Good day and welcome to the Farmer Mac's First Quarter 2020 Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.I would now like to turn the conference over to Brad Nordholm, President and CEO.

Please go ahead..

Good morning. I’m Brad Nordholm and I’m very pleased to welcome you to Farmer Mac 2020 first quarter investor conference call. Before I began, I need to ask Steve Mullery, our General Counsel to comment on forward-looking statements that management may make today, as well as on Farmer Mac's use of non-GAAP financial measures..

Thanks, Brad. Some of the statements made on this conference call maybe forward-looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance.

And we may not be obligated to update these statements after this call.We caution you that forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from the results expressed or implied by the forward-looking statements.

Evaluating Farmer Mac you should consider these risks and uncertainties as well as those described in our 2019 annual report on Form 10-K filed with the SEC in February as updated to discuss risks related to COVID-19 pandemic, and our quarterly report on Form 10-Q filed with the SEC yesterday.In analyzing its financial information Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with generally accepted accounting principles of United States, also known as non-GAAP measures.

Disclosures and reconciliations of Farmer Mac's non-GAAP measures can be found in the most recent Form 10-Q and earnings release posted on Farmer Mac's website, farmermac.com under the financial information portion of the Investors section.A recording of this call will be available on our website for two weeks starting later today..

Steve, thanks very much. And good morning to everyone. Early morning, I would note and thank you for joining us. I'd like to start by recognizing that this is really an extremely challenging time for all of us. And our thoughts are especially with those most affected by COVID-19, particularly those on the frontline of this crisis.

At Farmer Mac our immediate priorities are to support American agriculture and rural communities, and to provide a safe, secure work environment for employees.I believe that if we focus on these priorities, such as the financing of producers and processors approved on the front line that can and will be a positive for us and helping nation get through this terrible pandemic.

I'm happy to report that Farmer Mac has been successfully operating uninterrupted with 100% of our employees working remotely.And we've been doing that since March 12th. Like all businesses, our leadership team has challenged ourselves to communicate and collaborate in new ways. And we've been successful, I think.

Our business continuity plan has been functioning as designed in supportive all functions of the organization. And recent investments in technology have allowed us to stay in communication within our organization and with our customers and our suppliers.Our Board has also remained very active in its oversight role.

They've done that through weekly teleconference meetings. And we have been working effectively and cooperatively with our regulators and our capital market investors to help ensure the continued safety, liquidity and soundness of Farmer Mac.Let me now turn to results.

Our strong underlying fundamentals and resilient business model has really enabled us to successfully continue operations and execute on our mission. We provided $1.3 billion of new credit to rural America that ultimately is to people in the first quarter of 2020.

The challenges presented beginning in March 2020 required Farmer Mac to respond dynamically.We've pivoted our customer outreach approach and finetune some of our products in order to continue fulfilling our mission.

In a few minutes, Zack Carpenter is going to go into more details on how we've done that.Our access to capital markets has remained strong despite the ongoing market volatility.

We have continued to issue debt on a daily basis and to maintain our discipline, asset liability management policies and practices that have long been in place.We have remained well capitalized with a strong liquidity position that has been at or above $1 billion for most of the last couple of months.

This strong liquidity position enables us to meet any unexpected cash flow need with minimal operational disruption.

As we have previously noted, we indefinitely suspended our $10 million share repurchase program in early March, to reserve capital on liquidity and as additional precautionary measures.Turning to credit, this economic seasonal uptick and delinquencies in the first quarter, our product quality has remained healthy.

We have maintained the same consistent underwriting guidelines for credit approvals and are closely monitoring impact of COVID-19 on new applications.While we are not subject to any regulatory requirements that would require forbearance of loan payments, we are working closely with those borrowers that have been impacted by COVID-19 and we've been providing flexibility on payment terms to them as needed.More specifically, we have approved 71 payment deferment requests related to COVID-19 through May 1 with the total principal balance of $78.9 million, that's less than one half of a percent of outstanding credit.

