Federal Agricultural Mortgage Corporation Price & Performance (AGM)

Joining us from management this morning is our President and CEO, Brad Nordholm, who will discuss 2024 business and financial highlights and strategic objectives, Chief Financial Officer, Aparna Ramesh, who will provide greater detail on our financial performance. Flect members of our management team will also be joining us for the question and answer period. At this time, I'll turn the call over to President and CEO, Brad Norton. Brad? Thanks, Jalpa. And good morning, everyone, and thank you for joining us. We delivered another year of strong financial results. Building upon our record performance over the last few years. Our 2024 performance was highlighted by record net effective spread and core earnings, driven by consistent loan growth effective asset liability management and funding execution. And coupled with well managed operating expense control. We also successfully closed $2,300,000,000 farm securitization transactions supporting our commitment to being a regular issuer in the market. This is the first time we have completed two issuances in one year. All these factors have allowed us to and it showcases the resiliency of our business model against market volatility and a changing credit environment. This morning, we also announced our fourteenth consecutive annual dividend increase.

Beginning in the first quarter twenty twenty five, we will be increasing our quarterly common stock dividend by $0.1 per share to $1.5 represents a 7% increase from the quarterly common stock dividends paid in 2024. This increase is a tangible indication to our shareholders of our ongoing commitment to provide a dividend payout that balances previous and expected future earnings growth While maintaining an adequate level of capital, to exceed regulatory and market requirements, and support our expectations for future business volume growth. This reflects the compositional shift of new business volume towards higher spread businesses that we have seen over the last few years. And the continuing effectiveness of our proactive management of our balance sheet and funding levels. Core earnings year to date improved to $172,000,000 modestly exceeding our prior year record. Reflected in 2024 results, is the recognition of renewable energy investment tax credits of $2,600,000 is a benefit to income taxes from two renewable natural gas projects. We are actively looking at these types of renewable energy credit 2025 as we continue to be a significant participant in the renewable energy project finance market, which gives us unique insights entered the value of these credits Turning to volume, In fourth quarter twenty twenty four, we introduced a new segment reporting construct that provides for clear insight into the various contributing components of our portfolio's net effective spread and our overall bottom line profitability.

Aparna will cover this in more detail, But we're now showing you more granular information On each segment's direct allocation, to operating expense. We've also rebranded our Rural Utilities segment power and utilities and introduced a new broadband infrastructure segment to more crisply communicate the core areas of focus The power and utility segment includes loans to rural electrics, generation and transmission cooperatives and distribution cooperatives as well as AgVantage securities secured by those types of loans. The broadband infrastructure segment includes loans [indiscernible] cable broadband, tower wireless, local exchange carriers and data center projects. Which were previously held in the former Rural Utilities segment. Rural Solid Communication and Data Connectivity has proven to be of vital economic importance in the last decade especially in rural America. As more households and agricultural enterprises require more data and connectivity to thrive. We have strategically expanded our footprint in this market over the last several years positioning us well for the expected growth in digital technologies that is expected to require significant more computing and storage capabilities as well as investment in additional fiber network capacity. This new segment reporting construct aligns better with how we actually manage our business. And provides better transparency into the economics of our portfolio In 2024, we purchased $7,000,000,000 in gross volume With farm and ranch and renewable energy loan purchases, significantly outpacing the prior year.

After repayments and several large maturities in Farm and Ranch [indiscernible] we grew $1,100,000,000 ending the year at $29,500,000,000 Our infrastructure finance line of business grew over $1,000,000,000 in 2024 largely driven by loan purchase volume within the Renewable Energy segment. As of year end, we have nearly $1,500,000,000 in total renewable energy volume reflecting the continued strong demand for renewable energy power generation and [indiscernible] and the dedication and commitment from our organization to grow this segment in alignment with our long term initiatives. We introduced this segment in 2020 and have successfully doubled our volume in this segment every year since then. We believe that the growth in renewable energy generation deployment of energy storage technologies has the potential to continue to deepen Farmer Mac's relationships with existing customers through new business opportunities. Our 2025 pipeline within the Renewable Energy segment remains strong. As our robust efforts and investments to grow this portfolio remain one of our top priorities over the foreseeable future. Segment grew over $300,000,000 60% year over year. We expect to continue to see an increase in financing opportunities with other telecommunication providers in rural areas. Fiber line expansion wireless broadband deployment, industry consolidation and efficiency through mergers and acquisitions.

