Federal Agricultural Mortgage Corporation (AGM) Q2 2024 Earnings Call Transcript

Federal Agricultural Mortgage Corporation (NYSE:AGM) Q2 2024 Earnings Conference Call August 5, 2024 4:30 PM ET

Company Participants

Jalpa Nazareth – Senior Director, IR and Finance Strategy
Bradford Nordholm – President and CEO
Aparna Ramesh – EVP, CFO and Treasurer
Zachary Carpenter – EVP, Chief Business Officer
Marc Crady – SVP, Chief Credit Officer

Conference Call Participants

Bose George – KBW
William Ryan – Seaport Research Partners
Brendan McCarthy – Sidoti

Operator

Good afternoon ladies and gentlemen, and welcome to the Farmer Mac Second Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Monday, August 5th, 2024.

I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Jalpa Nazareth

Good afternoon, and thank you for joining us for our Second Quarter 2024 Earnings Conference Call. I’m Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Farmer Mac. As we begin, please note that the information provided during this call may contain forward-looking statements about the company’s business, strategies, and prospects which are based on management’s current expectations and assumptions. These statements are not a guarantee of future performance and are subject to the risk and uncertainties that could cause our actual results to differ materially from those projected. Please refer to Farmer Mac’s 2023 Annual Report and subsequent SEC filings for a full discussion of the company’s risk factors.

On today’s call, we will also be discussing certain non-GAAP financial measures. Disclosures and reconciliations of these non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on Farmer Mac website, farmermac.com, under the financial information portion of the Investors section.

Joining us for management this afternoon is our President and Chief Executive Officer, Brad Nordholm, who will discuss second quarter business and financial highlights and strategic objectives, and Chief Financial Officer, Aparna Ramesh, who will provide greater detail on our financial performance. Select 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 Nordholm. Brad?

Bradford Nordholm

Thank you, Jalpa. Good afternoon, everyone, and thank you very much for joining us. Our focus on stability, profitability, and growth has once again produced consistent results. Our underlying business model, strong capital position, and uninterrupted access to the debt capital markets throughout the full range of market cycles, uniquely position us to partner with our customers to help them grow and manage any capital and liquidity risks they might face. The foundation of our strategy is our consistent financial and operational execution, coupled with proactive management of our balance sheet and funding sources. This has positioned as well in all environments and is expected to continue to create more opportunities for enhanced shareholder value through our mission fulfillment.

During the quarter, we closed $1.5 billion of new business. Approximately 70% of the new volume consisted of higher spread longer-term loan purchase volume across all of our segments. Our total revenues in second quarter 2024 improved $2.4 million over the same quarter last year to $89 million. As the compositional shift of new business volume towards higher spread loans resulted in higher net effective spread and our operating efficiency level was 27%, better than our long-term target of 30%, a reflection of our disciplined approach to expense management.

Core earnings were lower relative to second quarter 2023, primarily due to the partial charge off of a single permanent planting loan. Excluding the impact of credit expenses, core earnings were $45 million, which is an increase both sequentially and year-over-year. As we’ve mentioned on prior calls, the nature of our credit events and the charge-offs have tended to be idiosyncratic. We believe that our credit profile remains strong in the aggregate and that we would be able to withstand significant shocks given our strong levels of capital.

Turning to our portfolio, loan purchase volume growth was strong in the renewable energy and farm and ranch segments, reflecting borrowers’ adjustment to the current interest rate environment. We purchased more renewable energy loans in the first half of 2024 than in all of last year, reflecting the continued strong demand for renewable power generation and storage, as well as the continuing expansion of our team. Outstanding volume in the renewable energy segment has more than doubled since the second quarter last year, and our pipeline remains very strong heading into the second half of the year.

As previously mentioned, renewable energy loans are aligned with our mission while being accretive to revenues and net effective spreads relative to our other eligible loans. Within our farm and ranch segment, we closed $700 million in new farm and ranch loan purchase volume in the first half of this year. That compares with a total of $780 million in the full year of 2023. We believe we will see this positive momentum continue to the remainder of the year as tightening bank liquidity and an adjustment to a higher rate environment with a near-term expectation of Federal Reserve Bank policy easing has taken hold.

The forecasted decline in farm income relative to prior years is expected to drive more long volume, including potential pool purchases like the one we acquired earlier this year. We are incredibly pleased to see strong momentum in the farm and ranch segment. It is a segment that is core to our mission and growth in this segment continues to propel our securitization program where we have seen strong investor demand. As we discussed on our last earnings call, we closed our fourth FARM series securitization transaction in the second quarter, and we’re currently working on our fifth transaction for some time potentially later this year.