We do expect to see an increase in these deferment requests over the next quarter and we're continuing to work closely with our services to provide appropriate relief to impacted borrowers.We remain focused on serving the needs of our rural customers.

And are challenging ourselves to find more efficient and effective ways to provide our customers with the flexibility and assistance their borrowers need to adapt to this new norm.While we acknowledged uncertainty and a broader distribution of possible outcomes in the future, we know we will remain steadfast in our commitment, maintain the availability and flow of credit to American agriculture, and to rural communities.And with that introduction, I'd like to now turn to Zack, our Chief Business Officer to give you an update on customer and market development.

Zack?.

Thanks, Brad. In the wake of this unprecedented global pandemic, we know that companies around the world are enacting new measures to ensure that they continue to offer their services, but even more importantly to protect the wellbeing of their customers and employees.

Well, we have transitioned alternative operation, our team continues to work diligently to remain flexible and adaptable to meet our customers' financing needs and help mitigate any challenges their borrowers may face.To that end, we have taken specific steps to support our customers during this time.

These initiatives include, loan closing flexibility and extended rate lock optionality for approved loans to provide customers the ability to navigate challenges due to office closures and social distancing requirements.Continuing to offer competitive prices for all available Farmer Mac products and risk management solutions.

Given our ability to manage continued and uninterrupted access to the capital markets during this volatile environment.As well as providing a rural borrowers impacted by the pandemic for principal and interest payments as well as supporting customer deferral or requests for loans backing guaranteed securities and long-term standby purchase commitment products.We will continue to assess and incorporate initiatives that allow Farmer Mac to serve our customers, rural borrowers and rural America as a stable source of capital during this unprecedented environment.Now turning to business volume.

2020 is off to a good start for Farmer Mac, as all four lines of business contributed to net outstanding business volume growth of $421.4 million this quarter.

This reflects loan purchase net volume growth in Farm & Ranch, USDA and rural utilities of a combined $303.3 million, which is partially offset by a sequential decrease in net growth in long-term standby purchase commitments and guaranteed securities of $137.8 million.We also saw increases in institutional credits, which grew $255.9 million largely driven by our ability to provide short term liquidity for two of our largest counterparties during the most volatile capital markets environment during the month of March.

This growth is a testament to Farmer Mac's ability to be competitive in price while also being effective in execution to meet the needs of these customers.In our rural utilities lines of business, loan purchase net volume grow $118.4 million in the first quarter of 2020 compared to $490.3 million in the same period last year.

It is important to note that loan purchase net volume growth in the first quarter of 2019 included one large unique transaction, the purchase of a $546.2 million portfolio of participations and seasoned rural utilities loans from CoBank.Excluding the impact from the unique CoBank transaction Farmer Mac's loan purchase net volume decreased in the first quarter of 2019.

The strength of growth during the first quarter of 2020 reflects steady loan purchase demand from CoBank and their other primary counterparty in the rural utilities line of business, National Rural Utilities Cooperatives Finance Corporation.Loan purchase net volume growth in our foundational Farm & Ranch and USDA lines of business was $184.9 million for the first quarter of 2020 versus a net volume decline of $64.7 million for the same quarter in 2019.

The strong first quarter of 2020 primarily reflects the results of Farmer Mac’s customer acquisition and retention initiatives, competitive interest rates across our product set and efficient and effective loan approval and on-boarding execution by our underwriting and closing teams.Farm & Ranch loan purchases had net volume growth of $142.1 million during the quarter, overcoming one of our largest prepayment quarters of over $260 million primarily related to the January 1st payment date, as well as increased scheduled principal amortization levels given our largest portfolio.Looking ahead, our pipeline remains robust as we continue to build upon a more dynamic and responsive business model that has transformed the way we deliver upon our mission and improved customer satisfaction, volume retention and penetration in existing and new markets.As I've mentioned on prior calls, enhancing our infrastructure is crucial in order for us to continue to provide consistent and reliable capital to both existing and new markets.