And data processing center build outs all increasingly important to rural economic opportunity the constant connectivity required by the food and agricultural businesses. Within the agricultural finance line of business, corporate Ag Finance saw net growth of about $200,000,000 during 2024, reflecting our continued efforts to support larger more complex acre business, focuses focused on businesses that span the food supply chain. While volume tends to be lumpy on a quarter by quarter basis, Opportunities in this segment Federal generally more accretive than Farm and Ranch loans. As evident in our new segment construct. We closed over $1,500,000,000 of new farm and ranch loan purchases in 2024 compared to a total of $780,000,000 in 2023. That loan growth included $179,000,000 of two pools of loans purchased from Sigal Agricultural Lender, Underscoring our secondary market track record of providing agricultural under solutions for their capital planning and our expansive product set to support customers of all sizes throughout market cycles. We expect to see this positive momentum continue in 2025 as tightening bank liquidity and an adjustment to higher rate environment takes hold. While the USDA expects an increase in cash farm income in 2025 due to potential increases in government support payments for the American Relief Act, the ongoing uncertainty and forecasted volatility in commodity prices is expected to drive more loan volume as producers navigate current market dynamics.

Farm and ranch segment is core to our mission and we remain committed to bring our customers' products, and solutions that fit their profiles as they continue to navigate industry change the economic cycle. Offsetting farm and ranch purchase growth 2024, was over $2,000,000,000 in scheduled maturities with several large Farm and Ranch advantage counterparties. Driven by slower market loan growth, for them and tighten market credit spreads resulted in less liquidity and diversification needs for these counterparties. We successfully closed two ARM securities transactions in 2024 the second of which closed in November and was structured similarly to our earlier deal in April 2024. Since our initial farm securitization in 2021, our execution has significantly improved leading to better financial results due to better spreads, and reduced transaction and administrative costs. Looking ahead to 2025, we're planning to continue our target deal sizes of approximately $300,000,000 consistent with the size of our prior deals. As we are continuing to explore the opportunities to introduce new securitization products, and asset classes including renewable energy for our customers, while continuing to build liquidity in the farm securitization program. As we look ahead, we are confident that our underlying business model strong capital position and uninterrupted access to the debt capital markets will continue to uniquely position us to partner with our customers to help them grow and manage any capital and liquidity risk they may might face in the future.

Including risks related to ongoing market uncertainty, and potential regulatory policy change. Our ability to navigate industry changes and economic cycles, while growing earnings positions us well to continue to create more opportunities for enhanced shareholder value through mission fulfillment. And now I'd like to turn the call over to a [indiscernible] our Chief Financial Officer to discuss the our financial results in more detail. Aparna? Thank you, Brad, and good morning, everyone. Our 2024 results once again highlight our consistent financial and operational execution. Coupled with proactive management of our balance sheet and funding sources, Our diversified streams of business revenue and our funding and hedging capabilities stemming from our disciplined approach to asset liability management, allow us to continue to fulfill our mission and generate consistent shareholder returns across market cycles, while staying in alignment with our long term strategic initiatives. Net volume growth in fourth quarter twenty twenty four was $1,100,000,000 and this was primarily driven by strong loan purchase volume in the Farm and Ranch, renewable energy and broadband infrastructure segments. Offsetting loan purchase volume growth, in the fourth quarter was $255,000,000 of Farm and Ranch Advantage, that matured without refinancing. As we saw throughout the year, changes in the quarterly ADDvantage Securities volume are primarily driven by the larger transaction sizes for the product scheduled maturity amounts for a particular quarter the liquidity and loan growth opportunity needs of Farmer Mac's Advantage counterparties, changes in the pricing and availability of wholesale funding, and the relative value of our wholesale financing product versus other funding alternatives.

