Federal Agricultural Mortgage Corporation (AGM) Q4 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Farmer Mac Fourth Quarter and Full Year 2016 Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there'll be an opportunity to ask questions. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Tim Buzby, please go ahead.

Thank you. Good morning. I'm Tim Buzby, Farmer Mac's President and CEO. Farmer Mac is pleased to welcome you to our 2016 fourth quarter and year-end investor conference call. We’ve posted a slide deck to our Web site that we will refer to throughout today’s call. Information from where these slides can be found is included in this morning’s press release. Before I begin, I will ask Steve Mullery, Farmer Mac's General Counsel, to comment on forward-looking statements that management may make today, as well as Farmer Mac's use of non-GAAP financial measures.

Thanks, Tim. Some of the statements made on this conference call may constitute forward-looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance. We do not undertake any obligation to update these statements after the date of this call. We caution you that forward-looking statements are subject to a number of risks and uncertainties. Actual results may differ materially from the results expressed or implied by the forward-looking statements. In evaluating Farmer Mac, you should consider these risks and uncertainties, as well as those described in our 2016 annual report on Form 10-K which was filed with the SEC this morning. In the analysis of its financial information, Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with generally accepted accounting principles in the United States, which we refer to as non-GAAP measures. The three non-GAAP measures that Farmer Mac uses are core earnings, core earnings per share and net effective spread. Farmer Mac uses these non-GAAP financial measures to measure corporate, economic performance and develop financial plans because in management's view, they are useful alternative measures for understanding Farmer Mac's economic performance, transaction economics and business trends. These non-GAAP financial measures may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies. Farmer Mac's disclosure of these non-GAAP measures is intended to be supplemental in nature and is not meant to be considered in isolation from, as a substitute for, or as more important than the related financial information prepared in accordance with GAAP. Disclosures and reconciliations of these non-GAAP measures can be found in the Form 10-Q and the earnings release posted on Farmer Mac's Web site, www.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.