I'm excited to announce that we successfully launched our new customer portal platform yesterday.This portal provides an enhanced interface with elevated security features for our Farm & Ranch and USDA customers and will serve as a foundational platform to launch future innovative products and initiatives as we continue to drive incremental capital of the core sectors we serve.Later this fall, we will launch this customer portal a new streamlined origination platform for Ag Express score card loan product.

This origination platform will provide increased efficiency, enhanced technology, and faster loan approval on funding for Ag Express score card loans.Our continued investment in our infrastructure does not stop with these two enhancements. We have several initiatives slated for 2021 and beyond and that continuing to elevate our infrastructure.

We look forward to providing more details on future calls.Lastly, I would like to take a moment to recognize the Farmer Mac team for all their hard work and dedication to help meet the credit and liquidity needs of our customers and rural communities nationwide.

Even during these times of uncertainty, it is imperative that we continue to execute upon its strategic priorities and remain dynamic and flexible in supporting our customers in rural America.And with that, I'll turn it back to you, Brad..

Zack, thanks very much. And I just like to note that to be able to execute and deliver this kind of loan growth as well as to launch a major new technology initiative while working under our business continuity plan, basically working from home, I think is a real testament to both the commitment as well as effectiveness to the Farmer Mac team.

So, congratulations again.I'd now like to turn to Jackson to give you an update on the current agriculture environment. You've heard a lot that a lot of headlines in the press.

Now Jackson will fill in some of the detail and provide the Farmer Mac perspective, Jackson?.

Thanks, Brad. The COVID-19 pandemic has disrupted nearly all aspects of the global economy.

Energy consumption has fallen precipitously in the last few months as drivers abandon the roads and travelers shelve their passports.This demand decline costs dramatically lower oil and fuel prices, increased market volatility and uncertainty also resulted in a significantly stronger US dollar in March, as well as elevated credit spreads for most borrowers both corporate and retail.

The agricultural sector has not been immune to the wide reaching effects of COVID-19.Schools, hotels and restaurants are all significant buyers of wholesale dairy products, animal protein products and fresh produce.

Without this important demand pool for our food supply system, many farmers have abandoned milk and fresh produce due to the excess supply and perishable nature of these commodities.Animal protein processors have been challenged by the indirect economics of hospitality business closures, but also more directly confronted by COVID-19 outbreaks at individual plants.

Approximately 40 animal protein processing plants have temporarily closed for parts of March and April, and over 40% of hog and 30% of cattle processing was offline in early May.This drop in gasoline demand translated to reduced ethanol usage as well, prompting ethanol producers to take nearly half of all capacity offline.

Ethanol typically consumes between 30% and 40% of annual U.S. corn production. So lower corn demand is pressuring grain prices.Finally, a stronger U.S. dollar and lower global economic growth creates headwinds for agricultural exports.

Agricultural exports through March were down from 2019 levels driven by a 15% drop in corn soybean sales.Thankfully, the American food supply chain is solid. Farmers & Ranchers are pivoting production as a result of rapidly evolving information.

Food processors and agribusinesses are enhancing already strong food and worker safety protocols to stay open or reopen during this challenging time.In April, USDA announced $16 billion in direct emergency aid, targeting cattle, dairy, hog, specialty crop and grain producers, and an additional $3 billion in food purchases for donation and distribution.

Additionally, the CARES Act signed in March authorized a $14 billion replenishment of the commodity credit corporation for possible direct Farm & Ranch aid later this year.The CARES Act also created several small business administration programs that could cover payroll, mortgage interest and other general expenses.

According to data released by the SBA, the first round of Paycheck Protection Program payments delivered nearly $3 billion to small businesses involved in agriculture, forestry, fishing and hunting.Finally, lower fuel, feed, fertilizer and interest expenses provide a needed offset to those lower commodity prices.

While Farmer Mac's credit portfolio contains exposure to affected industries, initial indicators of credit performance show only minor signs of degradation.The Farm & Ranch portfolio has no direct credit exposure to hog or cattle processing facilities.

