Earnings Call Transcript - AGM Q4 2021

Operator, Operator

Good day, and welcome to the Farmer Mac Fourth Quarter and Full Year 2021 Earnings Conference Call. I'd now like to turn the conference over to Jalpa Nazareth, Director of Investor Relations and Finance Strategy. Please go ahead.

Jalpa Nazareth, Director of Investor Relations and Finance Strategy

Good afternoon, and thank you for joining us for our fourth quarter and full year 2021 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 2021 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 2021 Form 10-K and earnings release posted on Farmer Mac's website, farmermac.com under the Financial Information portion of the Investors section. Joining us from management this afternoon are President and Chief Executive Officer, Brad Nordholm, who will discuss fourth quarter business and financial highlights and strategic objectives; and our Chief Financial Officer, Aparna Ramesh, who will provide greater detail on our financial performance. Select members of our management team will also be joining us for the question-and-answer period. At this time, I'll turn the call over to President and CEO, Brad Nordholm. Brad?

Bradford Nordholm, President and CEO

Well, thank you, Jalpa, and good afternoon, everyone. I really want to thank you for joining us today. 2021 was a transformative year for Farmer Mac. I'm extremely proud of our team, our continuing strong performance and our new initiatives that we launched over the last year. Two of the more notable initiatives were the expansion of our internal loan servicing function in the third quarter and the successful execution of a structured agricultural mortgage-backed securitization in the fourth quarter. These accomplishments, combined with our consistent financial performance and continued strong credit quality, provide us confidence in our ability to successfully execute our multiyear strategic plan and to execute on our mission to bring even greater efficiency in how we provide financing to our lenders for the benefit of their farm and ranch agribusiness and rural infrastructure customers. The integration of the strategic acquisition to expand our internal loan servicing capabilities has been seamless. Our team's deep expertise has allowed us to offer our customers the same quality service without interruption. We view this acquisition as an opportunity to create greater efficiencies across our loan servicing platforms. We will harness this opportunity for more direct oversight and governance over a large part of our portfolio, giving us enhanced security, more control over and timely access of data and better visibility into loan performance from inception to maturity. We're also excited for the growth opportunities this strategic acquisition will enable as it will equip us with the talent and infrastructure to more effectively and efficiently service larger, more complex commercial loans and that is a key driver to our long-term growth. This move is an important example of our dual strategies to broaden our business opportunities while also deepening our relationships with our existing customers. We believe that it will ultimately enable us to provide increased capital to support rural America and deliver better customer service to our lender network in support of our mission of increasing access to competitive credit for the benefit of our country's farmers, ranchers and rural residents. The October 2021 issuance of the agricultural mortgage-backed security was an important strategic milestone for Farmer Mac. And the success of the transaction is evidence of Farmer Mac's high-quality credit, strong balance sheet and consistent financial performance as well as the resilience of America's farmers and ranchers. Over the last few months, we have been focused on enhancing the infrastructure to support a securitization program and are closely monitoring the changing market dynamics to align with market expectations. Over time, we expect to eventually be a frequent issuer in the marketplace. With that said, in the near term, our plan is to ramp up the number of issuances per year as we focus on building a strong foundation for the program. In addition to these accomplishments, we developed a newly formed alliance with Ag Analytics, a leader in agriculture data collection and analytics. We're proud to be a part of this innovative and data-driven initiative, which has enabled us to better identify, track and analyze the millions of acres pledged as collateral for Farmer Mac's Farm & Ranch loan portfolio. While we are in the early stages of mining this robust collection of data, we are focused on enhancing our farmland value modeling capabilities and our approach to collateral management. Turning to our results. Our focus on our strategic plan and continued investment in people and technology resulted in a strong 2021. We've provided a gross $8.6 billion of liquidity and lending capacity to lenders serving rural America in 2021, which resulted in an outstanding business volume of nearly $24 billion at year-end. We generated a record level of core earnings and most importantly, and fundamentally, our portfolio remains strong and credit performance continued to be very stable with 90-day delinquencies and substandard asset ratios moving favorably quarter-over-quarter. This year, we also introduced a realignment of our lines of business and operating segments. More specifically, we have consolidated our reporting from our four lines of business to two lines of business: Agricultural Finance and Rural Infrastructure Finance, and seven operating subsegments with four segments that drive business strategy under the two lines of business. Our new lines of business reflect how we are managing, evaluating and serving our business that centers around the customer and market rather than according to the type of product that we offer as we previously did. We believe the simplified reporting format will more clearly present the distinct contributions of our operating businesses and how they drive value for the overall company. The Agricultural Finance line of business, which is approximately 75% of our total outstanding business volume and comprises all products secured by first liens on agriculture real estate plus all USDA guaranteed loans. It grew just over $1 billion year-over-year. This increase was primarily driven by Farm & Ranch loan purchase and AgVantage securities programs with the growth in AgVantage securities largely comprised of opportunistic short-term bonds that are expected to mature in the first half of 2022. While the short-term nature of those securities may create some near-term volatility to volume, we do not anticipate a material impact to our net effective spread. Our pipeline in this line of business remains strong as we believe our strong relationships, knowledge, innovation and flexibility have resulted in our ability to adapt throughout market cycles. Our Rural Infrastructure Finance line of business grew a net $600 million or $0.6 billion in 2021, primarily due to a net increase in AgVantage securities with a key counterparty. This growth is a testament to Farmer Mac's ability to offer competitively priced financing structures, while also demonstrating our ability to execute effectively and meet the needs of our customers. During 2021, Farmer Mac purchased $132 million of loans to telecommunication companies that provide wireless, cable, fiber transport and broadband services to rural America as part of its strategic initiatives to support the telecommunication industry. Farmer Mac also facilitated the financing of approximately $31 million of renewable energy loans. We view both as growing sectors that tie directly to our organizational mission and a significant opportunity for Farmer Mac over the next few years given the greater level of interest from rural electric cooperatives to develop and deploy broadband services and invest in renewable energy power generation. I'm also pleased to announce an 8% or $0.07 per share increase in our quarterly common stock dividend. That will take it to $0.95 per share starting in the first quarter of 2022. In deciding to increase Farmer Mac's common stock dividend and maintain our payout target, the Board of Directors considered our strong capital position and the consistency of and outlook for our earnings to support our business and exceed all of our regulatory requirements. This represents the 11th consecutive year that Farmer Mac increased its quarterly dividend and it's a tangible indication to our shareholders of our ongoing financial success. As we look to 2022 and beyond, we believe our 2021 performance provides a great foundation for visibility and growth well into the future as we continue to execute on our strategic objectives. We are confident that the strength of our underlying business model, our strong capital position and our commitment to our customers will continue to support our ability to generate consistent returns throughout various market environments and across economic cycles, as we have done historically. And with that, I'll turn the call over to Aparna to discuss our financial results in more detail. Aparna?

