Turning to operating expenses, operating expenses increased by 11% year-over-year due to increased headcount, increased stock compensation, and increased spending on software licenses and information technology along with consultants to support growth and strategic initiatives. Our efficiency ratio or operating efficiency ratio was 28.5% at year-end, which was better than our strategic planned target of 30%. We expect overall operating expenses to increase at a pace above historical averages due to investments needed to support core infrastructure and additional headcount to develop critical capabilities. We're especially pleased with our efficiency ratio and our cost containment strategies, given the inflationary headwinds impacting the market as a whole. As we said previously, we will continue to closely monitor our efficiency ratio, and we are committed to holding the run rate efficiency ratio at 30% or lower. However, as we make decisions to invest in infrastructure and funding platforms and scale for further growth, we may see some temporary increases above the 30% level. On this note, we are on the cusp of making a significant decision to invest in our treasury and other infrastructure platforms to allow us to scale the balance sheet and manage risk as our lines of businesses diversify. We also anticipate other investments to modernize our lending and origination platforms in the near term. Our credit profile continues to be strong despite the economic headwinds. 90-day delinquencies were $44 million or 17 basis points of our entire portfolio, compared to $47 million in the same period last year. As of December 31, 2022, the total allowance for losses was $17.2 million, reflecting an $800,000 provision compared to year-end 2021, primarily due to the deterioration of a single agricultural storage and processing loan. Turning to capital now, Farmer Mac's $1.3 billion of core capital as of December 31, 2022, exceeded our statutory requirement by $517 million or 64%. Core capital increased from year-end 2021, primarily due to an increase in retained earnings. Our tier one capital ratio improved to 14.9% as of December 31, 2022, from 14.8% as of year-end 2021, largely due to strong earnings results and capital relief obtained through our second securitization transaction, and these factors were partially offset by growth in program assets. Maintaining consistent credit standards and strong levels of capital is a fundamental part of our long-term strategy to support continued growth, deliver lower costs, and ensure the steady execution of our business model. We successfully closed, as Brad noted, our third FARM series securitization transaction yesterday. That transaction was structured around two tranches, a senior guaranteed tranche and a subordinated unguaranteed tranche, both of which were very well received by the market, despite a volatile environment for structured products. This structure mirrors our prior deals and we're encouraged by the demand for agricultural-backed securitized product opportunities as these align very well with our mission and aspirations for continued success. The success of this transaction further demonstrates Farmer Mac's capability to diversify long-term funding sources and to develop a conduit that might generate additional revenues but that can also serve as a source of capital to the agricultural sector. Most importantly, this capability is central to our mission, and we expect to return to the market regularly with similar securitized products as we have committed to making this a more programmatic effort in the future to continue to build liquidity for our investors. These products offer investors a new asset class that in a volatile rate environment is not as correlated as other mortgage-backed securities, given the nature of prepayment behavior associated with agricultural mortgages. As Brad mentioned earlier, we are very pleased to announce a $0.15 increase in our quarterly common stock dividends, bringing us to a total of $1.10 per share for the first quarter of 2023. We believe that our strong earnings and consistent capital positions support this dividend increase. So in summary, our entire team delivered exceptional quarterly results while fulfilling several key strategic objectives. We also delivered on our key metrics that we report to you on each call. We had record core earnings and continued strong credit performance, and all of this resulted in a 16% return on equity and an efficiency ratio of 28.5%, exceeding our previously stated target ratios. As we look ahead to 2023, we remain well-positioned and more optimistic than ever to deliver on our long-term strategic planned objectives. And with that, Brad, I'll turn it back to you.

Brad Nordholm, CEO

Thanks, Aparna. Well, in summary, we're extremely proud of our financial results in 2022 and the progress we have made on our multi-year strategic plan. Our efforts to further diversify our loan portfolio by customer geography and loan type are working. We believe that this drives incremental growth and profitability. Our disciplined asset liability management is a competitive advantage as we navigate the ongoing uncertainty of these markets. Our singular focus on fulfilling our mission efficiently and innovatively has resulted in the steady forward rate of growth in our business through different agricultural economic cycles. This is how we believe we can continue to differentiate ourselves and deliver value to our customers, borrowers, and investors. And now operator, I'd like to see if we have any questions from anyone on the line today.

Operator, Conference Operator

Our first question comes from Bill Ryan from Seaport Research Partners. Please go ahead.

William Ryan, Analyst

Good morning and thanks for taking my questions. First off, starting on the micro level, obviously in the last several quarters you've had a nice increase in the net effective spread, meaning the margin. On the conference call, you implied that there have been some pricing increases, but that things may be wider as well based on the funding cost. Could you kind of talk about your outlook for the net effective spread going forward on the business lines? Thank you.

