Aparna Ramesh: Yeah, absolutely. And good morning, everyone. Thank you, Bose, for your question. Let me just comment on that briefly. As we’ve highlighted, we manage our books such that we have little to minimal volatility whether rates go up or down. More specifically, as you think about our investment portfolio, something that we’ve started to do and we actually put in place in the fourth quarter of last year is what I would call a laddering strategy with respect to our duration. So what that really means is that as we look at this $1 billion plus of what I would call relatively short-term investments essentially sitting in overnight money, which has been very, very accretive, we’ve taken aspects or portions of those and really very systematically extended them over a two, three, five-year horizon.
And what that will have the effect of doing is in the short run, if the Fed were to continue to raise rates, we’d be giving up that incremental spread that we would have gotten if we hadn’t actually extended out. But what it does do is it positions us extremely well, as you noted in the back half of the year, where there is an anticipation that the Fed might start to lower interest rates. It is going to keep us at a point that it is going to be quite steady. And what that means is that it will not create a dramatic amount of volatility in our net effective spread and it will actually lock in a lot of the benefits that we have seen over 2023 that has come from having raised extremely accretive capital at very low interest rate environments that have continued to reprice.
We have essentially locked in a vast amount of those benefits by extending our duration in what we call an equity allocation strategy. So I hope that helps. But we don’t anticipate to see any volatility or minimal volatility as a result of repricing down of interest rates as it pertains to our liability side of the house. And then you heard some facts, just in terms of how we plan to manage our asset side of the house. But these are some of the natural hedges that we have within our business model where we tend to benefit and we try to manage our volatility whether interest rates go up or down.
Bose George: Okay. Great. That’s helpful. Thanks. And then can you just talk about the possibility or the outlook for generating volumes of some of the other farm credit system banks that you’re — you don’t work with or you’re less active with at the moment?
Bradford T. Nordholm: Um, sure. I think we’ve previously mentioned that our relationship with farm credit system banks and associations is very important here at Farmer Mac. We have remarkably common missions and we are already doing business with a couple of the banks and a number of associations. I’ll turn to Zach to give you more color on our outreach, but it remains an area of high focus and our expectation is that over the next couple of years, we will find new ways of doing more types of business with more farm credit associations than banks. But Zach, maybe you could offer some specifics on where we are with standardized, for example and purchase participations.
Zachary N. Carpenter: Yeah, absolutely. The focus on our relationship with the farm credit system is very strong right now. We’re engaging across many of different banks and associations. About 90% of our purchase commitment, long-term standby purchase commitment product is supporting the system and we will continue to invest in that product as certain institutions find a hold or concentration limits. The one thing I would highlight, a lot of the transaction growth specifically in corporate act finance, telecommunications is in conjunction with farm credit system institutions. We’re either partnering in transactions where a farm credit entity has included Farmer Mac as a secondary market. Our telecommunications portfolio is predominantly in the primary space done with CoBank, one of the largest entities in the system.
We continue to invest in outreach across the system but both banks and associations. And so we’re very happy with where we’ve evolved in our relationship with the system. And frankly, given the growth and focus we have in some of our new areas of — or new portfolios we believe we’ll have more opportunities to support the system in 2024 and beyond.
Bose George: Okay. Great. Thanks very much.
Operator: Your next question comes from Gary Gordon. Please go ahead.
Unidentified Analyst : Thank you. Two questions. One small one, I just focused on the utilities margin in this release, and it’s about 40 basis points well below your other business units. Why is it so low or why isn’t this business repriced, are there other benefits that are missing?
Bradford T. Nordholm: Yeah. Hey, Gary. Thank you for joining us today. A couple things. One is that it’s true that the way we measure that margin associated with that portfolio does show a small level. But keep in mind a couple things. One, many of the borrowers in that portfolio are investment grade, and some of them are even high investment grade. So we are pricing appropriately we believe. Also keep in mind if you look at kind of where that’s been trending over the last couple years, it’s been trending in a positive direction. It started even lower. And so some of the efforts that we mentioned at the beginning of the call to price more to market as an example are reflected even in that 40 basis points. And third, those that are the lowest margin are absolutely essential parts of the infrastructure of rural America.
At the end of the day, the rural electric cooperatives are owned by farmers and rural Americans. They’re generating transmission electric cooperatives owned by rural electric associations. It becomes very, very mission centric for us to help them. And whether we’re helping them through market priced Farm & Ranch loan purchase or helping them through a market priced rural utility, rural electric cooperative loan purchase. The benefit is ending up in the same place. The final point I’d make about that is that when you think about that portfolio, we’ve had no charge offs with assets and no delinquencies ever. And that’s also reflective of the fact that the capital consumption, the equity capital consumption for that portfolio is actually very low.