We are very pleased with the tremendous support we’ve seen from our customers and investors for this program and remain committed to being a regular issuer in the market with a set of securitization products that align with both our and investor interests. As we look ahead, we are likely entering a period of macroeconomic level volatility. Farm income is projected to trend downward, but that coupled with possible Fed policy easing, might create loan purchase opportunities for us in our farm and ranch segment.

We continue to serve as an attractive financing alternative for our wholesale counterparties in addressing their liquidity needs. But we have seen and expect to continue to see business volume and AgVantage Securities to be volatile due to slower market loan growth and a tightening of credit spreads resulting in reduced liquidity needs from our counterparties. While volatility is expected in the short term, over time we do anticipate further growth in our AgVantage business volume given the relative value of this product for our counterparties.

I’m very pleased with how we are executing this company and what continues to be an uncertain economic credit and interest rate backdrop. We are maintaining our disciplined asset liability management, uninterrupted access to capital markets and a strong capital base while producing a double-digit return on equity of 16%. Excluding the credit expense, our return on equity was 18%. The overall earnings story continues to be consistent. The diversification into revenue streams, particularly renewable energy, and our other newer business portfolios.

And the resilience of our business model supports our long-term strategic growth objectives, while also providing a buffer against market volatility and a changing credit environment. As we look forward, we’re encouraged by the momentum we’ve seen since the start of the year. We believe that we are well-positioned to make continuous progress on our long-term strategic growth initiatives to further our mission efficiently and innovatively, as we navigate this backdrop of broader market uncertainty.

And now with that, I’d like to turn the call to Aparna Ramesh, our CFO to discuss our financial results in more detail. Aparna.

Aparna Ramesh

Thank you, Brad, and good afternoon, everyone. Our second quarter 2024 results highlight our consistent financial and operational execution that, coupled with proactive management of our balance sheet and funding sources, have resulted in outstanding business volume of $28.8 billion as of June 30th. This represents a net decrease of $88.9 million from March 31, 2024, largely due to scheduled maturities and repayments in the agricultural finance line of business.

During the quarter, $785 million in farm and ranch AgVantage Securities matured without refinancing, reflecting counterparties evaluating their liquidity needs amid the ongoing market dynamics. Changes in the quarterly AgVantage Securities volume are primarily driven by the larger transaction sizes for the product. Scheduled maturity amounts for a particular quarter, the liquidity needs of Farmer Mac Advantage counterparties, changes in the pricing and availability of wholesale funding, and the relative value of our wholesale financing products versus other funding alternatives.

Based on all these factors, we expect advantage business volume in both lines of business to continue to be volatile as we navigate the evolving needs of our stakeholders. While volume declined on a net basis, there was strong activity in our farm and ranch and our renewable energy segments. The activity in those two business segments included strong loan purchase volume, which is generally more accretive and higher spread relative to AgVantage Securities. This high spread business volume drove the quarter-over-quarter increase in NES.

Core earnings were $39.8 million or $3.63 per share in second quarter 2024, reflecting a $3.6 million decrease sequentially and a $2.4 million decrease year-over-year. The sequential and year-over-year change in core earnings was primarily due to a $6.2 million provision to the total allowance for losses. That provision was primarily attributable to a single permanent planting loan that is in bankruptcy and this resulted in a $3.9 million charge off to reflect the amount we have deemed uncollectible. The other factor is the increase in loan volume related to renewable energy loan purchases.

Core earnings, net of credit however, increased by 7% sequentially and 4% year-over-year, offsetting the impact of the higher provision and higher funding costs this quarter with an increase in net effective spread and as noted it was driven by the compositional shift in new business volume to higher spread products. We did see an increase in funding costs from the opportunistic issuance of debt at advantageous rates, which we did in advance of funding needs.

As we’ve mentioned on prior calls, we achieved record levels of net effective spread over the course of 2023, as we benefited from the rapid rise in short-term rates and by reinvesting excess capital, we generated additional return from an upward repricing of our short-term investment portfolio. The capital and debt that we raised proactively and opportunistically when rates were at historical lows in 2020 and 2021, positioned us well throughout the rising rate environment and ongoing market uncertainty. But at the time that we raised that capital, we did see a reduction in earnings.