Thank you, Steve. Farmer Mac had great year in 2016 across multiple fronts as our asset growth and financial results confirm. As you may have read in this morning’s earnings release and which can be seen on Slide 5, we announced the $0.10 per share increase in our quarterly common stock dividend of $0.36 per share which reflects nearly a 40% increase. The increased quarterly dividend amount equates to $1.44 per share per year. As you recall, last March Farmer Mac announced a new common stock dividend policy with our goal being to increase our dividend payout ratio of our core earnings to approximately 30% overtime. Last year we increased our common stock dividend by 63% and with our 38% increase this year we believe we’re on track to reach our targeted 30% core earnings payout in 2018. For the past six years, Farmer Mac has increased its quarterly common stock dividend with more significant increases in the last two years. We believe these dividends are supported by our earnings potential and overall capital position and are representative of Farmer Mac’s commitment to enhancing stockholder value over the long-term. However, as always, the declaration of payment of future common stock dividends are at the discretion of Farmer Mac’s Board of Directors and depend upon many factors including Farmer Mac’s financial conditions, actual results of operations and earnings, capital needs of Farmer Mac’s business, regulatory requirements and other factors that Farmer Mac’s Board deems relevant. Turning back to our results for the year, we grew our outstanding business volume by over $1.5 billion and our core earnings by more than 14%. Our net effective spread percentage stabilized early in 2016 and increased steadily over the course of the year. Regarding credit quality, we are beginning to see the early stages of the normalization in certain metrics that we have been anticipating as part of the current agricultural credit cycle. The modest deterioration in certain metrics over the course of 2016 are within our expectations. And we continue to believe these metrics will gradually revert to more historical norms. Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that any losses associated with the current agricultural credit cycle will be moderated by the strength and diversity of our portfolio which we believe is adequately collateralized. Turning to Slide 6, Farmer Mac ended 2016 with outstanding business volume of $17.4 billion. We added $4.4 billion of new business during the year resulting in net growth of $1.5 billion or 9% after maturities and repayments. The increase in outstanding business volume is driven by broad based portfolio growth across most of our products and lines of the business including Farm & Ranch loans, AgVantage Securities, or the utilities loans understand by purchase commitments and USDA securities. Our Farm & Ranch loan purchases were more than $966 million in 2016 which was a 30% increase from the amount purchased in 2015. This was primarily due to an increase in borrower demand for long-term real estate financing. As farmers use equity and farmland assets to increase sources of operating capital and the increase in the average size of loans purchased. We also added nearly $400 million of Farm & Ranch loans understand by purchase commitments, which reflected a modest decrease in demand among farm credit system institutions for this product. In our institutional credit line of business, we purchased over $2 million of AgVantage Securities over the course of 2016, which resulted in net growth of $563 million for the year. This increase was primarily driven by new business from two of our long-standing customers, Rabo AgriFinance and National Rural Utilities Cooperative Finance Corporation also known as CFC. These two partners increased their business with Farmer Mac by $300 million and $210 million respectively in 2016. We also achieved a 100% refinance rate with our maturing AgVantage securities in 2016. In our rural unities line of business in second quarter of 2016, we executed our second large standby purchase commitment providing credit protection on pool of $421 million as loans held by CFC. Our USDA guarantees line of business also performed well as we purchased $481 million in 2016 compared to $377 million in 2015. This growth reflected an increase in lender usage of USDA guarantee loan programs due to available federal funding for those programs. Farmer Mac's net effective spread for 2016 decreased by 1 basis points on a percentage basis due primarily to our higher average balance of lower earnings investment securities compared to 2015. But grew in dollar terms due to substantial growth in outstanding business volume. Overall spreads improved throughout 2016 mostly due to our reduction in our cash balances, changes in our funding strategy and some general improvements in the labor based funding market. The credit quality of our portfolio deteriorated moderately over the course of 2016 as measured by some metrics, but still remains near historically favorable levels. As of December 31, 2016, 90 day delinquencies improved compared to the end of 2015. But the total allowance for losses and the sub-standard assets increased from year end 2015 to year end 2016. With that as background, I would like to turn to Dale Lynch, our Chief Financial Officer, to cover our financial results in more detail. Dale?