Aparna Ramesh, Chief Financial Officer

Thank you, Brad, and good afternoon, everyone. I'm pleased to share with you another year of record earnings results, reflecting focused execution throughout the organization. Before I delve into our annual results, I'd like to provide a few highlights around our fourth quarter results. Core earnings were $30 million or $2.76 per share as compared to $27.6 million in third quarter 2021. Our net effective spread modestly declined sequentially due to the sale of mortgage loans associated with the securitization transaction, and I'll describe that in more detail shortly. And finally, outstanding business volume increased $495.7 million from September 30, 2021, to $23.6 billion due to new Farm & Ranch AgVantage volume and strong loan growth in the Farm & Ranch segment. Turning to our 2021 full year results. Farmer Mac's outstanding business volume grew by $1.7 billion to $23.6 billion as of December 31, 2021. Net effective spread was $220.7 million, which represents a 12% increase from $197 million in 2020. In percentage terms, net effective spread or NES, improved 5 basis points to 98 basis points compared to the prior year, and this is primarily due to the shift in higher earning assets and continued competitive execution on debt funding that is a result of our disciplined asset-liability management process. Our newly introduced operating segment, which Brad described earlier, allows us to offer more transparency into the various contributing components of portfolio NES as we have implemented a fund transfer pricing methodology. This process allows us to allocate interest expense much more accurately to each of the operating segments, and this assumes a match-funded asset-liability management approach, and it allocates both the benefits as well as the cost from the funding and hedging strategies to the Funding segment. This also allocates the results of the investment portfolio and demonstrates how it's held for liquidity purposes. The year-over-year growth in net effective spread was primarily driven by net new business volume, particularly in the Farm & Ranch operating segment, accompanied by a decrease in non-GAAP funding costs. We frequently discussed in the past, the positive impact of our dynamic funding strategies, including the use of callable bonds to replace more expensive outstanding debt at lower rates as well as leveraging derivatives to eliminate basis risk. We believe that the new segment reporting construct provides for clearer insight into the benefits of these funding strategies and how it contributes to profitability. The business compositional shift we've discussed since early 2020 is also highlighted in the new segment reporting as the relationship between rates and volume is apparent in each segment. For example, our Rural Utilities segment is comprised of low-risk, long-dated assets that generate a lower NES relative to our Corporate AgFinance segment, which has greater levels of credit risk but higher levels of net effective spread. As we prepare for a steepening yield curve, especially at the long end of the curve, we are very carefully analyzing our duration and convexity matches to minimize our interest rate risk as rates rise. In general, our net effective spread or NES should be well cushioned against driving rates. The options on our callable issuances remain attractive even if rates rise, and these will prove to be a good hedge against prepayments if the rate environment remains flat or decreases. Securitization, which is a capability that we are now building, will also provide us with a diversified source of long-term funding; it will help us draw from a larger investor base, a more diversified investor base. It will help us optimize our funding strategy when faced with widening issuances at the long end of the curve. This disciplined approach of managing our portfolio duration and convexity allows us to have consistent performance in our net effective spread in both rising and falling rate environments. Core earnings for 2021 increased 13% to $113.6 million or $10.47 per diluted common share compared to $100.6 million or $9.33 per diluted common share for 2020. The year-over-year increase in core earnings was primarily due to an $18.7 million after-tax increase in net effective spread, a net after-tax provision release of $8.1 million and a $5.2 million after-tax gain on the sale of mortgage loans. These factors were partially offset by a $9.5 million after-tax increase in operating expenses and a $6.9 million increase in preferred stock dividends. The successful execution of a $299.4 million agricultural mortgage-backed securitization in October was a key contributor to our core earnings results this past year. The deal was structured around two tranches, a senior guaranteed tranche and a subordinate unguaranteed tranche. The transaction was overall very well received by the investment community, and this has provided Farmer Mac with an opportunity, as I mentioned earlier, to diversify funding sources and fulfill our mission of delivering low-cost liquidity even more effectively. We have spent the last few months identifying ways to potentially execute these transactions more efficiently, and we expect to return to the market this year with another similar securitization as we seek to make this a more programmatic effort for us in the future. Operating expenses increased by 20% in 2021 compared to 2020, and this is primarily due to increased headcount as we hired 32 net new employees this year, including 10 new employees in connection with the strategic acquisition of loan servicing rights that Brad described that occurred in the third quarter of 2021. Our headcount was 154 as of year-end. The additional loan servicing expenses are expected to be offset over a multiyear period by additional revenue, and this will be reflected in higher spreads in our Farm & Ranch segment where we will not be paying a third party for servicing the loans that we will now service. Therefore, this should make the initiative neutral to accretive for us in the midterm. The remaining hires were brought on to drive additional volume growth and support our long-term technology strategy. We also plan to continue investments, both in headcount as well as in technology over 2022 and 2023. These will be primarily to modernize and mitigate risk in our infrastructure, enhance our technology platforms to support our revenue strategies and continue to add relevant talent across the organization, especially as we scale and enter into new areas of business, such as renewable energy and telecom. While we expect these efforts to continue and increase over the next 12 to 18 months as we innovate and grow our business, we will continue, as we've mentioned previously, to closely monitor our efficiency ratio. Our efficiency ratio at the end of 2021 was 29%. Going forward, we do expect operating expenses to increase commensurately with revenue growth. But as we've noted previously, we intend to stay within a range that is consistent with our historical averages that always remain below a 30% operating efficiency level. Our credit profile continued to be strong over 2021. As of December 31, 2021, the total allowance for losses was $16.4 million, a decrease of $1.2 million from December 31, 2020. This decrease was attributable to a $2.4 million release due to improving economic conditions and a recovery on the payoff of the agricultural storage and processing loan secured by a specialized poultry facility that had been partially charged off in 2020. Partially offsetting this decrease was a $0.2 million provision to the rural infrastructure allowance for loan losses related to the impact of the February 2021 Texas Arctic Freeze. Turning to capital. Farmer Mac's $1.2 billion of core capital as of December 31, 2021, exceeded our statutory requirement by $487 million or 41%. This compares to $1 billion of core capital as of December 31, 2020. The increase in capital in excess of the minimum capital level required was primarily due to the issuance of the Series G preferred stock in May 2021 and an increase in retained earnings. The issuance of the Series G preferred stock earlier in the year positions us well for this inflationary environment that we're seeing. The capital efficiency of the securitization transaction also contributed to our improvement to 14.7% of Tier 1 capital from 14.1% as of year-end 2020. All of this further reduces the need in the immediate future to do more preferred stock issuance. As Brad mentioned, we are very pleased to announce a $0.07 per share increase in our first quarter 2022 common stock dividend, getting us to a total of $0.95 per share, and this represents an 8% increase from a year ago. We believe that our strong earnings and consistent capital position supports this dividend increase and also our long-term target payout ratio, which is set at 35% of core earnings. In conclusion, our balance sheet is well optimized. Our access to capital markets also remains strong. We believe that we're well-positioned for rising rates and to fund future loan growth at levels that are earnings accretive. And with that, Brad, let me turn it back to you.