In a similar fashion, we have now made a decision to opportunistically lengthen the tenor of our liquidity investment portfolio, as part of our overall balance sheet management strategy and to mitigate volatility from decreases in the rate environment. While we might sacrifice some short-term earnings from keeping the investment portfolio short, as we move into the anticipated FED easing cycle, we expect to be well-positioned in the medium term. We also executed on some attractive opportunities in the first quarter to increase our debt issuances, and we expect to reap those benefits, as well as business volumes start to accelerate.

Offsetting some of these increases in funding and liquidity expenses was a strategic sale of investment securities that yielded a gain of $1.1 million. The sale of these securities was done to rebalance the liquidity investment portfolio to align with the current level of business volume activity, while allowing us to test the market and our portfolio for contingent liquidity. Even with the sale, we remain highly liquid. As of June 30th, we held approximately $900 million in cash and other short-term instruments in our investment portfolio.

Another factor driving our earnings results this quarter was the sale of a portion of a corporate ag finance, agricultural storage and processing loan. The decision to sell a portion of the corporate ag finance loan that resulted in a loss of $1.1 million during this quarter was really to reduce the overall exposure to the borrower due to an updated credit profile. After the sale of this loan, the borrower restructured its credit facilities and addressed the short-term headwinds.

Farmer Mac’s exposure to that loan was $7.4 million as of June 30, 2024. Market valuation of this particular exposure has since improved given the restructuring. Our liquidity and capital positions remain well in excess of all regulatory requirements, and our projections show minimal change in our profitability and limited exposure to movements and interest rates where the market rates go up or down. As of June 30, 2024, Farmer Mac had 283 days of liquidity, which is another important data point that validates our expected resiliency against short and medium-term market disruptions.

We project flat to higher earnings if rates decline in the future due to our proactive capital allocation strategy where we are laddering and layering duration to minimize volatility. These are practices, as we’ve noted previously, that are consistent with our disciplined asset liability management approach, which is designed to help minimize earning volatility over the medium to long term. Despite macro headwinds and widening credit spreads that have affected many primary issuers of debt securities recently, we continue to see strong access to debt capital markets and a flight-to-quality investments. These factors, coupled with opportunistic debt issuances, allow us to be very well positioned to creatively fund new asset opportunities as they arise.

Operating expenses declined by 10% sequentially, primarily due to a decrease in consulting costs related to technology strategic initiatives. Operating expenses increased 2% year-over-year, primarily due to increased headcount and increased stock compensation expense. Operating efficiency was 27% for second quarter 2024, which is better than our long-term strategic plan target.

We will closely monitor our efficiency ratio and manage it such that we expect to remain at or below a long-run average of 30%. As we make investments in our loan infrastructure and funding platforms and continue to innovate our loan processes to accelerate growth, we plan to be disciplined in keeping our efficiency ratios in line with our growth expectations. As of June 30th, 2024, the total allowance for losses was $18.6 million, reflecting a $2.2 million increase from March 31, 2024. Increase was primarily attributable to a single permanent planting loan that is in bankruptcy, which resulted in a $3.9 million charge-off to reflect the amount we have deemed uncollectible.

The remaining $2.2 million provision, as noted previously, was a result of new business volume and higher yielding segments. Based on our point-in-time analysis, it’s important to note that we do not believe that the charge-off on this one loan is indicative of a broader set of systemic risks within our portfolio. But we continue to closely monitor climate and weather-related effects on commodity prices and corresponding land valuation, especially across certain regions that have experienced drought.

Our overall credit profile continue to be stable across our agricultural and rural infrastructure portfolios through second quarter 2024. And this is reflective of our rigorous credit policies and diligent underwriting practices. 90-day delinquencies as of June 30th, 2024 reflect 22 basis points across our entire portfolio compared to 17 basis points in the same period last year.

Turning now to capital, Farmer Mac $1.5 billion of core capital as of June 30, 2024, exceeded our statutory requirement by $626 million or 71%. Core capital increased sequentially, primarily due to an increase in retained earnings. Our tier 1 capital ratio, as of June 30, 2024, slightly decreased to 15.3% from 15.4% at year end. On July 18, 2025, we redeemed 75 million of series C preferred stock, which on its own will be accretive to core earnings beginning in the third quarter, all other factors being equal.

