Earnings Call Transcript - LAND Q3 2022

Operator, Operator

Greetings. Welcome to Gladstone Land Corporation Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to David Gladstone, Chief Executive Officer and President. Thank you. You may begin.

David Gladstone, CEO

All right. Thank you, Sherri. That was a nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. I want to thank you all for calling in today. We appreciate you taking time out of your day to listen to our presentation. We're going to start with Michael LiCalsi. He's our General Counsel and Secretary. He's also the President of Side stone Administration, the administrator for all of our funds. Michael, go ahead.

Michael LiCalsi, General Counsel and Secretary

Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933, Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. And many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our Form 10-Q, 10-K and other documents that we file with the SEC. You can find them on our website, specifically the Investors page or on the SEC's website, which is sec.gov. And we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Today, we'll discuss FFO, which is funds from operations. Now FFO is a non-GAAP accounting term, defined as net income, excluding the gains or losses from the sale of real estate and impairment losses from property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses, and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. And we believe these are better indications of our operating results and allow better comparability of our period-over-period performance. And please take the opportunity to visit our website, once again, gladstoneland.com, sign up for our e-mail notification service, so you can stay up to date on the Company. You can also find us on Facebook. Keyword there, The Gladstone Companies and on Twitter @Gladstonecomps. And today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information. Again, go to the Investors page of our website to find them. Now, I'll turn the presentation back to David Gladstone.