Brad Nordholm, CEO

Yes, certainly. I'm going to ask both Aparna and Zach to weigh in, because our asset liability management in this interest rate environment has been a contributor, but you can also see this reflected in how we report our segments; our lines of business segments, the benefits of diversification show up both in the top line growth and also in the bottom line growth because some of these lines of business that have had disproportionate increases over the last year are accretive in terms of net effective spread. So, why don't I first ask Zach to elaborate on the lines of business and the spread, and then Aparna to round it out with the asset liability management part of the story.

Zach Carpenter, Analyst

Yes, happy to Brad, and then great question, Bill. The first thing I want to reiterate is what Brad said in terms of our diversifying business model. If you look at the growth we had across our two lines of business, a significant amount came from renewable energy and telecommunications. The yields on those new areas of growth are substantially higher than some of our existing business lines, which is really attributing to that appreciation of that effective spread. In addition, we highlighted some of the growth we had in Corporate AgFinance, which again, when we're focusing on food business and supply chain transactions, generally have more accretive net effective spread than historically our foundational lines of business. So the composition of the new areas of growth are really leading to higher pricing and higher net effective spread. Additionally, our AgVantage product is heavily market-driven, so when we work with some of our investment-grade counterparties, especially over the last year with significant volatility in the market, that capped out overall credit spreads in the market, and us being a relative value player, we were able to take some advantage of the higher spreads in the market as we put on a significant amount of volume in the AgVantage space. So, in summary, a lot of new diversification in our lines of business plus market dynamics in some of our existing products led to the significant growth we had on the asset side.

Aparna Ramesh, CFO

Yes, and just to weigh in on the net effective spread as it relates to wider or more beneficial funding costs, one thing we continue to reiterate is just how we manage our net effective spreads. So we minimize the volatility by making sure that we are pairing off our assets with prudent liability management strategies. One phenomenon, and I think we've emphasized this in the past and again on this call, is just the fact that as the nominal rate environment has continued to move up some of the decisions we've made to extend our funding, as well as some of the excess capital that we've raised has contributed to lowering our funding costs in aggregate. That's really because we reinvest and offset the rise in the nominal rate environment that could come with trying to raise capital or funding in this environment. Now, that said, if rates were to trend back down, this is where our asset liability management really comes into play. We offset some of the gains by making sure that we're hedging some of that downside risk, either through extending or turning out some of the excess capital that we have, locking in some of those higher rates. The other aspect that we engage in is active derivatives and purchasing callable bonds or issuing callable bonds that can reprice down if rates were to go down. This is a very dynamic process, and we work through this in partnership with the business development team as we understand our pipeline and funding costs. That's why you see consistency within our spreads, and we've always anchored to somewhere between 90 to 100 basis points, but that slight pickup above 100 basis points can be attributed to the rising nominal rate environment.

William Ryan, Analyst

Okay, thanks for the detailed response on that. And then moving up to a macro level, I know Congress is somewhat distracted, and that's probably a generous word right now, but in relation to the Farm Act, is there any update on that? I know it's, I believe, up for renewal later this year. From a macro level, what would you like to see incorporated into the bill that might enhance your business opportunities?

Brad Nordholm, CEO

Yes, Bill, you're absolutely correct. For the benefit of anyone following this, the Farm Bill is something that has to be renewed every five years. It's the only regularly scheduled piece of legislation in Washington. Having said that, there can be continuation, so it's possible that action on it could be delayed into 2024, which Bill we think is a probability. That said, we're very actively engaged with key stakeholders on the Hill and with other farm credit institutions. So, from our standpoint, what's most important is that the Farm Bill ensures what is beneficial for American agricultural producers. Crop insurance is absolutely key and we want to make sure that is preserved. There may be a few improvements or changes on the margin, but we won't delve into specifics, as discussions with other financial institutions and stakeholders on the Hill are very dynamic. Ultimately, it will come down to what Farmer Mac wants and what other players in the space want and the opportunity for a good compromise that benefits American producers and rural America, which is our focus.

Operator, Conference Operator

Our next question comes from Gary Gordon, a Private Investor. Please go ahead.

Gary Gordon, Private Investor

Thank you for taking the questions. Aparna, you mentioned that you're considering some expansion of the treasury function. Could you expand on that and describe what the benefit is for shareholders?

Aparna Ramesh, CFO

Yes, I'd be happy to, Gary. When I was talking about the treasury function, I meant the treasury infrastructure, which includes all of the platforms that support our funding activities, hedging activities, as well as cash management. This may not be apparent, but we transact a lot of cash, settling cash to the extent that you might see large institutions do nearly $0.5 trillion of cash settled on average. We need to ensure that our infrastructure remains updated. The other aspect is that as we diversify our lines of business, our funding capabilities from an infrastructure standpoint and our reporting systems must move in lockstep as well. It’s a good time for us to make those technology investments. In summary, this comes down to a substantial investment in technology over a multi-year period, with an implementation cycle of two to three years. We’re looking at a few different partners to help us execute on this, so more to come on that, but this will lead to a temporary surge in our operating expenses over the next 12 to 24 months.

