That’s not a hard and fast target, however. So when we do that evaluation, we will be looking at growth, acceleration and potential need for capital. As securitization programs mature, we may find that we have proportionately less increased need for capital that will also be a consideration and then just general outlook for the business. So, stay tuned. Certainly, we will be strongly considering taking action on dividends in February.
Operator: The next question comes from Bill Ryan with Seaport Research Partners. Please go ahead.
Bill Ryan: First one, obviously, we hit on the revenue side a little bit earlier, but thinking about expenses, you’re up 21% in the second quarter, 24% in the third quarter. And what you — it sounds like you alluded to on the conference call, you have the ability to really kind of manage that as revenue makes a directional change, a little faster, a little bit slower. Could you start off by talking maybe about some of the levers that you have to kind of dial back a little bit on the investments subject to revenue growth?
Brad Nordholm: Sure. Aparna, go ahead.
Aparna Ramesh: Yes. Bill, I think you hit the nail on the head, right? We make our investments fairly aggressively but in line with our growth strategy. And as you can see, we target 30% and we’re well south of that and probably right in line with historical averages. A couple of the levers that we do have, some things are fairly baked in such as the fixed investments we’ve made in our technology platform. But I’ll just say that we are looking to accelerate, the spending on that particular investment largely because we see ourselves doing pretty well in terms of just how that project is tracking. So, we do have a few levers there in terms of how much we want to layer in, and this is something we can do through this year as well as next year.
And then, we’ve got some other planned investments, and I talked about that with respect to our loan origination strategies. And so, again, I think we can pace that as we need to, in a way that is both consistent with our, with optimizing our expense profile. And then the final, area that we do intend to make investments, which could drive up our overall headcount, which is a little under 118 right now, has to do with some of our plans to expand into the Renewable Energy segment. And again, that is something that we plan to do, and we think that it will pay off in terms of just the higher NES that you’ve already seen within that segment, but again that’s also a lever. So the way in which we really manage our spending profile is to, really look at this, quarterly basis, and we track very closely to how our revenue projections are coming in.
And we’ve left enough and ample room such that we can dial things back as we need to if we don’t think we’re going to hit our revenue projection. But as you heard from the revenue story, we have no reason to not believe that to be the case.
Bill Ryan: I have a follow-up question, and this is came out some money center banks that reported a couple weeks ago and they were kind of talking about Basel III and tax equity investments maybe receiving an incrementally higher a risk weighting than what they are right now, which they kind of implied it might impact some of the Renewable Energy projects going forward that are partly financially this means. I was curious, if you had any thoughts on the matter. And it seems counterintuitive that they go that way ultimately because obviously renewable energy is so important, but I was just kind of curious how you’re thinking about it.
Brad Nordholm: Yes. We’ve thought about it a lot. First of all, we have not been making tax equity input commitments, we’ve been making commitments to senior secure project financing for renewable energy projects, so straight that. The proposal is to increase the capital requirement for tax equity, which again we’re not doing, but many of the big banks are from a 100% to 400%. And that would have more than a chilling effect on the tax equity market. And that would be too bad. It would, if that happened, it would slow down the investment in new renewable energy projects. But our view on this is that the addressable market, as of about two years ago, it was about $8 billion to $10 billion with the IRA’s Inflation Reduction Act and the additional incentives for renewable energy projects.
The expectation is that that may have as much as doubled. We’re starting from a very, very low base, and we have inherent advantages in our ability to price and structure project finance compared to other banks. It’s very difficult for banks to make 20-year fixed rate amortizing loan commitments as an example. And so, we are starting from a very, very low base. So to take market share as we put effective people in the field and develop the Farmer Mac brand and capability in that market, we don’t think it’s particularly difficult from where we stand. So even if the market were to contract by say, a quarter or a third because of constraints in the tax equity market, we still feel that there’s play a market for us to build market share in and for many years to come quite frankly.
Bill Ryan: One last probably very quick question probably rhetorical question in a way, but what is the status of the Farm Bill? I mean, I’m assuming given what’s going on in Congress, it’s just kind of going to get extended probably?
Brad Nordholm: We have changes every day, but this morning, Congressman Scott from Georgia, who’s the ranking minority member of the House Agriculture committee came out, with an indication that, it was his opinion that the Farm Bill should be extended a year before the new bill is acted upon. He then joins the two majority and minority Senate leaders, Stabenow, and the majority, the ranking, or majority, house leader, J.T. Thompson come out of Pennsylvania with that view. So, it’s pretty clear that we’re going to probably see an extension maybe — it really needs to be done. Really needs to be done by the end of the year. There is a scenario under, which the extension for less than a year and it puts pressure on them to act on it during the first half of 2024.
We’ll see. Obviously, Congress has a very, very ambitious, and politically broad schedule in front of it between now and the New Year and then into 2024. So our base expectation is that, we have a one year extension.
Operator: The next question comes from Brendan McCarthy with Sidoti. Please go ahead.
Brendan McCarthy: Just wondering if you can quickly comment on the telecom loan downgrade that led to the $3.6 million provision? I guess, was that mostly anticipated, or was that more of a surprising? Is that like an outsized figure that is typical?
Brad Nordholm: No. I am going to ask Marc Crady, our Chief Credit Officer, to jump in here. But look for us to have you know, we have thousands of loans and for us to have loans that occasionally are downgraded to the point where they require special allowances, it’s not at all unusual. We’re putting a spotlight on this one because it sticks out because it happens to be the only one. So, that’s important to keep in mind, but I’ll let Marc give you a little bit of color. Obviously, we’re not going to name names, but a little bit of color on the nature of the credit softness that resulted in the downgrade in the allowance.