Based on these factors, we expect ADDvantage business volume in both lines of business to continue to be volatile. As we navigate the evolving needs of our stakeholders, and as the yield curve steepens and interest rates stabilize. Positive momentum that we saw in the Farm and Ranch renewable energy and broadband infrastructure business segments included strong loan purchase volume. Which is generally more accretive and higher spread relative to the ADDvantage product. The shift in business composition to higher spread business has been one of the drivers of the increase in net effective spread quarter over quarter. We believe that our pipeline and the overall compositional shift positions us well heading into 2025.

Turning to 2024 results. Core earnings were $171,600,000 or $15.64 per diluted share in 2024. And $43,600,000 or $3.97 per diluted share in fourth quarter twenty twenty four. Our full year core earnings results reflect modest growth over our record breaking 2023 financial performance. And this is largely due to our proactive debt funding strategies disciplined asset liability management approach that is designed to minimize earning volatility over the medium to long term. Coupled with opportunistic debt issuances that have allowed us to accretively fund new asset opportunities as they've arisen. Net effective spread improved $12,600,000 year over year. And this is largely due to a shift in volume to more higher yielding assets. In percentage terms, net effective spread compressed year over year by three basis points.

To 115 basis points.

Due to loans moving into non accrual status, which has resulted in a decrease in interest income and that has been coupled also with a more volatile funding environment. This dynamic was partially offset by our diversified revenue streams and opportunistic funding and hedging of our balance sheet, with the use of callable debt securities. Core earnings in fourth quarter twenty twenty four declined sequentially by $1,400,000 and this was primarily due to an increase in operating expenses and credit expenses. These factors were partially offset by an increase in net effective spread a decrease in preferred stock dividends and the previously mentioned renewable energy investment tax credits. Net effective spread in dollar terms improved quarter over quarter to $87,500,000 from $85,400,000 This improvement was driven by several factors and this includes our proactive equity capital allocation strategy, where we are laddering and layering duration to minimize balance sheet and earnings volatility. The opportunistic redemption and reissuance of fixed rate callable debt at lower market interest rates. A modest improvement in floating rate funding levels, relative to SOFA. And the expanded yield from volume growth in the renewable energy and broadband infrastructure portfolios. As we mentioned on prior calls, our treasury and funding desk opportunistically takes advantage of favorable market conditions.

And this coupled with our disciplined asset liability management positions us very well in changing credit environments to deliver consistent threads across all business cycles. In percentage terms, net effective spread was unchanged sequentially at 116 basis points.

Operating expenses increased 18% sequentially. Largely due to an increase in licensing fees, infrastructure technology costs and higher transactional legal fees that were associated our broadband infrastructure and renewable energy portfolios. As Brad mentioned, we introduced new segment level reporting in fourth quarter twenty twenty four. That reporting framework includes the breakout of our broadband infrastructure [indiscernible] which previously resided within the rural utilities portfolio. And provides the direct operating expenses within each of our new segments. These enhanced segment disclosures reflect our commitment to providing transparency into our portfolios from both a volume and profitability perspective. Operational efficiency was 30% for fourth quarter twenty twenty four. And it was 28% for full year 2024. Both are in line with our long term strategic plan targets. And this is a reflection of our disciplined approach to expense management. And we'll continue to monitor and manage expense growth as we've done proactively against incoming revenue streams. As we discussed on our last call, we are very proud of the on time and in budget completion of our multiyear technology investment. Which modernized our treasury infrastructure positioning us well to mitigate risk increase efficiency and enhance deal flow.

As we look ahead, we remain committed to bringing cutting edge technology and new capabilities to our customers and continuing to invest in ways to build innovative systems that accelerate growth while closely monitoring and managing our efficiency ratio. We expect that ratio to remain at or below a long run average of 30% through our disciplined approach to keeping our [indiscernible] in line with our growth expectations. Turning to credit. Our performance with respect to credit was largely driven by large loans with borrower specific headwinds. As the nature of our credit events and charge offs have historically tended to be idiosyncratic. For example, in 2024, we incurred an aggregate economic loss of $2,500,000 and this was related to a single $14,500,000 agricultural storage and process A portion of this was sold in second quarter twenty twenty four and the remainder is currently under contract to be sold. Our total allowance for losses was $25,300,000 as of 12/31/2024. And this reflects a $3,400,000 increase from 09/30/2024. The increase was primarily attributable to new volume in the infrastructure finance line of business and a single renewable energy loan that was downgraded to substandard during the quarter. Based on our analysis, the issues involved with this substandard loan are borrower specific and are not indicative of any broader systemic risk in our portfolio.