David Gladstone, CEO

All right. Thank you, Michael. I'll start with a brief overview of the farmland holdings. We currently have over 115,000 acres on 169 different farms, and we also have 45,000 acre-feet of bank water. You all remember that an acre-foot is 326,000 gallons. So, we're into the billions for gallons of water that we hold and is held underground. And so, we can bring it out if we need it. Together, those two are valued at a total of about $1.6 billion for both the land and the water. Our farms are in 15 different states and more importantly, they are in 29 different farming regions. Farms continue to be 100% occupied and leased to over 90 different tenant farmers, all of whom are unrelated to us. The tenants on these farms are growing over 60 different types of crops from fruits and vegetables to nuts. We mentioned in the past couple of calls, acquisition activity remains slow for us. We continue to be more selective in the type of farms we're looking at right now with inflation and interest rates continuing to rise, and the risk of even a bigger recession than we're in becoming more likely. We believe it's a good time to be much more conservative with our capital. But overall, our existing farmland portfolio continues to perform pretty much as expected, and we had another very strong quarter, as you'll hear from the rest of my presentation and certainly from Lewis, our CFO. Leases on these farms contain certain provisions such as participation rents. In this third quarter, we acquired four venues in Washington State and Oregon. We paid about $37 million for that. Overall, net cash yields to us on these investments are about 6.2%, and that's about what we've averaged overall long term. So, as I mentioned just a few minutes ago, we're going to go to the leases on these farms that contain certain provisions. The reason I mention that is because we're coming to the year-end in which we have participation rents or escalations that go on. So that should push the figure that I mentioned a little bit higher for the future. Remember, this is not rocket science, so it's not a quick move in terms of rents. They go up gradually every year that we appreciate because it doesn't take much doing from us. On the leasing front, since the beginning of the third quarter, we renewed six leases on farms in three different states. In total, these renewals are expected to result in an annual operating income increase of about $281,000 or about 10% over that of the prior leases. So if every lease came up and got 10%, we'd be well ahead of the growth record that we're looking at. Looking ahead, we only have one lease scheduled to expire over the next six months, making up less than 0.5% of our total annualized lease revenue. We're in discussion with potential tenants for this farm that's coming up and aren't really expecting any downtime as we move forward. Here's a couple of other updates. Inflation continues to hover near the highest rates seen in over four decades. This latest headline inflation number was 8.2%, and it's been over 8% now for the past seven months. However, in the latest reading on food eaten at home, that category was up 13%. This is a category where the crops grown in our farms fall in, and that category is mostly crops that are grown on our farms and are sold in grocery stores, that's at-home kind of indication. We believe the increases in food prices will continue to outpace inflation itself, normal inflation numbers and should help mitigate the increases and input costs experienced by our farm operators. We were extremely fortunate to have made it through Hurricane Ian with only minor damages to a few buildings and structures, all of which were covered by insurance. Some farmers reported delayed plantings due to the water in the crop land, but the crop losses in some fields caused by the hurricane's surface water was very light. However, these farms have since been replanted and are now back on schedule. We continue to keep those in mind who were injured or negatively impacted by the hurricane; it was horrendous for many people in Florida. While we are hoping for winter, and it seems to be coming that way because it's raining out in California now, to relieve the drought in the West, we've been focused on increasing the water security of our current portfolio of assets. This may include, but is not limited to, buying water on the open market. We can buy water and put it out on our farms or, more importantly, purchase long-term water contracts and acquire additional water credits through purchasing additional open ground. Much of the land in California that is not being used has water rights, and we may want to buy some of those to build up the water delivery infrastructure we have and replace older inefficient equipment and irrigation systems upgrades. All of these kinds of improvements are things that we normally do anyway. So, we're just getting ahead of the curve by doing it early. We continuously work with our tenants to assess the water availability on each of our properties as well as their financial situations. They all have to deal with their banks, and the banks are charging more for loans to plant and harvest. So they're seeing some significant changes in that regard. The ongoing drought has stressed aquifers in California. Surface water supplies throughout the state have been in high demand, of course, and we're not immune to these effects. However, we've always been proactive and have tried to stay ahead of the larger problems. To date, we've not had any water deficiencies prevent any of our tenants from making their obligation, which are the rent payments they owe us. However, as almond prices remain low due to oversupply, certain almond farmers are beginning to experience decreases in production, meaning they're harvesting less. We're discussing potential solutions with these tenants to help get through these difficult times, such as additional capital improvements or temporary rent reductions. One thing to keep in mind is that these wet and dry cycles are very normal in the West, especially in California. The impact of the current drought has been somewhat exacerbated by the fact that it occurred so soon after the previous drought cycle, which ended in late 2016. Previous wet cycles didn't have enough time to refill all of the reservoirs before the current drought cycle. We're hopeful that the snow out there will accumulate in the mountains, and that's what most farmers rely on for water during the summers. Throughout any long-term investment in California, we know that we'll experience both drought periods and wet periods, and we factor those assumptions into our underwriting models. We currently have a small handful of tenants who have fallen a few months behind in their rent. Collectively, it's about $1.3 million in late rent payments owed to us. We're working with all of our tenants and partners to have the delayed rent paid over the next three months or so. We expect to receive all of these payments in full before the end of the year. It might be a bit challenging for a couple of the almond growers, but I believe we will be fine. Regarding our capital plans, as we announced in August, we amended the Series C preferred stock offering to reduce the offering size and shorten the duration. As amended, we expect to sell approximately $10 million more under the offering after this week's close before the offering terminates at the end of the year. So, we're pretty much out of that Series C preferred stock and are looking at our options for going forward. With interest rates rising, acquisition activity has slowed down. As you can imagine, almost every acquisition we make requires debt to make it work. It's difficult to utilize these proceeds from the Series C effectively. Therefore, we're having to work harder to secure accretive deals. We're exploring other capital-raising options. We'll find something that suits us; however, it's not the end of the world to take a break and see how this economy evolves. On the ESG front, which everyone seems to be interested in, we posted a short report detailing our current status in certain ESG initiatives. On the governmental side, we seem to be doing well. I'm going to stop here and let Lewis move forward. Lewis, please take over now.