Thanks, Tim. Our 2016 results reflect Farmer Mac commitment to continue growing developing customers, innovating our products set and delivering upon our mission throughout market cycles. As Tim mentioned we grew our rapid outstanding business volume at $17.4 million by year end. This growth was driven primarily from net growth and farmer managed loans, AgVantage Securities, the addition of rural utility loans understood by purchase commitments and net growth in USDA guarantee loans. Additionally, our spreads firmed and improved develop dollar and percentage in term over the course of 2016. Spreads of new assets generally remains stable and our funding cost on labor based assets have improved due to changes in our funding strategy and for improvements in the LIBOR market. As Tim mentioned earlier, we're beginning to see signs of credit normalization that we have been anticipating as part of the normal agricultural credit cycle. Turning now to the financials, as you can see on Slide 7, core earnings for 2016 were $53.8 million or $5.01 per diluted common share compared to $47 million or $4.15 per share in 2015. The $6.8 million increase in core earnings for 2016 is primarily attributable to higher total revenues which included the following. A $3.6 million after tax increase in net effective spread, a $1.3 million after tax increase in guarantee and commitment fee income and $0.4 million after-tax decrease in hedging cost. Also contributing to the increase was a $3.5 million after-tax decrease in preferred dividend expenses resulting from a redemption of all outstanding shares of Farmer Mac 2 LLC preferred stock in the first quarter of 2016. The increase in 2016 core earnings was offset in part by several factors, credit related expenses increased $0.5 million after-tax resulting from net provision to the allowance for losses of $0.6 million after-tax in 2016 compared to net provisions of $0.1 million after tax in 2015. Operating expenses also increased by $1.8 million after-tax driven by higher G&A expenses and higher comp investment expenses. The $1.3 million after-tax increase in G&A expenses was attributable primarily to higher consulting fees in information services expenses related to corporate strategic initiatives, continued technology and business infrastructure investments and expenses related to business development efforts. The $0.5 million after-tax increase in comp and benefit expenses as due primarily through the increase in headcount as well as decreases in employee health insurance cost. Farmer Mac’s fourth quarter 2016 core earnings were $13.9 million or $1.30 per diluted common share, compared to $13.1 million or $1.17 per diluted share in the fourth quarter of 2015. The $0.8 million increase in core earnings from the year ago quarter was driven by a $2.5 million after-tax increase in total revenues led by $1.3 million after-tax increase in net effective spread. The increase was offset in part by $0.3 million after-tax increase in credit cost, a $0.7 million after-tax increase in G&A expenses and a $0.4 million after-tax increase in comp and benefits. The increases in G&A expenses and comp and benefit expenses compared to the fourth quarter of 2015 were attributable to the same reasons described previously explaining the increases in these two items between full year ’15 and full year 2106. Turning now to GAAP net income. 2016 net income attributable to common stockholders was $64.2 million or $5.97 per diluted common share compared to $47.4 million or $4.19 per diluted share for 2015. The $16.8 million increase in net income attributable to common stockholders for 2016 was driven by an increase of $9.4 million after tax increase in net interest income and the effects of unrealized fair value change on financial derivates and hedged assets, which was an $8.9 million after-tax gain in 2016 compared to a $7.1 million after-tax gain in 2015. Also contributing to the year-over-year increase was the absence in 2016 of a $6.2 million after-tax loss reported in the first quarter 2015 resulting from a right offset of deferred issuance cost of on a redemption of the Farmer Mac 2 deferred stock mentioned and the $3.5 million after-tax dividend expense recorded here in the first quarter of 2015 on that preferred stock. The overall increase of 2016 GAAP net income was offset in part by a $3.1 million after tax increase in non-interest expense, driven primarily by higher G&A expenses, higher comp and employee benefits expenses and a decrease in the release for reserve for losses. Turning now to spreads on Slide 8, Farmer Mac's net effective spread for 2016 was $125.1 million, or 86 basis points, compared to $119.4 million, or 87 basis points, 2015. The contraction in net effective spread in percentage terms is primarily attributable to the following. A higher average balance on lower earnings investment securities in '16 compared to '15, a tighter spread on a large AgVantage Security that was refinanced in first quarter of 2016 at a shorter maturity and spread then the original security and an increase in net yield adjustments for the amortization of purchase premiums on certain farmlands loan in 2016, as compared to 2015. This contraction was often in part by our lower average balance and cash and equivalents primarily during the second half of 2016. The year-over-year increase in net effective spread in dollar was attributable to growth in outstanding business volumes. Net effective spread for fourth quarter 2016 was $31.9 million or 89 basis points compared to $29.9 million or 85 basis points in fourth quarter 2015. The increase in net effective spread in percentage terms in fourth quarter 2016, compared to the previous year's fourth quarter was due primarily to a reduction in our cash and equivalents balances and improvements in our LIBOR based funding cost. The increase was offset in part due to an increase in size of our investment portfolio. The increase in dollar terms in fourth quarter 2016 compared to the year ago quarter, was due to growth in outstanding business volumes and improvements in our LIBOR base funding cost. Net effective spreads for our four lines of business for fourth quarter 2016 and fourth quarter 2015 were as follows. $10.3 million or 178 basis points for Farm and R Farm & Ranch compared to $9.4 million or 172 basis points in fourth quarter 2015. $5.3 million or 108 basis points for USDA guarantees compared to $4.5 million or 96 basis points. $2.6 million or 105 basis points for Rural Utilities, compared to $2.8 million, or 114 basis points. And, $11.6 million, or 78 basis points, for Institutional Credit, compared to $10.9 million, or 80 basis points. Turning now to credit on Slide 9, as of December 31, 2016, the total allowance for losses was $7.4 million, or 12 basis points of the $6.1 million Farm & Ranch portfolio, compared to $6.6 million, or 11 basis points of the Farm & Ranch portfolio as of December 31, 2015. The net provisions to the total allowance for losses recorded during 2016 were attributable to an increase in the general allowance due to overall net volume growth and on balance sheet Farm & Ranch loans down grid and risk ratings for certain loans and then increase in specific allowance for on balance sheet impaired loans resulting from an increase in the out gaining balances for such loans, Farmer Mac recorded $0.1 million charge offs to its allowance for loan losses for 2016. 90 day delinquencies were $21 million or 34 basis points of the Farm & Ranch portfolio as of yearend 2016. Compared to $32.1 million or 56 basis points in the year ago quarter. For Farmer Mac's other lines of business, there are currently no delinquent AgVantage securities or Rural Utilities loans held or underlying standby purchase commitments, and the USDA securities are backed by the full faith in credit of the United States. As a result, across all of Farmer Mac's four lines of business, the overall level of 90 day delinquencies, comprised entirely of Farm & Ranch loans, was is 0.12% of total volume as of December 31, 2016 compared to 0.2% in the year ago quarter. Another indicator that Farmer Mac considers in analyzing the credit quality of its Farm & Ranch portfolio is substandard assets, both in dollars and as a percentage of our outstanding Farm & Ranch portfolio. Assets categorized in substandard have a well-defined weakness or weaknesses and there is a distinct possibility that some loss will be sustained if its efficiencies are not correct. As of December 31, 2016, Farmer Mac's sub-standard assets were $165.2 million or 2.7% of the Farm & Ranch portfolio compared to a $104.5 million or 1.8% of the Farm & Ranch portfolio as of the prior year end. Those substandard assets were comprised of 287 loans as of December 31, 2016 compared to 234 loans as of yearend ’15. Of the $60.7 million year-over-year increase in substandard assets in the Farm & Ranch portfolio, Farmer Mac believes that approximately two thirds of the increase suggests a modest deterioration in the agriculture credit environment likely resulting from lower farm income and declining land values in some reason due to lower prices for a certain commodity, specifically low prices for feed grains and oil seeds in the Midwest region were the primary drivers of this deterioration. We expect that overtime Farmer Mac’s credit metrics will revert to closer to historical averages due to macro-economic factors and the cyclical nature of the ag economy and we believe this began in the second half 2016. Farmer Mac expects that it's 90-day delinquency rate will eventually revert closer to its historical average of approximately 1% of the Farm & Ranch portfolio and that is substandard asset percentage will eventually revert closer to historical average of approximately 4%. On balance, we believe that the version closer to these averages is healthy that Farmer Mac’s business can benefit through higher volumes and potentially wider spreads in such an environment. Farmer Mac believes that its portfolio is efficiently diversified both geographically and by commodity and that its portfolio has been underwritten to high credit quality standards. Importantly, we believe that our portfolio is well positioned to endure reasonably foreseeable volatility in farmer values and commodity prices. We also continue to closely monitor sector profitability, economic conditions and agricultural land value in geographic trends to tailor underwriting practices to changing conditions. Now, turning to business volume, as you can see on Slide 10, we added more than $765 million in new business in the fourth quarter of 2016. Looking at the specifics for the quarter, we added a following new business volume. $247 million of back debt and securities purchases backed by Farm & Ranch loans, $244 million in Farm & Ranch loan purchases, $129 million of USDA securities, $117 million of Farm & Ranch stand by purchase commitments. $20 million of rural utilities down by purchase agreements, and finally $11 million in rural utilities loans purchases. After maturities and repayments, out net offsetting business volumes, increased a $152 million during fourth quarter 2016. Turning now to capital on Slide 11, Farmer Mac’s $610 million of four capital as at year-end 2016 exceeded its statutory minimum capital requirement a $467 million by a $143 million or 31%. This compares to the core capital of $564 million or a $102 million of capital above the minimum as of December 31, 2015. The increase in core capital from yearend 2015 was primarily due to the increase in retained earnings and the decreasing amount of cash and equivalents needed to manage Farmer Mac's liquidity position in 2016. In terms of liquidity, Farmer Mac had 165 days of liquidity as of the end of fourth quarter 2016, compared to the minimum regulatory requirement of 90 days. More complete information about Farmer Mac's performance for full year and fourth quarter 2016 is set forth in our 10-K we filed with the SEC. And with that, I'll turn it back to you, Tim.