And only $40 million or 0.5% in hog production, and only $21 million or 0.3% in dairy processing as of March 31.We do have exposure to several indirectly affected commodities like corn and soybeans at $2.4 billion or 30% of the Farm & Ranch portfolio.

Ranch cattle and CADs at $672 million or 9% of our portfolio and dairy at $538 million or 7% of the portfolio as of March 31st.However these exposures are extremely well diversified by both borrower and geography. For example, the corn and soybean portfolio is spread across more than 5000 loans, and 601 counties in 41 states.

Loans past due by 90 days or more increased in the first quarter of 2020 to 1.02% of the outstanding Farm & Ranch portfolio or 0.37% across all four lines of business.This increase was driven by a handful of larger exposures, but the percentage of loan count is also increasing.

There were no delinquencies in any of the other portfolios, including rural infrastructure, institutional credit, or USDA guarantees.Individual loan risk ratings held steady in the first quarter of 2020, with both standard loans totaling $317 million across all loans and guarantees.

This volume is spread across 56 commodities in 212 counties in 36 states. These metrics are near historical averages as a percentage of Farm & Ranch as well as total loans and guarantees.But there still exists considerable uncertainty around the full impacts of COVID-19 on agriculture and rural communities.

The disruption could significantly alter the trajectory of the related economic cycles. Fortunately, there exists strong support mechanisms to help augment any financial disruption and give rural communities time to heal.And with that, I'll turn it back to you Brad..

Jackson, thank you very much. Now, I'd like to turn the call to Aparna to discuss the financial results in more detail.

Aparna?.

Thank you, Brad. Farmer Mac had a very good start to the year. With our results for the quarter divided into two distinct macroeconomic periods. January and February were characterized by rising markets and a stable and positive economic outlook.

March however, proved to be unprecedented for everyone.As the COVID-19 virus spread globally, and shelter in place orders became common, we saw significant volatility and market dysfunction in the latter half of March and this coincided with national and global lockdown.

We continue to have though strong access to capital markets and were able to issue across various price point antennas remaining well within GSE spread issuances.While there was initial strain and widening at the longer end of the curve in the latter half of March, we worked with our existing investor and dealer base and issued bonds in a flexible way that was tail-made to meet any investment needs.During the period through which COVID-19 has been declared a national emergency, we issued long silver bonds.

In fact, one of them was the longest GSE silver issuance and $285 million in structures, 10 years of greater with total medium term note issuances of approximately $2.5 billion to-date.Our strong liquidity position as Brad mentioned and market access also enabled Farmer Mac to call higher cost issuances, provides funding to business lines for new assets and add over $160 million in high quality liquid assets to our investment portfolio.Let me now provide an overview of our financial results.

Core earnings, were $20.1 million for first quarter 2020 compared to $22.2 million in first quarter of 2019. Net effective spread was $44.2 million in first quarter 2020 compared to $38.8 million in the same period last year.Net effect of spread in percentage terms remain stable, at 89 basis points for both periods.

The $2.1 million year-over-year decrease though in core earnings was primarily due to a $3.3 million after tax increase in the total provision for losses and a $2.7 million after tax increase in operating expenses.

These were partially offset by the higher net effective spread.The increase in the total provision for losses reflects the adoption and implementation of the new standard Current Expected Credit Losses or CECL and the immediate impact of updated economic factor forecast.

Particularly higher credit spreads and expected higher unemployment as a result of the COVID-19 pandemic and the resulting economic volatility that I mentioned that had an impact on CECL model's results.Also $3.8 million loss provisions during the first quarter, approximately $3.5 million was attributable to factors related to COVID-19.

Operating expenses increased by 26% in first quarter 2020 compared to first quarter 2019.This primarily was due to increased compensation and benefit expenses including higher cash bonus payments to employees under our short term annual bonus plans as well as one time payments to an executive who resigned during the quarter.

It's important to note that these additional compensation expenses are seasonal and they do not reflect a recurring trend for the rest of the year.General and administrative expenses also increased compared to the prior year due to Farmer Mac’s ongoing investment in various groups and strategic initiatives that were highlighted by both Zack and Brad.