Overall substandard asset volume increased this quarter to $440,700,000 from $4.00 $2,000,000 as of 09/30/2024 primarily due to credit downgrade. Substandard assets represented approximately 1.5% of our total outstanding business volume as of year end twenty twenty four compared to 1.4% of our total portfolio. As of 09/30/2024, and 0.8% as of year end twenty twenty three. Ninety day delinquencies 37 basis points across our entire portfolio. As of 12/31/2024, compared to 51 basis points at the September. A decrease in fourth quarter is a seasonal pattern of PharmaMAX ninety day delinquencies with higher levels generally observed at the end of the first and third quarters and lower levels generally observed at the end of the second and fourth quarter of each year.

This seasonal pattern is due to the annual and semiannual payment dates on the majority of farm and ranch loans. Although we had credit expenses in 2024 that were above historical levels, we have outperformed our peers in how we have navigated a slowing down in the agricultural cycle. Which reflects a strong underwriting and credit discipline. We believe that our total portfolio of loans is well diversified. Our credit profile remains strong overall and that we are well buffered given our strong levels of capital. Let me turn to capital now. PharmaMAX $1,500,000,000 of coke capital as of December 31, 2024, exceeded our statutory requirement by $583,000,000 or 64%. Our Tier one capital ratio was 14.2% as of 12/31/2024 compared to 14.2% as of 09/30/2024, and 15.4% as of 12/31/2023. The year over year decrease in core capital was primarily due to the redemption of the Series C preferred stock in third quarter twenty twenty four. Along with an expansion into more accretive lines of business such as renewable energy. These lines of business do consume additional capital. This was offset by the efficiency that we gained from executing successfully on two securitization transactions. 2024. Our strong capital position has allowed us to continue to grow and diversify our revenue streams.

Remain resilient in volatile credit environments, and allow us to offer a source of long low cost liquidity for our customers and borrowers, even in difficult times. As you read in this morning's press release, we are very pleased to announce a $0.1 per share increase in our first quarter twenty twenty five common stock dividends, to $1.5 representing a 7% increase from the quarterly dividends paid in 2024. We believe that our strong earnings and consistent capital position support this dividend increase. And our overall strategy to achieve a targeted payout that balances a reasonable growth of both previous and future earnings and our expectations for future business volume growth.

We are also very pleased with the execution of our fifth Farm Series transaction in November, which is for the first time our second transaction in a year. We received more than three times the demand for this latest offering. Which is really a testament to Farmer Mac's reputation with institutional investors as well as the overall market appetite for the underlying agricultural asset class. Not only was demand strong, but we were once again able to successfully expand our investor base in both tranches. The consistent Farm Series issuances every year for the last four years have not only built a strong foundation for future market liquidity, but also led to continually improved execution economics and greater servicing for the agricultural mortgage backed securities market. The securitization program remains an important strategic initiative for Farmer Mac. As it allows us to diversify our funding, enhance and optimize balance sheet by efficient deployment of capital. Securitization also enables our growth strategy by targeting new asset opportunities that we might include in our conduit. We are very pleased with the tremendous support we've seen from our customers and investors for this program. And we remain committed to being a regular issuer in the market.

Our liquidity and capital positions remain well in excess of all regulatory requirements. Our projections show minimal change in our profitability. With limited exposure to movements and interest rates where the market rates go up or down. As of year end twenty twenty four, Farmer Mac had two sixty four days of liquidity and we held approximately $1,000,000,000 in cash and other short term instruments in our investment portfolio. We expect to be well positioned in the medium term as we move into the anticipated said easing cycle. And we are confident in our resiliency against potential short and medium term market disruptions.