Thanks, Dale. Our management team is proud of the results achieved during the year. Outstanding business volume is at an all-time high and our financial performance is strong. As the agricultural economy enters its fourth year of adjustments to lower commodity prices, the overall business climate for Farm Mac remains positive. The year ago at this time we told you that we believe the relative demand for Farmer Mac's products could increases as credit becomes somewhat tighter and that is just occurred through the course of 2016. Our capital base is strong and growing providing plenty of capacity for future growth, we believe our dividend policy is helped enhance stockholder value. We believe the most important asset at Farm Mac is strength of our people, it's their talent that we believe leads directly to the strength of our business and financial results. Over the past several years Farmer Mac has brought a new personal to fill key positions, created new positions and significant expanded investment in the technology and capacity to better grow our business and more fully deliver upon our mission. Farmer Mac continues to communicate the value of our products and solutions to current prospective customers. We continue to sign up new lenders for our loan purchase and credit protection products, we see strong interest for our AgVantage family of products, including new business opportunities to provide wholesale funding to financial funds that originate and invest in agricultural mortgages. We continue to grow our Farm equity AgVantage product and look forward to working with new customers in this area. Over the last year, Farmer Mac has significantly increased its profile and name recognition as a leading national expert in agriculture. We believe this will help as we seek to bring new capital to agricultural and rural communities. At this time, we'd be happy to answer any questions you may have.