These ongoing investments in infrastructure will enable Farmer Mac to more efficiently meet its customer needs and will ultimately enable greater revenue retention over time.As of March 31, 2020 total allowance for losses were $19.1 million, an increase of $6.5 million from December 31, 2019.

The total allowance for losses represents 9 basis points of Farmer Mac’s $21.5 billion portfolio and we continue to compare very favorably to industry peers.As I previously mentioned, the adoption and implementation of CECL on January 1, 2020 as well as the corresponding increase in reserves under these macroeconomic conditions were the primary drivers of this increase.Before moving on to capital, I did want to note one item regarding the adoption of CECL, which is the impact that it has had on our rural utilities line of business.

Under the previous accounting standard, which estimated incurred losses based on historical loss rates, Farmer Mac’s rural utilities line of business did not require an allowance.And Farmer Mac had never experienced a loss in its rural utilities line of business.

However, under the CECL accounting standard, the highly specialized nature of power generation and transmission utilities results in significant losses, given default estimates that drive our model assumptions, even though the actual probability of default remains very low.It is therefore important to note that as of March 31, 2020, Farmer Mac's $2.4 billion in outstanding rural utilities loan purchases and long-term standby purchase commitments have no historic or current delinquencies.Turning to capital.

We continue to remain very well capitalized, which puts us in a position of strength as we entered this challenging time and will serve us well as we move forward.

Farmer Mac's $815.1 million of core capital as of March 31, 2020, exceeded our statutory requirement by $165.8 million or 25%.This compares to $815.4 million of core capital as of December 31, 2019, which exceeded our statutory requirement by $196.7 million or 32%.

The slight decrease in excess capital from the prior quarter is primarily due to net growth in Farmer Mac's outstanding business volume and the coinciding decrease in retained earnings related to various factors.However, from an overall liquidity standpoint, we are comfortable with our current cash position, which is hovering around $1 billion, and which was at $1.2 billion on March 31, 2020.

This level resulted in 202 days of liquidity and it's far exceeded our regulatory requirements by approximately 112 days.April likewise, continued to be strong, with a daily average cash position also around $1 billion accompanied by strong levels of liquidity, which have continued through today.

As Brad noted, the higher than mandated levels of cash and liquidity allow us to weather any unexpected cash flows adequately fund performance to meet our customer needs, while retaining the flexibility to maintain low, but still ample levels as market conditions change.So in conclusion, Farmer Mac's underlying financial fundamentals, reflecting a well-capitalized balance sheet, stable core earnings, disciplined asset liability management and strong capital markets access sufficient us to continue to successfully deliver upon a critical mission and navigate these uncertain times effectively.

More complete information about Farmer Mac's first quarter 2020 performance is in the 10-Q we filed yesterday with the SEC.And with that, Brad, I'll turn it back to you..

Aparna, thank you very much. Farmer Mac was created in response to crisis back in the 1980s, and is intended to be a resource for financial institutions serving rural America.

This is especially true during times of economic pressure and uncertainty.We are proud to play a vital role as a source of credit and liquidity for America's farmers, ranchers and rural utilities that comprise one of the most resilient sectors of this economy.

Our ongoing commitment to invest in technology and business infrastructure has played a critical role in our ability to reach our customers.And we will continue to work diligently to ensure that remains the case as we look ahead. We're encouraged by the fact that we've been operating the company remotely over the last two months.

We remain confident in our ability to continue doing so and to navigate the evolving market conditions. Thanks to our strong and resilient business model.In closing, I'd like to express how proud I am of our team's efforts during this very difficult time to identify new and creative ways to connect with those who we serve.

This includes the hard working Farm & Ranch families who continue to be the most efficient, innovative producers of food in the world even in the face of challenges of trade, weather, labor and transport.It includes the people who process transport and distribute our food who are facing new safety challenges and who are adjusting to new distribution channels.

It includes the people, who produce and distribute electricity and provide rural infrastructure, who are having to adjust to fluctuating demand and safety and other issues.It certainly includes the network of financial institutions, who are Farmer Mac's partners encircle all of these people.