We considered several factors prior to making this decision, including a robust capital position, a securitization program, dividend strategy, and the recapitalization that has come from consistent earnings growth. Our levels of capitalization have remained strong and, as noted, exceed all regulatory requirements. Maintaining credit standards that reflect our risk profile coupled with strong levels of capital is a fundamental part of our long-term strategy.

We expect a strong capital position to allow us to grow in more capital-intensive segments, enable us to remain resilient in volatile credit environments, and allow us to offer a source of low-cost liquidity for our customers and borrowers, even in difficult times. In conclusion, our entire team delivered strong quarterly results, maintaining the 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, 18% excluding the credit expense. And we also stayed below our efficiency ratio target of 30%.

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 objectives.

With that, Brad, let me turn it back to you.

Bradford Nordholm

Thank you, Aparna. As we’ve attempted to highlight one more quarter for you, our business model is resilient and diversified. Our balance sheet is very healthy, and our team is as committed as ever. We operate with high capital levels, and we are well positioned to deliver earnings growth and strong profitability for the remainder of 2024. We’ve emphasized that our ability to issue long data fixed rate debt in all rate environments, bolstered by a growing securitization program is a core competitive advantage.

That advantage, combined with our diversified revenue strategies and our disciplined approach to asset liability management, has resulted in consistent spreads across all business cycles, including the second quarter of 2024. And now, operator, I’d like to see if we have any questions from anyone on the line today.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from the line of Bose George from KWB. Please go ahead.

Bose George

Everyone. good afternoon. I wanted to ask about, actually, Aparna, you made a — you stated that you expect flat to higher earnings, as rates go down. I was curious, are you expecting flat to higher spreads as well, or is this the combination of spreads and volume growth?

Aparna Ramesh

Yeah, that’s correct. Both, as you know, we stress test our balance sheet on a monthly basis in terms of exposure to nominal interest rates. And so when we sort of head into a — what I would call a Fed easing cycle. You know, what we see is a, I would say a marginal improvement in our net effective spread in terms of just margin. If you go back, I’ll just give you a couple of data points. If you go back a couple of years, you probably would have seen levels of net effective spread that are very similar to where we’re at right now.

What we’ve talked about relative to some of the run-ups that we saw in our spread last year had to do with our exposure to our investment portfolio staying pretty short. And by lengthening that, we certainly started to slowly give up some of those gains that we picked up last year. So most of that, about 4 basis points or so, is driven by funding. And the funding dynamic is such that it’s likely to reverse both in terms of spread but also earnings, as we start to move into a Fed easing cycle.

You know, just to expand a little bit on that, you know, just in the past month we’ve seen the 10-year treasury come down by close to 50 basis points. And so as we’ve lengthened our investment portfolio, we will start to see the benefit of that because that’s really locked in over the medium to long-term. On a spread basis, it’s really hard to project exactly how much that’s going to be because that’s going to depend just on the compositional shift overall in terms of our asset portfolio, but everything else remaining equal. If you were to just extrapolate from where we are today and account for that dynamic, you should see a pickup both in terms of earnings as well as in terms of just NES spread.

I’ll just mention one more thing, and that is, we did see a little bit of what I would call a deceleration in our spread because we funded in advance of earnings, but I’m sorry, in advance of volume. So we should really start to see a little bit of a pick up there as well, but it’s hard to predict exactly when that might occur.

Bose George

Okay, great. That’s helpful. Thanks. And I wanted to ask also just about the mortgage loan, not the charge of fund, but the one that was sold during the quarter. What’s the status of that? How did the borrower, what work was done with the borrower for them to be current and just comfort in that loan going forward?

Bradford Nordholm

Yeah, Bose, this is Brad. And nice to have you on the call. I’ll turn to Zach Carpenter to give you a little color on that decision process. Of course, hindsight is always a wonderful thing to have.

Zachary Carpenter

Yeah, thanks, Brad. Yeah, in this specific situation, the borrower is heading into 2024 with some industry headwinds. They had some adverse events in some of their manufacturing facilities. And given kind of that overall view of that specific situation, we decided to tactfully reduce our exposure to what I’d say is more palatable level, given that increase in risk. Post that sale, the borrowers able to restructure its facilities with 100% lender support and has completely rectified those adverse situations in its manufacturing plants.

In addition, we see some easing in the industry headwinds it was facing last year. So we feel comfortable with our exposure currently and we feel optimistic that this individual borrower is moving in the right direction from an industry perspective as well as an individual manufacturing facility perspective.

Bose George

Okay, great. Thank you.