Lewis Parrish, CFO

Sure. Thank you, David. Good morning, everyone. I'll begin by briefly mentioning our financing activity. We did not incur any new borrowings during the quarter, but we did repay about $17 million of loans that were scheduled to mature. On the equity side, since the beginning of the third quarter, we've raised net proceeds of about $75 million from sales of the Series C preferred stock and $5 million from the sales of our common stock through the ATM program. Moving on to our operating results. First, I'll note that for the third quarter, we had net income of about $1.8 million and a net loss to common shareholders of $3.6 million or $0.074 per common share. On a quarter-over-quarter basis, adjusted FFO for the third quarter was approximately $7.2 million compared to $4.5 million in the second quarter. AFFO per share was $20.07 in the third quarter versus $12.9 in the second quarter. Dividends declared per share were about $0.137 in the third quarter versus $0.136 in the second quarter. The primary driver behind the increase in AFFO was about $3 million of participation rents recorded during the current quarter versus only $20,000 in the previous quarter. This was partially offset by higher incentive fees by about $500,000 during the current quarter. Fixed base cash rents increased by about $877,000 or 4%. This is primarily driven by additional revenues earned from recent acquisitions and completed CapEx projects as well as from recent lease amendments and renewals. On the expense side, excluding reimbursable expenses and certain nonrecurring or noncash expenses, our core operating expenses increased by about $534,000 on a quarter-over-quarter basis. Total related party fees increased by about $629,000 during the current quarter, primarily driven by a $505,000 incentive fee earned during the current quarter versus no fee earned in the previous quarter. Property operating expenses remained relatively flat, while recurring G&A expenses decreased by about $78,000, primarily due to costs related to the annual shareholders meeting in the previous quarter. One note on expenses during the third quarter: we did write off about $800,000 of deferred and unallocated costs related to the Series C offering as a result of the amendment that reduced its size. Moving on to net asset value, we valued 39 farms during the quarter. This was done via third-party appraisals, except for three that were valued internally. Overall, these farms increased in value by about $17 million or 3.7% over their previous valuations from about a year ago. We saw a particularly strong appreciation in the values of our Florida farms, which saw an average increase of 11%. Also of note, the California farms we had reappraised increased by 2%. So, despite the ongoing drought and continued water concerns across the state, we continue to see the values of our farms increase. We believe this underscores the efforts our team has made in identifying strong farms with secure water sources. As of September 30, our portfolio is valued at about $1.6 billion, and all this value is supported by either third-party appraisals or purchase prices. Base lean's updated valuations, including the fair value of our debt and preferred stock, indicate our net asset value per common share at September 30 was $16.56, which is up by about $0.96 from last quarter. The primary drivers of this increase were the impact of increases in market interest rates on the value of our fixed long-term borrowings, as well as the appreciation in value experienced on the farms that were revalued this quarter. Turning to liquidity, including availability on our lines of credit and other undrawn but committed notes, we currently have over $175 million of liquid capital, in addition to over $100 million of unpledged properties. Over 99% of our borrowings are currently at fixed rates. On a weighted average basis, these rates are fixed at 3.26% for another five-plus years. The increase in interest rates does impact our ability to finance new acquisitions and influences our decisions regarding repaying versus refinancing our maturing loans. However, with respect to our current debt load, we've experienced minimal impact from the recent rate increases. Moreover, we believe we are well protected against future interest rate increases for the foreseeable future. Regarding upcoming debt maturities, we have about $56 million coming due over the next 12 months. Approximately $31 million of this figure represents various loan maturities, and the properties collateralizing these loans have increased in value by a total of $13 million since their respective acquisitions. Therefore, we do not foresee any problems refinancing these loans if we choose to do so. By removing those maturities, we only have about $25 million of amortizing principal payments due over the next 12 months, which is less than 4% of our current debt outstanding. Finally, on our common distributions, we've recently raised our common dividend again to $0.0458 per share per month. Over the past 31 quarters, we've raised our common dividend 28 times, which has resulted in an overall increase of more than 52% over this timeframe. Farmland remains a stable asset class and continues to perform well amid all the uncertainty and volatility in the markets. We believe this stock presents a compelling investment opportunity, especially in light of ongoing inflationary and recessionary concerns. With that, I’ll turn the program back over to David.