Our team, our employees at Farmer Mac have shown remarkable resilience in large part, because of the character and their belief in the purpose and the mission of Farmer Mac. So to them a big thank you.And now operator I'd like to see if we have any questions from anyone on the line today..

We will now begin the question-and-answer session. [Operator Instructions].

I'd just like to note that we need to wrap-up our call today by about 9:25, it's an outside time. And that's because Farmer Mac is having its Annual Meeting today beginning at 9:30. So, I hope everyone understands and will accommodate us on that..

The first question comes from Greg Pendy from Sidoti. Please go ahead..

Hi, guys, thanks for taking my questions. I appreciate all the color on the farming environment. Just one quick one.

I mean, a farmer is essentially agnostic, whether they're shipping more into the grocery channel or restaurant channel right now, given everything that's going on and are there certain areas of that would be more impacted or less impacted by that shift higher shift into the grocery channel?.

Hey, Greg. Thanks very much for that question. That's really important because those channels historically have been quite separate.

But Jackson, why don't you provide a bit of color on that?.

Certainly. So as we mentioned, the animal products, fresh produce and dairy are probably the most impacted by that shift in the channels from restaurants, hotels and schools into the grocery store.

So, they're the ones who are having to pivot the most and look to change process and change the wholesale distribution model.So, I think that change is ongoing and will be continuing to go probably throughout the summer, as folks figure out how to reroute the food. In terms of the grain sector, a lot of that is a little bit separated.

So, they're farther away from the food supply network. And so that's going to take less time, I think, for them to adjust or there'll be less impact directly there on the grain side..

That's helpful. And then just one more, if I may. As we anniversary the big win with CoBank.

How are discussions going with some of the other farm credit banks about possibly a deeper working relationship?.

Greg that's a really interesting strategic question. Over the last year, year and a half, two years we have really worked hard to pour even stronger working relationships with the various farm credit institutions.

We've done that in a very visible way, with the early purchase of the large portfolio of rural electric cooperative loans.And as we were mentioning earlier today, we're really pleased that, the flow of those types of loans from both of the financial partners that we have, corporate financial partners we have has really been strong over last year.

But now we're kind of turning to how we do that with more agricultural related business. And Zack, maybe you could provide some color on some of the steps we're taking to do more with loan credit institutions on the ag side..

Yes, thanks, Brad. And it's a great question as we look to expand our relationship outside of CoBank. We're focusing on a couple of key initiatives and really, it's just leveraging our products set.

And how we can better serve the farm credits system holistically.Historically, we've been predominantly used as a credit enhancement product or the farm credit system, which we'll continue to pursue and provide that capabilities.

But more focused on leveraging our ability to do wholesale fund as well as participate in larger transactions across the system.And a lot of that really reflects getting out there and building relationships with associations and entities that we haven't fully developed.

And so we spent a lot of time meeting that need and in discussing those relationships, as well as getting our infrastructure ready to be able to participate in larger and bigger volume transactions with the system..

Greg, I just like to add to that that Zack having come from CoBank and starting to build out a team that includes others from the farm credit system, we're really trying to do so in a very friendly way. But we need to note that we don't just improve the relationship with the entire system. I don't want to leave you with that understanding.

It really comes from working on the relationship, one farm credit association at a time and our success will start with some before others and grow over time..

That's helpful. Thanks a lot..

The next question comes from David Eidelman from Eidelman Virant Capital. Please go ahead..

Yes, thank you. My question was regarding the balance sheet, the stockholders' equity. And I assume it's due to accumulated other comprehensive income, which was a loss of $100 million.

So I wondered, to what extent will that come back in? Does that accrue or is that kind of a permanent loss or what will be the process of having that recovered?.

Thank you. Yeah, Mr. Eidelman, thank you very much for that question. And you sought, reflected in our GAAP statements of this quarter with a rapid plunge of interest rates.

