Bradford Nordholm: I’d be very pleased to. You’re going to start seeing more headlines, I think, about the Farm Bill. Of course, it was — it’s scheduled to be revisited and repassed every five years. And that expiration, that maturity was in 2023. So it’s already operating under an extension. Just in the last week and a half, GT Thompson, Congressman from Pennsylvania who Chairs the House Agricultural Committee, has announced his intention to release the House Ag Committee’s draft of the Farm Bill before Memorial Day weekend. And with that, we’re seeing a lot of conversations. We’re in active discussions, conversations, with the staff, and really appreciate the fact that the Farm Bill is, by all indications, beginning to move forward.
Now, this is important for farmers and ranchers and agribusinesses across the United States as well as those who benefit from other programs that are delivered under the Farm Bill. We weren’t sure what would happen on the Senate side. Certainly, there’s been a huge amount of work done, but Senator Savannah has announced that she too is going to move forward the Senate Ag Committee’s version, and we’ve been closely monitoring the details of both. It’s premature for us to project exactly what this means for Farmer Mac. Obviously, when bills are negotiated, where the reconciliation taking place, a lot can happen. So we just can’t project exactly what happened. But the things that we’re interested in, you mentioned enhanced ability to originate renewable energy project finance loans, not changing the eligibility of the borrower, but just who originates them, broadening that, to be able to do more types of USDA loans that are consistent with the mission, possibly getting some relief from the 2000 acre limitation, which actually by our regulator was recommended to be dropped and with some substitute for a capital requirement, which we believe would be favorable to Farmer Mac.
These are things that we have consistently talked about now for a number of years, and where our key stakeholders and even our detractors are well aware of what we want and more importantly, exactly why we think it would be beneficial to rural America, to agriculture, to rural infrastructure, and why it’s absolutely consistent with our overall mission. So stay tuned. We hope a lot happens in the next couple of months on the Farm Bill.
William Ryan: Okay. Thanks, Brad.
Operator: Thank you. [Operator Instructions] We have our next question coming from the line of Brendan McCarthy from Sidoti. Please go ahead.
Brendan McCarthy: Hey, good morning, everybody. Thanks for taking my questions. I just wanted to start off, taking a look at volume. I think you mentioned a potential softening in farm net income, maybe driving increased borrowing in farm and ranch side — on the farm and ranch side. Can you talk about how you look at that from an underwriting perspective and any changes in underwriting there?
Bradford Nordholm: Yeah. I’m going to turn over to Zach Carpenter who is with us today to talk about both underwriting and the impact that changes in that farm income may have in volume and maybe how that breaks down by sector. So, Zach?
Zachary Carpenter: Yeah. Good morning, Brendan. First off, well, net farming kind of expected to decline from 2023 and the highs of 2022. It’s still above the historical average here. So, in context, right, we’ve seen a decline, but still doing well at the farm gate. Now, we are seeing some pressure on liquidity across certain sectors of the farm gate. So that is driving the need to potentially lever a little bit more on the farmland, where there’s plenty of equity, as we continue to see farmland appreciate, albeit at a slower rate. So, overall, we still feel very comfortable with the borrower and the types of transactions we’re seeing. So when we look from an underwriting perspective, clearly this component of leverage and cash flow, so we are seeing some tightness in cash flow, but as long as we feel comfortable, that there’s good liquidity at the borrower level and allowing them to tap some equity in the farmland also supports that liquidity.
We are comfortable. So we haven’t seen a significant deterioration. That being said, we have seen some stress at certain sectors across the farmland space. But overall, our underwriting standards remain very strong. Credit quality remains very strong and we see additional opportunities to support the farmer to kind of weather some of the declines in commodity prices and maybe a little bit more sticky on the input side.
Brendan McCarthy: Got it. Thank you. That’s helpful. And I believe you mentioned there was a $57 million pool of farm and ranch loans that you purchased that added to the business volume in the first quarter. Can you talk about that transaction? I guess was that any kind of stress scenario from the — on the lender side?
Zachary Carpenter: Yeah, happy to. No, it was a great opportunity for us to support one of our key originators. It did close in the back half of the quarter, so we’ll see some benefits of that heading into the second quarter. This is really kind of a theme that we’ve been talking about, right? When rates were low, we saw a lot of originators, lenders, kind of hold loans on balance sheet to take advantage of growth in deposits and capital. Now, as things revert with higher interest rates and potential issues with capital and changes in capital from a regulatory perspective, they’re kind of re-looking at their balance sheet to say, hey, what makes sense for us to keep on balance sheet, as well as potentially offload for liquidity purposes?
So this wasn’t a stressed scenario. This was pure capital and liquidity management for this organization. And a lot of these institutions are trying to grapple with servicing an overhead and in capital requirements, especially for, I’d say smaller farmland loans, right? A lot of these loans still take the same or require the same servicing and management as larger loans. So that’s a lot of overhead. That’s a lot of structure to put in place to manage that. And so when you get a portfolio of size in that nature, it kind of stresses that dynamic internally from a expense and capital perspective. So this is purely why Farmer Mac was created to help support these lenders in this specific area. And frankly, I think, could provide more opportunities for us in this dynamic to support more financial institutions as they continue to look at liquidity and capital.
Brendan McCarthy: Got it. That makes sense. One last question from me, just from a very broad perspective, what could really drive outperformance or underperformance relative to your expectations for the rest of the year? Obviously, assume the interest rate environment plays a big part of that. But just kind of curious as to your thoughts.