David Gladstone, CEO

Okay. Thank you. That was a good report, and it brings people up to date on the numerical side of our business. We continue to stay very active in the market. Good opportunities do present themselves. But as mentioned, we're being much more cautious on our acquisition front. I'm not sure how all of this inflation is going to play out against the farmers and what they have to deal with. Just a few final points I'd like to make. We believe that investing in farmland growing crops that contribute to a healthy lifestyle, such as fruits, vegetables, and nuts, follows the trend we're seeing in the market today. Overall demand for prime farmland growing berries and vegetables remains stable to strong in almost all areas where our farms are located, particularly along the West Coast, including California, Oregon, and Washington. Not to be outdone, the ones in Florida are moving at very good paces as well in terms of values. Overall, farmland continues to perform well compared to other asset classes. I mention this almost every time: the NCREIF Index and Farmland Index, which currently has about $14.9 billion worth of agricultural properties, has averaged an annual return of about 12.6% per year over the past 20 years with no negative years during that period. This is higher than the S&P Index and the REIT index, both of which have had negative years over that same period of time versus zero for the Farmland Index. Please remember that purchasing stock in this company is a long-term investment. After all, it's farmland—it's not going to move around much; it's very stable. I think investments in our stock really have two parts. Similar to gold, it's a hard asset. Farmland has intrinsic value because there is a limited amount of good farmland, especially in the areas we're in, like Florida and California. It's being used up by urban developers, especially in California and Florida, where we have a lot of farms. Unlike gold, which is another alternative asset, it's an active investment with cash flows to investors. We believe we're better than a bond fund because we keep increasing dividends every year, which bond funds don't usually do. We expect inflation, particularly in the food section, to continue to increase, and we expect values of underlying farmland to rise as a result. We're particularly optimistic about this in fresh produce areas. The trend of more people in the United States eating healthy foods rather than some of the unhealthy ones continues to grow. I think we're in the right area. Now, we'll have some questions from those following us. Operator, would you please come on and tell the listeners how they can ask a question?

Operator, Operator

Our first question is from Rob Stevenson with Janney. Please proceed.

Rob Stevenson, Analyst

Lewis, the NAV increase, what percentage of the farms had a value change quarter-over-quarter versus what's still left to be revalued over coming quarters?

Lewis Parrish, CFO

This quarter, that being in Q3, I think we had about one-third of our portfolio revalued. It's not exactly 25% each quarter; it varies. I think Q4 is a little bit lighter, closer to 18% to 20% of our portfolio value will be revalued in Q4.

Rob Stevenson, Analyst

Okay. And what was the impact on the NAV calculation from the debt adjustment?

Lewis Parrish, CFO

I'm checking that information now. The debt adjustment was $0.55 per share.

Rob Stevenson, Analyst

Okay. So roughly half was the debt, roughly half was change in value from the one-third of the portfolio. While I have you, what is your cost today for new debt? And what would be your best source today if you needed debt for either refinance something or to buy something?

Lewis Parrish, CFO

Today, we'd probably be in the mid-5s, 5.5%, 5.6%. For instance, if we went to one of the farm credit associations, that would be the net effective rate after interest patronage is received. The stated rate would probably be about 1 point to 1.25 points in the quarter above that before patronage is factored in. But Farmer Mac would probably offer similar rates in the 5.5%, 5.6% range for us right now.

Rob Stevenson, Analyst

That's helpful. And then, David, you mentioned that you're putting a pause on the Series C, that it's sunsetting at year-end and that you'll figure out equity down the road. How are you thinking about that today? I mean, the rate market is obviously in constant flux, and so preferreds have been a bit challenging. Do you look at converts? Do you just utilize common stock on the ATM? Obviously, things will change as you move forward. But sitting here today, how are you thinking about that? And where would be your best cost of equity beyond the Series C?

David Gladstone, CEO

Well, we would love to continue with the Series C. However, about 60% of the money we use to buy farmland comes from one of these farming debt banks in that area. To pass on another 2% change to the farmer regarding increased rent is just unacceptable to many of the farmers today. They've been hit by a number of issues in that area. The increases in their debt they use to manage their farm operations, such as money they need at the beginning and end of every year has gone up substantially. In addition, I don't know if anyone follows it, but all over the world, they have been closing plants that produce any chemicals that are needed for farming, particularly fertilizer. I think half of the fertilizer plants in the world have closed in the last three or four years. So it has been a very difficult time for farmers in this respect, and they are passing those costs on to the consumer, who is ultimately paying more as well. We want to avoid disruptive investments in a market that’s in flux. Therefore, we are exercising caution and not closing a lot of deals right now. We have some great potential deals, but we need to ensure they are financed in a way that is accretive to us. Some members of our team are eager to pursue deals that may not be accretive, but I prefer that we stay solid and only pursue sounds investments. Until the banking community stabilizes and rates decrease — which I don't anticipate happening anytime soon — we will take a slow approach to growth. However, I think taking a break right now could be advantageous. We have $1.5 billion worth of farmland, and there is always something we can do, like building more infrastructure, which we regularly undertake. Overall, it’s a moment to observe the changing landscape. As you know, when we discuss this, we desire to be buying farms and entering the farming business, but the current market does not allow that. So, we will continue to focus on managing our existing assets while remaining vigilant about new opportunities.