Operator

Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead.

William Ryan

Good afternoon, Brad and Aparna. First question, just on the loan that you had the charge off on of $3.9 million, if you can maybe talk a little bit more color about the nature of the loan, what makes it idiosyncratic relative to the rest of your portfolio? Maybe was it an older loan? And then I also know you have a history of recognizing charge-offs, and then somewhere down the line, you end up posting recovery. So has this loan fully resolved, or is it still kind of going through a process?

Bradford Nordholm

Yeah, again, great to have you on. And I’m going to turn to Marc Crady to give you a little color on some of the additional analysis we’ve done relative to sector exposure but what made this one abet unusual really two things. One is that you know we’ve been closely monitoring the drought in California the last four years, extensive analysis about all of our borrowers the sources of water they have whether they have multiple sources of water et cetera, et cetera and I hope that you know you felt that we gave you know a lot of insight into that and our work to stay on top of it.

It’s a bit ironic, but this power actually suffered from too much water this last winter is that moisture cycle kind of reversed itself. And more specifically a lot of their plots were in areas in the delta country in California where the combination of rising groundwater from the recharge as well some issues with salinity resulted in the roots of the grows frankly rotting and that’s something that you couldn’t even see months in advance it happened very, very quickly

So it was marginally located land and frankly, operator that in retrospect made some decisions that were, you know, frankly, the wrong decisions. So that’s why we are characterizing this as idiosyncratic. We do not feel that our permanent crop portfolio has other issues, including systemic issues associated with that. Let me just turn to Marc to give you some insight into the analysis we’ve done to get to that conclusion as of today.

Marc Crady

Yeah, I’ll start out by talking about this loan in particular. It turns out this borrower was a poor operator. That happens on occasion. Brad mentioned that this borrower had a number of acres in what I’ll describe as poor growing regions, ironically too much water instead of not enough in this past last six months or so. In addition, this borrower was in bankruptcy. And as part of that bankruptcy, there was an auction that was held under a pretty tight time frame your view is that that tight time frame they have suppressed you know buyer interest and potentially have reduced sale prices.

And the borrower was a relatively large producer and many thousand acres were put on the market all at once you know had we you know had a little more input into the way that auction would have been held, we would have sort of you know had those acres sort of sold over time rather than all at once. And Bill I’ll address your question around the charge off and we have had a history of where we charged and then recovered. In this case we don’t think that’s going to happen. As part of the most recent sale of land, about 90% was sold, not all of it, but about 90%.

And so we have pretty good insight into where we think our recovery is going to be and therefore we decided to take a charge rather than an allowance. And so given a lot of those issues that I mentioned, we don’t think this sale is representative of other situations in our portfolio, but of course we’re keeping a close eye on all that.

William Ryan

Okay, thanks for all that detail. And then one follow-up question for Brad. Just update on the farm bill, if you will. I’ve been reading that its passage looks like it’s unlikely in 2024 and that the 2018 version is likely to be extended. Is that the case that you are reading it now or might there be any modifications to the 2018 bill?

Bradford Nordholm

Yeah, well, first of all, our current business does not depend on changes to the farm bill. As we’ve discussed, the couple, two, three matters in which we’re potentially pursuing some changes as we envision them would be potential upsides to our business, but we really haven’t baked that into our 2024 or even 2025 plan at this point. Is it relates to where is the farm bill? It sounds like you’ve been staying abreast of it and are reading many of the same things we are.

Todd Batta, of course, is spending a lot of time on Capitol Hill, but you’re correct. Getting debate scheduled, much less agreement coming out of the senate version with – and their ability to release a draft bill. It just hasn’t happened and frankly it’s unlikely to happen, is our analysis between now and the election. There is a slight possibility that depending on the outcome of both the Presidential Elections, as well as control of the house and the Senate, that there’s a window between the election and the inauguration and the seating of the new Congress, when it actually could get some floor time and possibly be pushed through, that would be a scenario under which Republicans don’t feel that they’re going to sweep or control all three institutions. But of course, that remains to be seen.

So our attitude right now is to continue to stay abreast of what’s going on with both the House and the Senate committees. We’re not expecting anything new out of them right now. To stay in touch with the various parties interested in what we’re pursuing and frankly, what we may be interested in what they’re pursuing. And to be prepared to answer questions and support any actions if that window does open up between the election and the inauguration. Otherwise we’re resigned. This will be 2025 and probably well into 2025.