[Operator Instructions] And the first question is from Eric Hagen with KBW.

How much market share do you think you can capture? The stress in the Ag market persists. Specifically, if we get say another couple of years of weak farmland value and along the same lines how sensitive do you think loan growth is, in the system, real estate loan growth that is both real estate loan values and commodity prices this year.

Probably with respect to market share, I think you've seen our growth over the past several years. And that trajectory we expect will continue or perhaps could increase in a slightly stressed environment, which is what we been seeing over the past year. So from that prospective we do feel strongly that all different aspects or different lines of business that we have do have the opportunity to grow both in terms of outstanding amounts and market share. Overall to speak to the real estate market in generally, you've seen softening land values, but you've seen a lot of purchase activity and financing opportunities. As farmer experience stress, a lot of times they will use assets that as unencumbered to borrow funds and we've seen that, they are -- in order to raise capital for their operations, they are levering some of their real estate. We obviously take into considerations the reason for that and underrate the loans very carefully so that we believe we continue to be well collateralized even if land values were to continue to fall or fall further from here.

Just one benchmark too that has pointed. If you look at the growth in the mortgage market, it's sort of in the 8% to 9% area, I would estimate, and for Farmer Mac loan portfolio we grew I think 17% on a net basis right now. So hard to translate that exactly until the market shares that number, but we’re really at sort of twice the industry rate right now on a net basis.

Right, okay well that’s helpful. I know you guys generally stay neutral of the direction of rates since you know you match fund the portfolio, but have you sensed any exchange in demand from investors with regard to where along the yield curve do you actually issue your own debt and most importantly has any preference for certain maturities impacted your outlook for net spreads going forward?