Gary Gordon, Private Investor

Okay, thanks. It sounds like there was a charge-off this quarter on a storage facility, could you describe that a little?

Aparna Ramesh, CFO

So there wasn't a charge-off per se, but rather an increase in the allowance that relates to one particular borrower that we're continuing to monitor. So there has been no charge-off reported.

Gary Gordon, Private Investor

Okay, so no charge-off. Lastly, Brad, you mentioned record farmland values and strong farmer incomes. How does that play out ultimately to growth in agricultural debt?

Brad Nordholm, CEO

Yes, Gary, it's a very interesting question. Record farm income tends to increase net liquidity across rural America. However, we have seen that many farmers will replace equipment, upgrade equipment, and make additional capital investments before paying down debt. So, our amount of prepayments slowed in the latter half of 2022, but recently, it has picked up slightly. We’re trying to understand if that’s due to increased liquidity in rural America or other factors. Nevertheless, there remains a large universe of parties interested in investing in American agricultural productive real estate. The supply-demand equation for farmland is favorable to sellers. If you consider farmland as a 50-year investment horizon, there are many reasons to feel bullish about American agriculture long term — we have a good climate, excellent transportation systems, strong legal and financial structures, and a supportive governmental framework. This leads to many investors concluding that American agricultural farmland is a very good long-term investment. Thus, even with rising interest rates, we see continuing support for values for American farmland. We think that 2023 will be a steady year for our Farm & Ranch program, which tapered down with rising interest rates in the latter half of 2022, but we are optimistic it will stabilize or increase as more farmers start making investments in 2023. Zach, would you like to add any additional color to that?

Zach Carpenter, Analyst

No, I think, Gary, the biggest impact going forward is really the increase in interest rates and how that will affect farmers or producers who want to take on more debt in the medium term. To Brad's point, the supply-demand dynamics and limited availability of land really provide opportunities for farmers to utilize potentially medium-term or shorter-term debt in 2023 as they manage the rate environment.

Operator, Conference Operator

The next question comes from Brendan McCarthy from Sidoti. Please go ahead.

Brendan McCarthy, Analyst

Great, thank you. I was wondering if you could talk about the demand dynamics within the renewable space. I imagine it's pretty diverse considering the ESG perspective. Could you discuss the buying opportunities with those bonds?

Brad Nordholm, CEO

Certainly, project financing for renewable energy projects is primarily done at the inception of the project. Most project financing is structured to amortize over the life of the investment, usually over 15, 20, or 25 years. So, there's not much refinancing; it's primarily new projects. The driving forces behind new renewable energy projects, including solar and wind in rural markets, is that the capital investment costs have plummeted to the point where it's very competitive to thermal sources of energy on a straight kilowatt hour basis. Additionally, there are tailwinds from the Inflation Reduction Act and others encouraging more renewable energy; however, the fundamentals and economics stand strong on their own. Thus, we acknowledge the trend over the last decade where the capital costs have continually reduced and the investments are being made in rural markets, often on leased or purchased agricultural land, supporting our mission of economic development and opportunities in rural America. This also aligns with the favorable credit risk profile and funding requirements for long-term amortizing projects. We think there are increased lending opportunities in renewable energy project finance and have committed more resources to further develop that opportunity in 2023. We're quite optimistic about raising our growth rate and overall financing activities.

Brendan McCarthy, Analyst

Great, thank you. You mentioned farm values are on an uptrend. What's your outlook in that space? When do you expect to see higher interest rates weighing on that outlook?

Brad Nordholm, CEO

I believe higher interest rates have somewhat moderated that. There’s an interesting mix among farmland purchasers between individual farmers eyeing adjacent farms as a long-term investment versus institutional investors who may view it more as a traditional cap rate. There’s continued interest, and we still see support for land prices, even with rising interest rates. Therefore, we do not expect a real drop in land values; there may be some flatness, but overall we anticipate continued moderate growth over the next couple of years.

Operator, Conference Operator

Our next question comes from DeForest Hinman from a Private Investor. Please go ahead.

DeForest Hinman, Private Investor

Hey, thanks. I'm going to ask some questions and have some comments. Just first quickly, how do you calculate your return on equity currently? What was the return on equity for 2022?

Aparna Ramesh, CFO

Sure. We calculate it by looking at our regulatory capital, which is about $1.3 billion, and that tends to be the total of what hits our Tier 1 capital ratio, which goes in the denominator. In the numerator, we strip out our GAAP funding costs. We don't account for fluctuations from derivatives and hedging activities. We look at our core earnings, so that's how we get our return on equity or return on regulatory capital. If we want to look at it over common equity, we strip out anything preferred or other sources of capital, focusing purely on common equity outstanding.