William Ryan

Okay. Thanks for taking my questions.

Operator

Your next question comes from the line of Brendan McCarthy from Sidoti. Please go ahead.

Brendan McCarthy

Hey, good afternoon, everybody. Thanks for taking my questions. I just wanted to start off at the corporate ag finance loan that was sold. I think it was a $1.1 million loss. I believe you mentioned it was due to borrower concentration, but just wondering if you can walk us through that process and if you feel there are any other borrower capacity concerns in the portfolio.

Bradford Nordholm

Yeah, certainly, you know, it’s an interesting one because here we have a situation where we have the secondary market, an active secondary market for the loan. So that gave us an ability based on analysis at the time to sell, albeit at a loss. But I’ll turn to Zach for a little bit more color on why we were holding a particular level of exposure that we ended up wanting to sell down and why we’re comfortable today as well.

Zachary Carpenter

Yeah, thanks, Brad. So I want to say that for this individual borrower, we were not comfortable at the origination of this loan at the concentration level. As we move forward and understood more about some of the industry headwinds and borrower specific headwinds this individual obligor was facing, we felt it prudent given there was a liquidity market to sell this loan to bright size our exposure knowing that there was some individual borrower issues that they were facing.

So I think we felt tactical to potentially mitigate any further deterioration that this borrower may have by reducing our exposure to what we felt was a more palatable level at the time. Post that sale, as I mentioned, the borrower has restructured his credit facilities, is experiencing better industry dynamics and has rectified the individual issues it was facing at some of its manufacturing plants.

So I think we’re optimistic that the outcome here could be improved in the future. We’re comfortable with our exposure level. And we thought at the time it was just prudent to mitigate some further deterioration. In terms of the second part of your question, any additional borrower concerns or concentration, we actually feel pretty confident with our corporate ag portfolio that it’s risk managed appropriately. We have updated risk ratings on a quarterly and annual basis, and we don’t see any other individual concerns at this time.

Bradford Nordholm

I might just add that, you know, for our exposure levels, we actually have very refined kind of matrix guidelines that are based on the sector and risk ratings that we fall for maximum exposures. This loan did not exceed those maximum exposures. There were no policy or regulatory concerns associated with this, it just came down to judgment one day about what we thought was the right thing to do.

Brendan McCarthy

Thanks, that’s helpful insight. One more question, just looking at the farm and ranch outstanding volume, apologies if I missed this, but what really drove the sequential decline there from the first quarter of this year?

Bradford Nordholm

Yeah, I could take that one. So in the farm and ranch line of business, the big decline in volume was the maturity of large AgVantage bonds that took place during the quarter. I’ll just highlight the driver of growth and decreasing growth and AgVantage really is dependent on our counterparties that we work with, which are large farm and ranch originators. As loan growth at those counterparties slows, the need for liquidity to support that growth also slows.

What we saw over the last, I’d say, three months was a deceleration of growth at certain of these counterparties, and thus they did not need to refinance those maturing bonds. So as we navigate this environment with tightening credit spreads, loan growth, dynamics, we may see some volatility in refinancing some of those maturing bonds. Albeit, we still believe this product is a strong relative value to other funding sources, and as growth picks up, we expect to see potential growth opportunities arise.

Aparna Ramesh

Brendan, just something to add here. I think we’ve talked to you, you know, on previous calls as well as offline that, you know, in 2020 we certainly saw some volatility in the AgVantage portfolio and a lot of this has to do with what other sources of funding opportunities are available to those counterparties and where we want to be on the pricing curve. I think, Zach, in the business development team had made some strategic decisions then, which actually have come to fruition now.

So on a relative value basis, what we offer those counterparties is still really good value. So I think, you know, we don’t obviously know where the projections are headed, but I think Zach encapsulated that well. We foresee that to start to stabilize over time, but we just don’t know that.

Brendan McCarthy

That makes sense. I guess that includes potentially lower interest rate environment. You still see the value proposition of that business remaining favorable.

Aparna Ramesh

Yeah, absolutely. And that comes back to our funding advantage. And that’s – you know, you hit the nail on the head. That’s exactly right. So as rates start to come down, relative value proposition of what we might offer given our funding dynamics start to improve. So, you know, that’s just something to consider as well. Not making any projections, but that’s just another [diamond] (ph).