Bradford Nordholm, President and CEO

Thank you, Aparna. I'm incredibly proud of the 2021 results, and I'm incredibly proud of the entire Farmer Mac's team that has delivered these results. We further enhanced our operational infrastructure, we've enabled greater customer service, and we built a diverse earnings stream with multiple growth levers. Looking ahead to 2022 and beyond, we continue to see a tremendous opportunity to bring even greater efficiencies in how we provide financing to our lenders for the benefit of their farm and ranch, agribusiness and rural infrastructure customers. We're looking forward to sharing additional updates on our strategic growth initiatives in the coming quarters. And with that, operator, I'd like to see if we have any questions from anyone on the line today.

Operator, Operator

Today's first question comes from Marla Backer with Sidoti.

Marla Backer, Analyst

Can you give us any kind of color on how you think if inflationary pressure continues or escalates from these levels? How you think that could impact changes in your business volume?

Bradford Nordholm, President and CEO

Yes. Good afternoon. Marla, it's very nice to have you on the call today. I think there are a couple of dimensions of this, and I'm going to ask both Zack Carpenter, our Chief Business Officer, to comment on what we're seeing out in the countryside as well as Aparna Ramesh, our CFO, to comment on what the implications are for interest rate-sensitive asset liability management. But in general, we've been talking for almost a year now about the likelihood of rising interest rates and how the way we manage our book from an asset liability management standpoint puts us in a pretty neutral position. We also more recently have been monitoring inflationary pressures on the ag economy, especially coming from increases in natural gas and fuel prices, which are fairly closely correlated with inputs, not just diesel fuel on the farm, but also fertilizers, for example. The wild card just in the last week is what the impact of the situation in Ukraine will have on global agricultural commodity flows. Generally speaking though, we think that probably favors the U.S. But let me now turn to Zack and Aparna to offer their perspectives on the different dimensions of your question.

Zachary Carpenter, Chief Business Officer

Yes. Thanks, Brad. That's a great question. On the Farm & Ranch side, I think that's where it poses the biggest view in terms of inflationary pressures. And Brad made a big comment in terms of nat gas and fertilizer. And those are huge input costs to the farmer and rancher in terms of running their operation. And we're seeing the largest component inflationary pressure is there, continued with the supply chain disruptions that we see across the market. The other dimension that Brad mentioned is interest rates and the increasing, I'd say, short-term interest rates that we're seeing or projected to see in the environment. So overall, I'd say a more Farm & Ranch foundational perspective, we anticipate to see probably a little bit lower prepayment speeds than we have seen over the last two years and attribute that to a lower refinancing environment given the increase in interest rates. And then in terms of the input costs, we anticipate to see a heavy draw on revolving lines of credit, especially to fund the fertilizer and the input costs for the harvest or preparing for the harvest and getting everything in the ground. So I would say overall, maybe a moderated transition from volatility in terms of refinancing, but still a very strong environment from a farm economic perspective given the commodity prices. So coupled with strong farm loan values could see a lot of increasing in transactions in terms of acquisitions of new land and taking some of that equity out.