Once again, our team delivered strong consistent quarterly results. Maintaining key metrics that we highlight on each call while staying within our credit framework. Which emphasizes loan to value and cash flow metrics. Notably, we delivered a 16% return on equity this quarter and an efficiency ratio of 30%, both in line with our strategic target of 30% within the range for return on equity. We believe that our balance sheet is well positioned for market uncertainty. And we are more optimistic than ever to deliver on our long term strategic plan objective. And with that, Brad, let me turn it back to you. Thank you very much, Aparna.

As I hope you've heard, we are very pleased with our 2024 results and believe that we're well positioned to deliver on our multiyear strategy as we head into 2025. With good momentum strong liquidity and capital levels, diversified business mix, highly effective risk management practices and most importantly, a talented team of dedicated professionals. Before I turn to your questions, I do want to comment on the change in administration here in Washington, D. C. As a publicly traded financial services firm, and a government sponsored enterprise We are crystal clear on our enduring mission to increase the accessibility of financing to provide vital liquidity for American Agriculture and Rural Infrastructure, essential parts of The U. S. Economy. We closely monitor regulatory and statutory developments and messaging, And as of right now, we do not anticipate material changes to our business. As a result of the change in administration we will continue to strive to develop deliver on our mission [indiscernible] the economic cycles, as reflected by our financial results over the last several years. Our loan pipeline and capital base are strong and growing. And our revenue is well diversified. Providing capacity for further growth and creating more opportunities for us to enhance shareholder value.

Put another way, we are optimistic about our future. And we'll maintain our singular focus on fulfilling our mission efficiently [indiscernible] and profitably. As we navigate the back drop of a broader market uncertainty attributable to interest rates and policy change. This is how we believe we can continue to differentiate ourselves and deliver value to our customers and the end borrowers of rural America. And now operator, I'd like to see if we have any questions. From anyone on the line today.

Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Your first question comes from Bill Ryan with Seaport Research Partners.

Your line is now open. Thank you. Good morning, Brad and Aparna.

A couple of questions, one starting off at a high level and then one more numbers specific. But last quarter you mentioned that there might be a transformational securitization product coming out in I think we kind of figured out it might be some form of mortgage conduit Could you maybe provide us an update on where that stands right now? How you see the TAM? What the interest level is in the product as well and what kind of fee structure it might have? [indiscernible] Yes. Good morning, Bill, and it's very nice to nice to hear from you.

We're always looking at opportunities to develop new uses for the securitization machine that we've really built at Farmer Mac I think during the last call, we were suggesting that we were working on the possibility of securitizing loans that look a lot like our firm, Ranch Loans, but might be originated by others. And that exploration work, that feasibility work continues with market participants being the primary focus of that work. We also are doing some exploration of the feasibility of securitizing some of our renewable energy loans. At the end of the day, in all cases, we're going to look at The impact on notional profitability as well as return on allocated equity capital. In making any final decisions. And so stay tuned. It's something that you'll continue to hear about during 2025. But there are no pending announcements. [indiscernible] Why don't I turn to Aparna to address your second question?

Hi, good morning, Bill. I think you said you had a numbers related question as well.

Yes, just a number of questions. In terms of the GNX, business, obviously a little bit elevated this quarter. And you talked about deployment of the treasury and cash management system. And some transactional legal fees. Is this could you talk about maybe unpack a little bit like what were the specific components Is this a new level that we should think about going forward, Yes. I think you're right in that we did have an elevated level of operating expenses in Q4 when you compare that to the prior quarters. Also resulted in a slightly elevated level of efficiency ratio. Although staying within our target of 30%. I think it's important to just look at our operating expenses given some seasonality that we see. Particularly in the first and fourth quarters. I think looking at it annually is probably a better metric. But very specifically and as you know, we did have an elevation in our G and A expenses in particular. And one big factor associated with that have to do with our into some of these newer lines of business. Especially our telecom as well as our renewable energy as we continue to grow in these segments, we at least at the start up level, we did experience some additional legal fees.

I wouldn't say that, that is expected to be an endemic level, but you could expect a little bit of volatility there. That was one of the drivers. I would say the vastly larger driver, which I think will moderate over time, has to do with the culmination of our program as we announced in Q4. We successfully completed our STARS initiative. Accompanying that was some, what I would call, one time or lumpy expenses that were associated with the completion of that program that we have to pay contractors for.