Keep in mind that the accounting treatment of our assets and liabilities is not symmetric.And so we have a mark to market on our derivative swap transactions that flows through those statements, even though from an economic or financial standpoint. There really hasn't been any harm.

In fact, we've been very well hedged.But Aparna you want to add a bit of color to that and what would happen if interest rates for example, were to reverse?.

Yeah. I think, Brad, you encapsulated it very well. The financial derivatives that are designated in cash flow hedge relationships is really what's causing this and it's recorded in other comprehensive income.Essentially, these are not expected to be permanent. And they really have to do with the fluctuations of interest rates.

I think it's also important to note that as interest rates move up and down, we are going to see some of these fluctuations.But we don't hold our derivatives for speculative purposes. We hold them for purposes of risk management. So, as Brad pointed out, this is not anything fundamental to our business. It's really just a much more market risk driven..

Yeah. Mr. Eidelman we have a great team of accounting experts who do this work.

But from my standpoint, if we had real symmetry here, what you would see offsetting that reduction in value of derivatives would be an increase in value of certain loan assets, which because of their coupons are actually worth more than par.But that's not how the standards work. And so, as I said earlier from an economic or financial standpoint.

We really don't see this has had any impact, but under the GAAP treatment it does..

Yeah. And I would just add in our core earnings we don't really take any of these fluctuations into effect, but you might see that on a net income basis for those derivatives likewise, that are not in hedge relationships..

Okay. But could you answer do you know to what extent that would be -- over time that $100 million would be likely to go away? We could predict….

We probably come back….

With the shareholders equity..

Yeah. We have people on the team who aren't on the call, who would know that answer off hand.

Why don't we get back to you on that?.

Thank you..

But I think one temporal dimension and the other is just the absolute change or increasing interest rates that it would take to do that. And we'll come back to you with that information..

Thank you..

The next question comes from Eric Hagen from KBW. Please go ahead..

Hey, hey, thanks. Good morning.

Hey, can you guys speak to any of the conditions you're seeing in the funding markets? And what kind of spreads do you think you might be able to issue out over the near term? And on the asset and credit side what kind of amendments have you guys made to the credit box, both in Farm & Ranch and things like institutional credit? Thanks for taking my question..

Yeah. Eric, let me start with second question and then turn to the Aparna for the first. On the second question, the credit box is quite interesting.

We really haven't -- we've always emphasized the underwriting of cash flow, as well as collateral for our loans.And so given that we have no debt service coverage durations, for example four different lines of business that we look to. We really haven't been adjusting that so much.

We have been looking at projections as well as historical realized financial results through a prism of the increased volatility of the markets.But our standards hold up remarkably well. There may be a fewer borrowers who are not meeting them. But the standards have held up well.

But on the first question regarding market volatility that has been a point of extreme focus, since early March.And Aparna and her team every morning at 9 o'clock markets call to share information about markets. And we have really seen interesting developments. But we've done very well.

And Aparna, why don't you just provide some further explanation of how the market has changed and how we have done within that market?.

Yes, definitely. Thank you. That's an excellent question. As I noted, in my commentary, when we went into the crisis, we really did see bullet spreads widen, fairly significantly reaching its peak through March.But we've had very good coordination between our asset liability teams, treasury and fixed income strategy teams.

We also have existing relationships with various investors and dealers. And obviously our size has been quite a good advantage for us.Because one, we actually went into this with a very balanced set of prices antennas in terms of our funding.

So that was one piece that really helped us, but we were actually able to issue pretty successfully across the globe in a variety of structures.

And just to give you some examples, we did unique structures, really custom tailored structures such as a 22 years structure for a particular investor.We've obviously had like other GFCs a very good access at the shorter end of the curve. But in general, we have really not seen any disruption through this time.

And so much so that we've actually been able to take advantage of auctions as well as we've been able to get ahead of our funding needs, even looking out 30-days.So we actually feel very confident, at least for the next month or so, in terms of, what we mean by we have access.

And if the access levels continue, we continue to remain very optimistic that we'll be able to both fund at the short-end or long end of the curve and work with our existing investor and dealer base, such as various cities and counties that we have existing relationships with.And I can give you further examples, but the short answer is that our access to capital markets remains pretty robust..