Rob Stevenson, Analyst

That's helpful. One last question for me. Any commonality on the $1.3 million of late rent payments by either crop type or geographical concentration?

David Gladstone, CEO

Well, as you probably know, we keep stating that almonds are currently our primary issue, and almost all of those are in California. While there are a few outside of California, most of our challenges are indeed in California. I want to clarify that this isn't a serious problem; rather, it's that some crops haven’t met their usual production levels. So, it's primarily almonds in California—this is the commonality of the delayed payments. Our collection efforts are robust, and I have a dedicated team member focused on this. We will ensure these payments are made; we expect to receive the $1.3 million owed as we head into the fourth quarter. Historically, we've always been able to make the necessary collections.

Lewis Parrish, CFO

$3 million.

David Gladstone, CEO

$3 million of it in this quarter, and I'm hopeful we can net another $3 million or $4 million in collection next quarter as well. This quarter, meaning the third quarter, we secured $3 million, and I'm optimistic we can do that again next quarter. Anyway, this is all standard for us.

Rob Stevenson, Analyst

Thanks, guys. I appreciate your time this morning.

David Gladstone, CEO

Okay. Do we have any more questions?

Operator, Operator

Yes, sir. Our next question is from Edward Riley with EF Hutton. Please proceed.

Edward Reilly, Analyst

I'm curious about the change in rhetoric with regard to water in the press release stating that farms with permanent planting have sufficient water. I wonder if you could comment a little more in depth on the water situations for farms with raw crops?

David Gladstone, CEO

Yes. It's not the raw crops that are causing issues these days; it's the trees that need water. We invest significantly in maintaining the health of our trees. Almonds have posed a challenge for us, but pistachios seem to be doing fine. I hadn't realized until entering this business that a significant portion of the almonds produced in the United States is exported, especially to countries such as Spain and India. Giving time, I believe we'll see these challenges resolve themselves as almonds pass through the channels. The good news is almonds are not as delicate as other crops; they can be stored for a long time compared to perishables like strawberries. Most of our farmers aim to sell by January or February, so we will see how much we collect. Right now, it’s a delicate balance, but we are optimistic this will normalize.

Lewis Parrish, CFO

To provide additional color on that, as I mentioned, water is a concern across the state. As David previously said, we are not immune to these impacts. There are a few farms where we are navigating certain water issues. However, these are not affecting any row crops or permanent crops that we own directly. This is why the language in our press release has been updated. There are a few farms that we own where almond trees are situated, and they operate on single-source water; however, the tenant owns those trees and the irrigation infrastructure. Thus, our secure farms remain stable; only those two or three farms where we only own the land are affected by the single-source water issue.

Edward Reilly, Analyst

Okay. Understood. That's helpful. Regarding participation rents—I wonder if you could break down the relationship or the source of participation rents? I know you do a lot with pistachios. Do you foresee any impact to participation rents in the fourth quarter, given what's happening with the almond crop currently?

Lewis Parrish, CFO

If you examine our total participation rent revenue over the past couple of years, as well as what we expect for this year, pistachios account for around two-thirds of that amount, whereas almonds contribute about 20% to 25%. Thus, the large majority stems from pistachios. As for this year’s rents, it's based on the crop harvested last year, the 2021 crops. These yields have been significantly better than the 2020 crop. While pricing is down a bit, the increase in yields has more than compensated for the slight decrease from the prior year. Additionally, a few more farms came online last year, which is driving our anticipated payment increases this year. However, it is still somewhat early to project the situation for next year; we are gathering more data about yields.

Edward Reilly, Analyst

Okay. I see. How many farms will you be collecting participation rents on this year?

Lewis Parrish, CFO

In rough estimates, about 35 farms have leases that include participation components. It’s important to note that some of those farms may not meet the necessary thresholds for us to record any payments.

David Gladstone, CEO

And remember one thing: pistachios are very high in protein, making them a potentially valuable substitute for chicken meat. Are there any additional questions, operator?

Operator, Operator

Yes, sir. Our final question is from John Massocca with Ladenburg Thalmann. Please proceed.