Aparna Ramesh, Chief Financial Officer

Great. And thanks, Zack. And I'll just jump in real quick, Marla, on what this all means for us as we look at our duration and convexity on our asset liability management. Certainly, when you look at this environment, we've got some tensions between the long and the short end of the curve. I think the forward curve is implying a substantial flattening or even an inversion as you look out a year. So all of that has obvious implications from an asset liability management standpoint. But from our standpoint, I think we're pretty well cushioned. We've taken advantage of a few things. We did issue a lot of long-dated debt securities over the last two years, taking advantage of market opportunities. New callable spreads have actually widened quite a bit. But in this current environment and as Zack described, looking at the slowing in prepayments, that won't have a material impact on our business. And even if rates were to go down, a year out, we'll be pretty well cushioned because we've got about one-third of our fixed-rate book in callable security. So whichever, I think we're going to be pretty well cushioned whether rates go up or flatten or even if we see a slight inversion over the next year, I think we'll be well positioned. And obviously, inflationary impact really plays into what the Fed might do on the short end of the curve there. We're anticipating that.

Marla Backer, Analyst

Okay. Thank you for that comprehensive answer. Switching topics, switching gears a little bit. You talked a little bit in your prepared remarks about trends moving into some related areas, telecom, renewable energy. Can you give us some sense of how large you think that those complementary areas could become as part of the total business?

Bradford Nordholm, President and CEO

Yes, I'd be happy to, Marla. First of all, we've been slowly moving into renewable energy project finance. I think this is our third year now. And in the last year, as you know, we have been more active in telecommunication company finance. We are a mission-driven organization. We are very purposeful and focusing on the needs of rural America within the confines of our charter. And one of the big issues in rural America is broadband and other telecommunication access. So we do actively look for those opportunities. They need to fit our credit box. And as we've been slowly moving into this area over the last couple of years in renewable energy project finance, we've been building policy, credit underwriting standards and slowly expanding the team. I would say, over the last two years, we've placed more of a prioritization on the growth of our Farm & Ranch and corporate agribusiness that we have in this area, and that's partially reflected in the numbers. But looking forward, on the Renewable energy project finance, it's about an $8 billion annual origination market per year within kind of the credit profile that is attractive to us. Our biggest challenge is to broaden the number of origination channels we have because we are a secondary market. And I think you'll see a little bit of emphasis on that this year, probably more next year. And if then with that increased emphasis, we could kind of double the projected volume every year for four or five years, it would become a meaningful part of our business, becoming upwards of 20%, 25% of volume, but that will take some years to get to.

Marla Backer, Analyst

Great. And when you said 20%, 25% of volume, you're talking about in the aggregate between the two different spaces we've been talking about?

Bradford Nordholm, President and CEO

Versus the rest of the portfolio, and that's on annual originations. In terms of portfolio composition, that would be less because it will take longer to ramp up.

Operator, Operator

And our next question today comes from Gary Gordon of Private Investor.

Unidentified Analyst, Analyst

Okay. So a couple of things. One, charge-offs in the fourth quarter for the year.

Bradford Nordholm, President and CEO

There were no charge-offs, and we had a collection. The poultry processing loan we discussed about a year and a half ago had some write-downs over that time, and we exited that position in the fourth quarter with a small collection. Overall, we collected more than we charged off, and we didn't have any charge-offs.

Aparna Ramesh, Chief Financial Officer

It's about $1.1 million of CapEx, just on that one.

Unidentified Analyst, Analyst

Okay. Super. Okay. Two, the operating expenses were up about $2 million quarter-to-quarter, third quarter to fourth quarter. I guess just buying the servicing business was part of that, most of that.

Bradford Nordholm, President and CEO

The servicing business is part of that. We also had some IT expenses that hit in almost the last month of the year. Aparna, do you want to elaborate on that?

Aparna Ramesh, Chief Financial Officer

Yes. No, I think Brad hit the nail on the head there. We've been doing systematic investment in two or three areas. And the third area, as you noted, Gary, was the acquisition of the servicing business. So most of the headcount that we acquired through that was about 11 or so, most of that came in over the latter half. So that was a contributor. And then as Brad noted, we've made some investments in our IT platforms and some of the consulting fees wrapped up towards the end of November. So we saw an uptick in consulting fees as well in December. So those two factors I would say contributed. And then also just our hiring. We had some of the hiring plans for the first half of the year, but most of that got pushed out to the third and fourth quarters, but primarily the fourth quarter. So contributing factor from all of those three, but that's really.

