They are up substantially. And those are accretive. They are higher NES segments of business for us. They are contributing to those higher NES numbers. They are part of that story. And the volumes there are not just holding up, they are growing for us in this environment. So we can talk about a logjam as you described it in Farm & Ranch, but in other areas of our business, we’re not experiencing that. In fact, we are experiencing more opportunities. As I mentioned, we are allocating more resources to Renewable Energy project finance right now. And that increasing diversification of our portfolio is giving us greater strength, and ability to deliver the steady returns you have seen from us year-over-year to keep delivering those steady returns throughout 2023.
Operator: Our next question comes from Gary Gordon, Private Investor. Please go ahead.
Unidentified Analyst: Okay. Thank you. Questions on the remarkable interest spread. First, the benefit was all attributed to the — over a year ago, it was attributed to the financing group Treasury. I assume the way you calculate is some calculation of your cost of funds versus some sort of average. So I mean, why isn’t the cost of funds attributed to an operating unit rather than the finance group?
Brad Nordholm: Yes. I’ll let Aparna get to that, Gary. It’s a very interesting question. But I’d first kind of draw your attention to part of that positive change being attributable to these accretive lines of business where we are seeing a little bit stronger growth right now. As you point out, the majority of it is attributable to how we run our book and our Treasury operations. And I will let Aparna take you through some of that detail, both the simple math denominator, numerator question that you’re getting at, but then maybe a bit more detail on how other factors and how we run our book are contributing to that.
Aparna Ramesh: So about a year ago, we actually segregated our portfolio into segments. And with that, we are now able to get a more granular view of just how we can actually allocate NES between the operating units that you mentioned, Agricultural Finance, and Rural Infrastructure Finance, and then Treasury as its split out between the actual funding desk and then our investment portfolio. So when we actually spread the interest rate benefits across the operating units, what we do is we assume that with all other things being equal, the way in which we would fund the balance sheet, if we did not have a Treasury desk, would be through match-funding every single loan, relative to the benchmark interest rate based on the tenor of that loan.
In reality, what we do is we don’t assume any interest rate risk. But we will actually hedge or synthetically convert a fixed or floating rate asset into an appropriate liability, and actually match the duration and convexity of the asset and liability. So this gets to be a little bit technical. But essentially, the way to think about this is, the funds transfer pricing mechanism that we use, provides a baseline of what funding costs would be out in the marketplace in the absence of the Treasury desk. So to the extent that the assets are being generated at a spread above this market rate, they get credit for it to the extent that the Treasury funding desk is able to issue debt the level of this market rate that we calculate, then that credit is ascribed to the Treasury unit.