DeForest Hinman, Private Investor

And what's that final number?

Aparna Ramesh, CFO

For 2022, we ended at 16%. We have a target to hover in the 14% to 15% range. We pay close attention to our net effective spreads, which we try to maintain between 90 to 100 basis points. Coupling that with our efficiency ratio, these are the three key metrics we focus on to hit our return on equity.

DeForest Hinman, Private Investor

Okay. Just a comment: fantastic job everyone, great performance over the last few years, phenomenal dividend growth rate, attractive ROE. You’re doing something in the financial space that a lot of other people can't touch. You're also a GSE, so you have funding privilege, and your underwriting has been incredibly strong. It seems like your share price is far too low and you don't get much respect for what you're doing. I would say, keep up the good work. This is for the sell-side analysts on the call; if they look back in time, GSE evaluations pre-financial crisis were far in excess of where your share prices currently valued. You’re doing a great job. Can you give us a little more color on securitization? You announced before the call. Can you talk about how many people were buying that securitization versus some of the previous ones? Are we seeing diversification among those buyers in terms of, are they insurance companies, bond funds, who's buying? Was that deal oversubscribed? And do you have additional questions?

Brad Nordholm, CEO

Yes, DeForest, I'll let Aparna address the securitization buyers, which is a very positive story. I agree the performance has been remarkably consistent. Our 15%, 16% after-tax ROE shows very little fluctuation. The comparison to prior periods has been interesting, but there were some issues with other GSPs in the past that led them into trouble. Farmer Mac experiences significantly fewer political pressures and remains focused on our mission with sound practices. I encourage anyone to see the stability and consistency in our performance. Now let me turn it to Aparna to discuss our investor market.

Aparna Ramesh, CFO

Thank you, DeForest. I want to echo Brad's sentiments. Just regarding your question on securitization and the investors, we brought in about seven new investors into the program. We have consistent buyers across all three deals and have increased our overall investor count relative to previous issuances. We were oversubscribed in both tranches as well. On the tranche B side, we didn’t need to sell our story as much as in previous years; this time, demand came from the deal’s granularity and familiarity with our collateral and company. We committed to a more programmatic set of issuances and plan to return to the market regularly.

DeForest Hinman, Private Investor

That's helpful. Can you clarify the opportunity within the renewable space? There’s a public company named Hannon Armstrong with lending programs that appear to be into the renewable space. I believe they structure their deals to request long-term power purchase agreements. They lend at a rate of 7.5% with funding costs at 4.3%. Is this the type of product you're aiming for in renewable space, and how do our metrics look versus theirs? It would seem you have a significant funding advantage.

Brad Nordholm, CEO

Yes, that's a fair assessment. In my experience, I've gone back and forth between agriculture and energy. I have a lot of respect for Hannon Armstrong and their niche; they excel at risk assessment. We're also engaged in traditional project financing for renewable energy, which has been dominated by foreign banks thus far. We believe we can establish a strong business in project finance with our lower funding costs and favorable credit profiles. The metrics and underwriting history for project finance for renewable energy projects are well-established. We aim for long-term amortizing debt structures with strict credit coverage ratios, similar to Moody's and S&P guidelines. The nature of our funding advantages means we can participate effectively in this growing market.

DeForest Hinman, Private Investor

Are you forecasting this renewable portfolio exposure to be within the multibillion-dollar range in a few years?

Brad Nordholm, CEO

Yes, we highlighted that we put on a significant amount in 2022. We have committed more resources for 2023, hoping to achieve mid-nine figures in volume numbers for 2023 and 2024. Looking a few years out, reaching a 10-figure number seems plausible. We've stated that the market may be around $8 billion to $10 billion a year, and achieving a 10% market share over the years doesn't seem unreasonable.

DeForest Hinman, Private Investor

What’s your current employee headcount and your planned additions for 2023?

Brad Nordholm, CEO

We finished the year with around 158 employees. In our budget for 2022, we anticipated around 170; we had some attrition, so ended a little below that target. For 2023, we expect to add about 10% to our current headcount.

Operator, Conference Operator

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

Brad Nordholm, CEO

Good. Well, thank you all very much for participating in this call. I hope we have been able to convey our delight with our 2022 performance as well as our optimism for the future of Farmer Mac. We emphasize the principles we adhere to, the discipline in our asset liability management, and our focus on rural America. Our growth performance and stability continue to be without peer. I express my pride in our 158 employees and their dedication to our mission and expertise. We look forward to engaging with you again soon. If you have follow-up questions, please reach out to Jalpa. Have a great day.

Operator, Conference Operator

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