Unidentified Analyst, Analyst

Okay. And the gain on the sale of loans. Is that related to the securitization or that was an actual sale?

Aparna Ramesh, Chief Financial Officer

Yes, that was related to the securitization. And we've described that in a fair amount of detail. But in a nutshell, that is the fourth quarter event and resulted in a pretax sale of a little over $6 million. And it really is episodic. So it happens right away. So when you sell it, you book a gain on sale depending on where nominal interest rates are.

Unidentified Analyst, Analyst

Right. So the cash earnings from those loans will be in operating earnings going forward.

Aparna Ramesh, Chief Financial Officer

The cash earnings of $302 million will be recorded as we remove them from our books. There will also be an earnings profile that continues throughout the life of the loan, along with some associated servicing fees. All of this will be attributed to the loan pool, which has a duration of about 7 years at par.

Unidentified Analyst, Analyst

The interest spread for operating earnings decreased by about 5 basis points. Upon examining the details, this change resulted from fair value adjustments, which I'm not entirely sure about. Last quarter, it was positive 3 basis points, and this quarter, it dropped to negative 3. Is a value of 0 considered normal?

Aparna Ramesh, Chief Financial Officer

Yes. So I can ask Brad and Zack; they would like to comment a little bit more on just some of the competitive pressures. But on just the aggregate, the result of the shift between what would have been within our NES book as a result of the C1 securitization created a decrease in our NES quarter-over-quarter. That's definitely a factor. And then there were some other non-securitization-related competitive pricing pressures that also came to bear if you're looking at the portfolio NES change quarter-over-quarter.

Unidentified Analyst, Analyst

Okay. So if I'm looking at 2022 this year, the third quarter a better indicator or the fourth quarter a better indicator of what an ongoing ...

Bradford Nordholm, President and CEO

Yes, I don't know that we'd want to tie 2022 expectations to either the third or fourth quarter. What I would say, Gary, is that until we got well into 2021, we've always provided guidance of 90 points plus or minus 5 basis points. What you saw this year was some shift in strategy, and you see the reasons why reflected in our new line of business reporting and net margins associated with that. And you saw the NES kind of go up for second, third quarter and then tail off just a little bit in the fourth quarter. What I would say instead is that going into 2022, thinking about guidance around NES as being at least 5 basis points higher than the prior guidance we provided at least 95 basis points plus or minus 5 and possibly even a bit higher is in line with our expectation.

Unidentified Analyst, Analyst

Okay. One last...

Aparna Ramesh, Chief Financial Officer

Gary…

Unidentified Analyst, Analyst

I'm sorry, go ahead.

Aparna Ramesh, Chief Financial Officer

Yes. No, Gary, but differently, I think we used to anchor you previously to about 90 basis points. So think of that as having shifted up about 5 basis points level.

Unidentified Analyst, Analyst

Okay. Okay. Last thing on the dividend. So operating earnings were up 13%. The dividend was up 8%. And also you said a 35% payout based on the dividend for this year would say operating earnings would be up about 5% this year, if you're still doing a 35% payout ratio. So I'm trying to figure out, it seems like the dividend should have been up more. And I'm wondering if there's anything behind that.

Bradford Nordholm, President and CEO

Yes. I mean, it's not an absolute strict portfolio for precisely one year, Gary. So we have previously explained that we have a target of about a 35% payout. And yes, earnings were up strongly this year. We're looking ahead. We want to make sure that we can continue to deliver a nice step in earnings. When we discussed this with our Board, we just felt that going higher than that today was not really advisable because once again, we see some growth opportunity and want to make sure that we maintain strong capitalization throughout '22 in an environment where some of that growth may actually consume more capital.

Aparna Ramesh, Chief Financial Officer

Yes. And Gary, and just one more point. I think when you look at either 2021 and 2022, we're also now subject to a fair amount of volatility from nominal interest rates. And so we've got to guard against that. So some of the credit effects, which are non-cash based as well as the gain on sale, there's going to be some natural fluctuations as a result of that. So we want to make sure that we're baselining this from a cash flow perspective as opposed to some of the other fluctuations that come about as a result of a shift in our business model.