I think that's interesting to note, one of the resilient features of our business model or I guess you'd call proven features is that every new loan that comes in.

We really fund that on a mash funded basis and so we're pricing to the marginal cost of funding that loan.So, let's say that in late March, our cost of funds increased, in the 5 to 10 year range, let's just, say 40 to 50 basis points.

If we're pricing a 5 or 10 year loan at that time, we would increase the pricing on that loan, and plus an additional premium for volatility for the execution of transaction in over a 24-hour period of time.So, that has really helped us and you see that reflected in the quarter end number, 89 basis point net interest rate, it just continues to hover right around 90 basis points..

Yes. And one important thing to mention is that we've taken advantage of the callable debt market. So we continue to issue callables as well, which again, is a very good hedge for us versus prepayment..

Thank you guys very much for taking my question. Stay, well..

The next question comes from Keith Rosenbloom from Cruiser Capital. Please go ahead..

Hi, guys. First of all, I just wanted to say on the record, Jackson's commentary is very helpful. So, thank you for providing that guys. I just wanted to clarify a couple of points.

In your reconciliation of core earnings basically what you're saying that the losses on the hedging losses are non-cash, they're marked to market.And that effectively you will -- as your loans mature, you're going to be cash neutral on those. And would we expect to reverse them ultimately at maturation? That's the first question.

And the second question is, with regard to the overall interest rate environment, it seems like you are able to keep your NIM pretty effective. But maybe you could speak to the demand side of the equation, as gross rates start to or continue to stay low and are lowered.

Is there any difference that you guys are seeing on the demand side?.

Yeah, the quick answer to your first question is yes. And yes, it will. And if you want to get into much more technical discussion, we're happy to set up a time to do that for you and bring in a full team.On the second point, and I think Zack should share his perspective here with you too.

But we are seeing, strong demand for term credit in particular refinances, because of today's interest rates.

And one of the things we've been doing is anticipating that and being more proactive and getting fund of customers who have loans at rates that are above today's market.And rather than waiting for them to request to refinance or repricing actually get in front of them and propose such.

So the aggregate amount of credit is not increasing as quickly as frankly, our market share. I'll let Zack elaborate on that and why that is..

Yeah, absolutely. Thanks for the question. And first off, I think mathematics on our commentary. The first quarter was kind of a tale of two stories.

And the first January and February months, I mean you continue to see tighter credit spreads, just reflecting the overall strength of the economy.In March, there was a significant widening of credit spreads across the corporate space, including in the agricultural communities and it really fill the areas that we've served.

So even though the Fed funds in the yield curve are so tight and narrow credit spreads were widen significantly.And, that allowed us to price to market and maintain appropriate competitive pricing in that context.

From the demand perspective, our results of volume reflect approved and rate lock loans from prior months as we go forward, the context of credit spreads is still widened.That being said, as Brad mentioned when you look through our portfolio and compare transactions and loans that we booked 3-4 years ago the rate context is still well lower even in this volatile environment.

And by being proactive and working with our seller communities we're still able to get out there and focus on refinancing and retaining the business as well as trying to attain new business in this volatile market.But I do want to be clear that we are focusing on credit spreads in the market and pricing appropriately, given the widening the volatility that we see on the on the pricing side..

Thank you. Helpful..

This concludes our question-and-answer session. I would like to turn the conference back over to Brad Nordholm for any closing remarks..

Well, thank you, operator. Thank you very much for getting on the call today. We had fantastic participation. And we assumed that there are some of you who are relieved, in fact very pleased with our performance.

And others who are generally interested and concerned about what's going on in American agriculture and some thought and that's fantastic.Having very open dialogue with you is one of our objectives. And if we didn't answer any of the questions or you have follow-up questions, please get in touch with Jalpa.

And we'll set up a call to discuss this further.So again, thanks very much for your interest and stay safe everyone. I hope that you navigate the next months in very, very good shape. Thank you..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..