So these are the two singular drivers of a slightly elevated, what I would call, call, general and administrative expenses. But what I would note though is all the compensation expenses went up just a tad bit and again that is associated with some level of seasonality We've actually held our headcount well as our operating expenses as it pertains to compensation at [indiscernible] manageable levels, including our headcount for Q4.

Okay. Thank you. I'll get back in the queue. Your next question comes from Bose George with KBW. Your line is now open.

Hey, everyone. Good morning. Actually, I wanted to ask first just about the outlook for spreads. And assuming it looks like rates have hopefully found a range here and the Fed might be on hold. And if that is what happens with rates, Can you just talk about what you'd expect for spreads this year? Yes. Good morning, both. Again, very nice to you too.

I'll offer a few high level comments and then, ask both partner from a funding standpoint and Zach Carpenter from a business segment standpoint to provide some additional color But my observation is that as we're going into 2025, we're seeing a little bit of almost like a competition between The a rate of growth on a notional basis of some of the wider spread businesses, segments such as renewable energy what we're seeing is some accelerated growth in our farm and ranch product, which is lower capital consuming, but also a bit lower in spread. I think in past years, we have provided some caution about net effective spread this being sustained in the high Teens, 115% to 120%. I think we've suggested that it could drop down into 112%, 113%. You kind of see it's held up remarkably well and that's been because in that competition, those higher margin segments experienced a lot of growth this last year. But Zach, maybe you can comment on just kind of how you're saying the development of that between farm and ranch and these other segments going into 20 Yes, absolutely. Happy to First and foremost in Farm and Ranch, the one thing I will note is two things.

Farmers are getting used to the higher rate environment.

Maybe there was an expectation heading to 24 that the rates would come down.

Clearly, given the economic environment, that's not the case. Coupled with a tight agricultural economy, farmers are needing additional liquidity. And they've gotten a little bit used to the higher rate environment. And needing to support working capital and potential growth. And so we're seeing that increased demand in Farmer Ranch even though I'd say overall rates remain higher than 2021 and 2022. And we think that's going to keep pace in 2025.

I'd say in our newer lines of business, we had significant growth in the fourth quarter across corporate ag, broadband infrastructure and renewable energy. Those spreads in the businesses maintained in many businesses increased in the fourth quarter. And given that growth and given the pipeline that we see in these newer lines of business, we anticipate those spreads to maintain around those levels plus or minus a couple basis points here or there. But we don't see any deterioration in the accretiveness of those newer lines of business heading into 2025. The one thing I would comment on produced AgVantage you know, Credit spreads for investment grade counterparties continue to be extremely tight. Which is part of the reason we've seen some declines in bonds in 2024. We've seen some widening and out recently, but nothing significant. So unless we see some more market volatility, we'd anticipate the credit spreads and advantage to remain relatively tight and could be volatile to volumes heading 2025.

Yes.

Apart from anything at funding or how we're managing our balance sheet that has implications for that NES in response to Bozys question.

Yes, absolutely Bose. Let me just tackle your question a little bit retrospectively, but also prospectively. So So you've noted just how we manage our balance sheet and our effective credit. On the funding standpoint, I'll just highlight a couple of things that we think will persist in terms of just how we strategically optimize the balance sheet. Over this past year, we've certainly seen a very interesting yield curve environment, something a little bit more typical in Q3 that allowed us to redeem some of our COLLEAGO issuances and that really helped us actually smoothen out our net effective That was offset by some volatile floating rate funding that we experienced in the first quarter of this year. But again, I highlight these two dynamics because it gives you a sense of just how well hedged our funding strategies are. And as we head into 2025, I think the market was certainly expecting a more rapid easing cycle than what has been communicated by the Fed as we head into 2025. But perhaps one rate cut scheduled for the second half of the year. So as we think about our funding strategy, we mirror that very, very closely with how how our businesses and our business segment outlook persists, and you just heard that from Zach.