Brendan McCarthy

Yeah, that’s helpful. That’s helpful. Thanks, Aparna. One more question, if I may, just out of curiosity, looking at the outlook for renewable energy, volume growth, there seems really solid. Just curious as to if you think that outlook may change if there were to be a change in presidential or I’m sorry in the administration as a result of the US presidential election?

Bradford Nordholm

Yeah, it’s an interesting question because we could see policy changes in Washington with an election of President Trump, for example. Right now, our market share is tiny and it’s probably the largest addressable market we have. One of the nice things about our positioning is that the federal tax incentives for renewable energy are all available and put in place at the time a deal closes.

So for the existing portfolio, we don’t have any concerns about deteriorating quality because of a change in federal policy, and that’s really important to emphasize. In terms of growth rates, we’ve been putting in place additional teams, additional resources, and you see a direct response of that to growing levels of origination, both on a percentage basis, as well as a notional dollar basis. And that’s our near-term expectation here, that we’re going to continue to grow this.

It’s going to provide us opportunities in the future of potential additional types of securitization opportunities. You’ve seen the very positive accretive NES, including accretive NES on a capital adjusted basis. So, it’s something easy for us to commit to continue growing. If there is a change in policy in Washington that it would result in slowing down, it’s also something that we can just slow down very easily without any negative consequences to the portfolio. But right now, it’s a good opportunity and it balances out the increases in volume for new farm and ranch originations, and overall stability in other areas of rural infrastructure.

So we’re very happy with where it is, keeping an eye, of course, on federal legislation changes that could come about.

Brendan McCarthy

That’s helpful. Thank you, Brad. That’s all from me.

Operator

Your last question comes from the line of Gary Gordon. Please, go ahead.

Unidentified Analyst

Hi, thanks for taking the question. Two questions on the charged-off loan. One is, my understanding is the general loan-to-value ratio you do is around 55%. This implies the charge-off implies some material decline in the value of that land. If you could add some color to that. And then two, you mentioned that you seem to have not as much control as you wanted, about the bankruptcy process, as the first mortgage lender, so what are your rights there? Is this normally what happens, that you wouldn’t have as much control or is there something unusual here?

Bradford Nordholm

Yeah, those are both really, really astute questions, Gary. You know, on the first, imagine that you have a permanent crop land that is improved, that has an orchard of almonds, for example, and imagine that in a period of just a couple of months, the water situation results in the death of all those almond trees, leaving you with bare land. So that’s how you navigate from what appears to be a modest loan to value to one, that actually could result in one with a loss.

In terms of the second part of the question with the control, Marc, maybe you can take Gary through kind of a discussion of where we were relative to other lenders in the size of the facilities.

Marc Crady

Yeah, I think that’s the first thing to note, Gary, is that we were part of a bank group, and we were a relatively small part of the bank group. I mentioned that borrower with a large producer, lots of acreage. We were a small part of that. And so other lenders had a voice and a view on the bankruptcy process. And so that’s why it played out the way it did.

Bradford Nordholm

To give us perspective, I think the largest [vendor Marc] (ph) was over $100 million.

Marc Crady

Yeah, that’s right. We were about 10%, I would say, round numbers of the overall bank facility.

Unidentified Analyst

Okay, got it. Thank you very much.

Operator

Your next question is from the line of Bill Ryan from Seaport Research Partners. Please go ahead.

William Ryan

Thanks. Just a follow-up for Aparna. I was looking at the NES in the corporate ag finance business went from 205 basis points down to 191. I’m kind of guessing that might have related to the charged off loan, but anything you could call out there would be helpful.

Aparna Ramesh

Yeah, absolutely. There’s some non-accruing portion that has sort of built up, And so that’s exactly right. That is one of the drivers. And just the sale that we talked about, that’s a component of having reduced our exposure within the corporate ag portfolio just on an NES, from a math perspective. That’s been the largest driver, I would say, of that sequential decline.

William Ryan

Okay, thanks.

Operator

There are no further questions at this time. I’ll hand the call over to Brad Nordholm for closing remarks. Sir, please go ahead.

Bradford Nordholm

Good. Well, thank you. And thank you again, everyone, for joining us today. Good discussion, good presentation. As always, if you have follow-up questions, please get in touch with Jalpa. Otherwise, we look forward to speaking with you at our regular schedule call in November and hope that you have a terrific completion to the summer and in early fall. Hopefully these markets will show some stabilization in the next few days. But again, thank you very much and good day.

Operator

Ladies and gentlemen, this concludes today’s conference. Thank you very much for your participation. You may now disconnect.