John Massocca, Analyst

I think you mentioned you were maybe taking a bit of a pause in the acquisition market. But what are you seeing in terms of cap rates for acquisitions that come across your desk? Has there been noticeable expansion in cap rates, given the current interest rate increases?

David Gladstone, CEO

Yes. It’s a mixed environment. To reiterate, there's a divide between nut farms and those producing other crops, such as strawberries and blueberries. From what I've observed, many farmers hold unrealistic expectations about the worth of their lands, believing their farms, which their family has operated for generations, are worth an exorbitant amount. The adjustments in valuation require reevaluation by proficient appraisers to keep them grounded. Currently, there is considerable inflation impacting farmers, making it challenging for them to sustain expenses while maintaining their farms. Water costs have dramatically increased as well, with our water pricing now at $650 per acre-foot. We have capital tied up in water as insurance should we need it. The real challenge is figuring out future adjustments in the economy and stabilizing prices. It's prudent for us to avoid guessing at this and await signs that indicate where heads towards the economy is going before investing significantly. There are numerous farms on the market; it’s not the case that sellers have retreated from sales. In fact, the recession has led more people to discover the real worth of their farms. Plenty of opportunities for management exist, but the key is to ensure an accretive return for our shareholders through careful acquisitions. We believe we will achieve this, but of course, no guarantees exist in life. If prolonged challenges arise, they will likely only be for six months or so before sellers realize a fair price is necessary to maintain their operations. So, for the moment, we will be cautious in our approach until we can determine a stable direction for the market.

John Massocca, Analyst

Is there a specific amount of expansion you’re observing concerning cap rates? I know each investment is bespoke given the property type, but have you seen any notable expansion in basis points?

David Gladstone, CEO

Yes, I think right now if you were trying to sell some of the nut farms, you wouldn’t be able to fetch nearly as much as you would expect. In contrast, if you were selling a strawberry grower or blueberries or any vegetables, you can still push those prices up. Grocery chains such as Safeway and Giant are willing to pay more as they need those products. Consumer demand still strongly trends towards fresh produce, which is a robust market. Most of the farms we possess in that sector are located on the coast in both California and Florida. These regions typically confront fewer water supply challenges than those in the valleys dealing with tree crops. I believe that challenges facing tree crops will sort out this year, and next year's crop yield will be substantially stronger than those produced in 2023.

John Massocca, Analyst

As you consider some of the lease maturities, what's the outlook in 2023 for those renewals, given that you have more visibility into the farms?

Lewis Parrish, CFO

We currently have one lease expiring over the next six months. That is primarily a crop share lease, and we expect that structure to remain in place on a relatively small farm in Nebraska. Beyond that, we're just starting negotiations for expirations scheduled in the latter half of next year. We believe we'll see increases on most, if not all of those, but it’s too early to speculate on particular ranges.

David Gladstone, CEO

Tenants often prefer to incorporate participation rent as it allows them to defer payment obligations until later. Unfortunately, this is inconvenient for us, as we rely on cash flow to meet our dividend obligations. Thus, there is a conflict between us and our tenants regarding participation rents. We do appreciate participation rents as they provide the potential for gains that we typically do not receive.

John Massocca, Analyst

Lastly, how do moves in interest rates impact interest rate patronage as we think about our models?

Lewis Parrish, CFO

For us, the interest rate fluctuations won’t impact patronage, at least not presently. That said, we can’t guarantee it will stay the same, as patronage is not assured. However, we don't anticipate any changes to the amount we receive. What could affect this is repayment; we repaid around $16 million to $17 million of loans, which consisted of farm credit loans, hence, we will not earn patronage on those. However, feedback suggests the percentage of patronage or basis points we receive will remain the same. Each of those associations’ boards ultimately decides, and if they face difficulties, it could diminish our patronage.

David Gladstone, CEO

Operator, do we have any further questions?

Operator, Operator

No, we have reached the end of our question-and-answer session. Mr. Gladstone, if you have any closing comments?

David Gladstone, CEO

Well, no closing comments. We're disappointed. We wanted more questions, but thanks a lot for calling in, and we'll see you next quarter. That concludes this call.

Operator, Operator

Thank you. This does conclude today’s conference. You may disconnect your lines at this time. And thank you again for your participation.