We expect to be able to deploy a number of the tools that we have at our disposal. Whether it's our fixed rate callable instrument. So let's just say we see an easing, a faster easing than anticipated that should actually give us a little bit of an asymmetric benefit relative to rate paying flat or trend a little bit higher. And that has to do with the fact that we took advantage and cropped off a little bit of net effective while rates remained high by bringing in more fixed rate callables. So as we head into a what I would call a medium term easing cycle, you should really start to see our net effective spread everything else remaining equal benefit from that hedging strategy that arises from a fixed trade callable strategy. The only other point that I would make, and I think you had alluded to this initially, [indiscernible] what happens if rates stay pretty high? I would say that assuming a flat to perhaps 100 basis point shock on our existing portfolio. You can expect the effect on our net effective spreads coupled with just how we think about our loan portfolio to result essentially in a flat net effective [indiscernible] Yes, that's great.

That's very good detail. Appreciate that. And then actually in terms of on the credit side, you know, as you're moving into higher product spread over time, Is there a way to think about the impact of that on credit over time, the credit loss content? Relative to your historic content on the farm and ranch, core side has obviously been minimal. Is there kind of a way to think about what's I mean, you've noted that a lot of this stuff is idiosyncratic, but is there a way to think about where the run rate could be versus your core farm and ranch where the run rate was so close to zero? [indiscernible] With the With the credits that we're focused on right now that require a bit more attention, substandard, It continues to be pretty idiosyncratic. I think on prior calls, last year, we were talking about some of the stresses with permanent crops and specifically almonds. In California. Well, we have a situation where actually almond prices have rebounded quite nicely. That will kind of play through the system over the next year. It doesn't immediately result in a pickup because of contracts and other factors. And another one and Aparna mentioned this, we have renewable energy project that requires some additional attention.

That had to do with some failure of equipment during construction. It's a situation where we expect that between insurance and contractors, it will get back on track just fine. But in an abundance of caution, we have downgraded that and special provisions. So that's a situation where we could see some reversal. So it continues to be very difficult. To project systemic or sector problem, credit problem, for us. It tends to be kind of one asset at a time. And while the numbers say that we have, we're in a more challenging part of the credit cycle, both ninety day delinquencies as well as sub standards. Are up. At the same time, the situations that we see kind of related to very special situations. So I'm reluctant to provide any guidance on how that very favorable historic experience will be trending up in the future. [indiscernible] there's not current evidence to say yes, we're going to have a problem here or there. It tends to be one at a time.

Okay. That's definitely helpful. Sorry, go ahead. And then if I might just add one comment to what Brad said, which will likely help you as you think about this. And it does point to the fact that we tend to have a more conservative outlook in terms of credit. And this has to do with the way our [indiscernible] So when we start to see volume shifting towards our more accretive lines of business, that also [indiscernible] more expected loss estimates or projections And so that tends to smooth out over time. So that's just something to keep in mind as you're thinking about modeling some of this. It's sort of all guests booked at once and then then we don't have to worry about it. Get the volume in. There is a little bit of Yes, okay, great. Thanks. And then actually one political question, obviously a lot of noise and things happening in DC, but specifically in terms of the renewable renewable energy business. The Inflation Reduction Act obviously provided a lot of funds for that. Are there any indication that there could be changes in sort of how the level of support for projects there? Or just any color in terms of what could be changing in DC relative to that?

Sure. A couple of thoughts on that. First of all, you've had some Reports, for example, of grants being frozen by USDA for renewable energy projects and other things. The projects that we're financing are really not grant dependent. They're more investment tax credit dependent. And so it's important to start out by making that distinction. Where exactly the administration and Congress because it will take a change in tax law, go to tax benefits associated with these projects remains to be seen. But a couple of points. [indiscernible] the projects that we have financed, those credits are locked in. And in their credits, they're not grants. Second, that when you look at Congressional support for tax credit elements of the Inflation Reduction Act particularly as it relates to some of the projects for construction of new energy infrastructure, And and certain types of renewable energy A lot of that money has been spent in traditional Republican districts and it's quite popular. So, I think we're taking a wait and see attitude. We are very much, comforted by the fact that what we have on our books is locked in. And if things change, we can adjust our origination accordingly.