Operator, Operator

Our next question today comes from John Szabo with Flint Ridge Capital.

John Szabo, Analyst

My question is regarding the outstanding business volume growth for the company. And Brad, I think you've described in the past that the company has a relatively low market share of the ag finance business, at least the way you've defined it, you also have a competitive advantage from a funding standpoint due to your charter. So what would you consider sort of a normalized growth rate in outstanding business volume net? And then what would be the factors that would drive your actual results to be either higher or lower in a particular year around that a normalized growth rate?

Bradford Nordholm, President and CEO

Yes, thank you for joining us today. It's important to highlight that Farmer Mac operates as the secondary market. Consequently, our market share is influenced not only by our efforts in aggressive outreach, strong technology, and competitive pricing but also by the overall liquidity in the agricultural finance system. This includes the roles of commercial banks, independent finance companies, insurance companies, and the farm credit system, which are all factors to consider. With that added context, I will now turn it over to Zack for a more detailed response regarding growth rates and the factors that influence them as we engage with our customers.

Zachary Carpenter, Chief Business Officer

Yes. Thanks, Brad. And it's a great question. And I think Brad started the conversation in the right way in noting we're a secondary market. And ultimately, what that means is our customers are the financial institutions serving the farmers and ranchers in the ag space. But I think a big component of what we've tried to execute over the last couple of years is the diversification of our base, right? And so you've seen a very strong growth rate in the agricultural Farm & Ranch, Corporate AgFinance space as we've dedicated more time there, but also looking to focus more on telecom and renewable energy. When you fully focus on the Farm & Ranch and the agricultural space, it's dominated by a few key lenders, the farm credit system, insurance companies and community commercial banks, right? And so as we look to grow our business and support our customer base, it needs to be taken in the context of a very concentrated industry of lenders, which differs in many instances in other areas. And so our focus there to continue to increase growth rates is really to diversify. I think part of our change in reporting structure highlights the fact that our Corporate AgFinance segment or focusing on agribusinesses or larger and more complex value chain lending helps us diversify and support our mission in a different way and ultimately lets us create a larger growth rate in many different fashions. Lastly, the only thing I'd like to comment on is that some of our products and some of our customers are highly concentrated. I think AgVantage, think of these wholesale finances. And so we need to make sure that as we put capital to use, it's appropriate for our mission and appropriate for Farmer Mac. And in many instances, we've seen over the last couple of years, as credit spreads have tightened, it didn't make sense for us to support those low-profitability spreads, and so we wanted to moderate that appropriately. So a little bit of ups gives and takes across the board. But I think from the ag space, we are making inroads in a very concentrated environment as a secondary market.

Bradford Nordholm, President and CEO

John, I think we can provide maybe some specific in terms of volumes. If we're at the 6% to 8% CAGR range in terms of volumes, that's pretty typical, 10% to 12% is extremely strong and more an outlier for us. And I think going forward, we don't see factors that would necessarily reduce that, but we don't see factors that would necessarily increase that upper limit either. So maybe that's helpful in terms of kind of putting some bands around this.

John Szabo, Analyst

Yes, that's very helpful. To follow up on Gary's question about the dividend, do you expect some acceleration in growth this year due to new initiatives, or is it more about a mix where your current projects might be more capital intensive than in the past?

Bradford Nordholm, President and CEO

Yes. Well, it's really interesting because until a week ago, we would have told you with much more certainty that rising interest rates were going to slow prepays and that, that might be supportive of a slightly faster growth rate. In the last week, with the situation in Ukraine and maybe creating a bigger challenge for the Fed now, there's a little bit less certainty to that. But generally, yes, we do see greater capital consumption with some of these new lines of business, including the Agricultural Finance, Corporate agriculture line of business. And the Rural Utilities consumes a bit more capital. And so when we make these decisions, I guess, it's fair to say that we make conservative decisions, but those are some of the factors that go into it.

John Szabo, Analyst

Right. And then, of course, presumably, those more capital-intensive assets would have higher yields, I would think.