The final point I would make is that these remained huge addressable markets for us. So when you look at the increase in our renewable energy, segment, on a percentage basis, it's pretty impressive. On a notional basis, it's becoming quite impressive. But relative to the addressable market, It's still but a drop. And so we're going to continue to be very disciplined in what we originate. We're going to continue to leverage the relationships that our key professionals have with other industry players to focus on quality projects. And if there are changes in tax law, we will adjust accordingly. We're not in a position where we can't make those adjustments. In a nanosecond if we see something unexpected or negative coming out of tax legislation, for example.

Okay, great. Thank you.

Your next question comes from Gary Gordon. Your line is now open. Okay. Thank you. So I had several questions, most are asked. Just one last one on the loan loss reserve. So you described the credit issues last year as idiosyncratic. And those were dealt with with specific reserves and charge offs. [indiscernible] the reserve was up by about $7,000,000 So question is where do we go from here? Are there this introduced a period of steady or increases or not. I guess maybe I'd put the question as since you've discovered some idiosyncrasies issues is the expectation that that's part of your business going forward? Or was this sort of a catch up the reserve to reflect that things can happen Just trying to think about the extent of the reserve built up last year and what that means going forward.

Yes. I'm going to turn to Mark Crady to give you additional color on this. But let me just first start by saying that for a $30,000,000,000 balance sheet is $7,000,000 additional reserve, is nothing compared to other financial institutions. And it kind of sticks out because it's maybe a bit more for us but relative to other institutions and relative to our credit, our capital, pardon me, relative to our capital. It's extremely, minimal. And I also know that it's very difficult to provide more specific because that these situations do continue to be pretty idiosyncratic. But let me just turn to Mark Mark, maybe you can come off mute. And let me turn to you to provide a little bit more color to help address Jerry's question. Yes. Good morning, Jerry.

First off, I would say, the increasing allowance did not reflect any sort of catch up. I'll talk about the allowance in terms of the entire year of 2024. So the allowance increased by about $11,000,000 $2,000,000 was a Farm and Ranch loan we talked about in the second quarter. Third quarter, we increased the allowance by about $1,000,000 on another Farm and Ranch loan. And then earlier in the opening remarks and Brad mentioned the renewable energy loan that we took $1,400,000 provision in the fourth quarter. So those three together represented $6,500,000 of the $11,000,000 increase for the year. And the remainder represented various other downgrades primarily the results of the agricultural cycle. And then volume growth, we had significant volume growth in our our new corporate segments, which kind of require a bit more capital than Farm and Ranch.

So again, I'll just sort of emphasize it wasn't a catch up in 2024 really continue to be sort of idiosyncratic loans that we saw during the year.

So if we got, let's say, zero idiosyncratic issues this year, reserve wouldn't have to change materially.

I think that's right. [indiscernible] Keep in mind, Gary, that Loan growth is one of the [indiscernible] The other thing though that I want to mention There was a time in my career a long time ago when management had significant discretion on how those were funded. That is not the case today. These allowances are highly challenged and scrutinized by both our auditors, press 1 customers and our we follow very strict formulas that aligned with the classifications of the loans. And the models that we use for allocating allowances when we do new business And is very little discretion in there. So what you see is what you get. And if something reverses, we've suggested that we could see a reversal in this renewable energy loan, for example. If something reverses, it will go down. And if something comes on, it will go up. But we can always point to very specific situations that are the cause of that.

Okay. Thank you. There are no further questions at this time. I will now turn the call over to Brad Nordom, for closing remarks. Thank you, operator, and thank you all for participating. I really do appreciate it. We Learn something, hearing the questions and what's on your mind And to that end, there are follow-up questions, please reach out to Jalpa. We want to be very transparent and thorough and to you. We will host our next regularly scheduled call in May At that time, we'll be reporting our first quarter twenty twenty five results.

And as I said earlier in my comments, we are very optimistic about 2025 and for that reason look forward to having that call with you. In the meantime, all the best for a little bit warmer weather for most of you. And thanks again for your participation.

Ladies and gentlemen, concludes your conference call for today. We thank you for participating in SA. Please disconnect your lines.