Bradford Nordholm, President and CEO

Indeed, they do. And for the first time, you can actually see that in the new line of business reporting that we're providing you.

John Szabo, Analyst

And then just one last thing. So you've been investing in some of these new growth initiatives if you could sort of grow the assets sort of in a mid-single-digit range. Do you think over sort of a medium-term time horizon that you'd be able to still get some operating leverage off of that? In other words, the expenses would not grow quite as fast as the top line. Or do you see yourself being in a prolonged period of investment spending?

Bradford Nordholm, President and CEO

I can provide some specific insights, John. We have consistently maintained that our operating efficiency ratio will stay in the 25% to 30% range. Last year, we were just under 29%, and we intend to keep it there. We are investing in people and technology to support new business lines, and we expect to see improved operating efficiency and leverage from these investments in the next couple of years. This should lead to a gradual decline in our operating efficiency ratio and an acceleration in our new business ventures. For example, in renewable energy, developing a network to increase volume takes time; similarly, entering the corporate agribusiness market requires building credibility and expertise to capture competitive pricing. Both the entry into these new lines of business and the necessary investments in people and technology take time and effort. Looking ahead two to three years, we anticipate seeing improvements in these areas.

Operator, Operator

Our next question comes from an unidentified analyst.

Unidentified Analyst, Analyst

Thanks so much for a great year. I'm hoping that you could help me understand the end users of the credit that you're providing sort of in terms of size and scale. I know that you got like charter and board-level loan limits from a credit risk perspective. But I'm more wondering like kind of from an impact perspective, how are you making sure that these partnerships that you're driving are sort of pushing capital into the smaller and perhaps more capital-starved corners of the system where you might have the most acute needs?

Bradford Nordholm, President and CEO

I appreciate you asking that question. We are a mission-driven organization focused on improving access to credit for rural America, which we take very seriously. In our annual business plans and outreach to financial institutions, we track key metrics such as the percentage of our volume going to family farms, as defined by the USDA, which is over 90% by count, and small farmers, also defined by USDA, which is slightly over 50%. We take pride in these figures. While we are willing to serve all farmers, including larger agricultural producers with multiple credit sources, we place special emphasis on supporting small and family farms that may have fewer options for financing. The availability of our credit, even on a secondary market basis, can be especially meaningful to them. Our growth in the Farm & Ranch program over the past few years reflects this focus; we increased our annual originations from $700 million to $900 million three or four years ago to $2.5 billion this year. This improvement is linked to enhanced technology and our AgXpress underwriting system, which efficiently handles smaller loans and is widely used by small and family farm loan recipients. We can provide metrics to support this, but I hope you can also sense the passion and commitment we have at Farmer Mac for serving American production agriculture.

Unidentified Analyst, Analyst

Yes, absolutely. That is evident in the reporting and in many other areas. I am curious why there aren't more shareholders like myself celebrating this aspect of your effectiveness. Do you believe that the trends in ESG, sustainable investing, and green bond issuance align with your business? For example, will the secondary market issuances you are doing relate to that? Do you feel appreciated by the market in this regard?

Bradford Nordholm, President and CEO

Yes. When it comes to the ESG and sustainable agriculture segment of the investor market, it was notable that during our roadshow for the securitization at the end of the third quarter and the start of the fourth quarter, we had several investors express genuine interest. We've had some ESG-focused investors monitoring us for over a year, and they recently invested in Farmer Mac last quarter. While our mission is to serve American agriculture broadly, it's essential to understand the evolving practices among farmers. Many are adopting organic methods or low-till, no-till precision agriculture, which helps reduce inputs. There are numerous practices that align well with the interests of those investors. Capturing data on all the loans in our portfolio is challenging as we don't have direct access to all that data from secondary market participants. Nevertheless, we are working to gain more access and seek out additional ways to communicate how we support all of American agriculture, including those adopting the practices you mentioned.

Operator, Operator

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Brad Nordholm for any closing remarks.

Bradford Nordholm, President and CEO

Well, thank you, operator, and thank you all for joining us today. I hope it's been informative. As I said earlier, I'm incredibly proud of the team. And we are very, very optimistic about 2022. So get in touch with us if you have follow-up questions, and we'll look forward to our next call with you. And what I hope will be a continuing upward trajectory for Farmer Mac. Thank you.

Operator, Operator

This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.