Well I think you know this year was actually pretty interesting from the, I would argue that balance of the loan products that we’re seeing in terms of demand. As previous years when rates would increase, we'd see a large spike in demand for our 15-year fixed rate products. This year we’re seeing a pretty balanced demand from our LIBOR floaters through the 10/1 ARM [ph] product and including the various amortization schedules of our 15-year fixed rate loans. It’s a pretty balanced demand across the curve, that’s good for us. In terms of our funding profile, you know we have -- we do match fund in terms of duration and complexity. So Farmer Mac's is one of the efforts that we take very seriously here as our fixed income investor relations efforts and we have people out marketing our debt, 150 days or so I think we found our funding cost in the market has been exceptional in our funding cost in a 10 year for examples in the low 40 basis points spread to treasuries where as several years ago that could have been 55 or 60 basis points. So we’ve seen our funding cost come in 15 to 20 basis points, that’s one anecdotal example on our term debt. So I think from our funding perspective things look good currently and a demand perspective we like to balance across our product curve.

Right, right. One more if you don’t mind from me. In the past you’ve addressed some seasonality in the business with regard to the concentration of your loan repayments taking place in January, maybe you can guide us a bit as to how those figures printed in the early part of the year and whether there was any uptick in delinquencies versus the fourth quarter?

We’ll disclose the delinquencies as of the end of first quarter in May, when we issue our press release. You know we do continue to see that cyclicality, as you look back historically you’ll see that the March 31 delinquencies are typically the highest followed by the third quarter delinquencies and we expect that will continue. You know we have seen increases in substandard assets which we’ve disclosed a little bit of an increase in our allowance. So that’s indicated of activities in the portfolio. But we have to wait until May for any predictions or actually the results.

Alright, well thanks guys. Appreciate it.

Next question is from Scott Valentin at Compass Point.

Just with regards to the USDA Securities, I saw they're moved from available for sale to held to maturities, is that commensurate risk management purposes?

No, keep in mind, from an economic perspective, Farmer Mac is match funded, the duration and complexity match all of our assets. You know from a GAAP accounting perspective, Farmer Mac has Non-fair value of the debt on its balance sheet. So optically when you looked at our GAAP equity on our balance sheet, if some of the assets are fair value even through the income statement or through the balance sheet, you could see increases or decreases in our GAAP equity. And the reality is when we look at the economic stress test, we're very tightly matched. I think that, if we disclose the 300-basis points shock to our interest rates, resulted in an MVE change is something in the order 10% areas, 10% or 11%. So we're pretty tightly matched, but the transfer from the USDA is from ASF to HTM was very consistent with what the GAAP requirements are, one, we have the ability to hold them to maturity and two, we have the intent to hold them maturity. The fact that they want as the HTM, somewhat of a legacy as a result of financial crisis, 8 years or 9 years ago, whatever was. So this is really just a sort of reflective update, that this should have been as an HTM asset for a long time and we finally moved it there. But it does optically see your point, reduce the volatility of the GAAP equity on our balance sheet.

That’s helpful I appreciate that, and then as you pointed on the credit side, the delinquencies are down year-over-year or substandard classifications are up. Just wondering how would you think about provision expense moving forward, is that kind to more driven by the substandard asset as you follow more the delinquencies?

Probably point to the substandard assets that are larger swap to the portfolio, and there are lot of metrics to go into the classification of an asset under that regime, whereas the delinquencies is just whether or not the payment showed up. And so that’s kind of a lagging indicator as well of issues in the portfolio. So obviously keep an eye on both, but the substandard assets went up, and as did the allowance for losses, so that leads to more provisions whereas the delinquencies went down. So I think again, keep an eye on all the metrics, but the substandard assets is probably going to be more correlated to increases in provisions for losses.

Okay thanks and another question. Just with the dollar becoming a little bit stronger here, actually strengthening more of a -- way to a faster pace than expected, I mean is that part of what you see having the stress for the agricultural economy?

Well there are a lot of factors and a lot of different commodities and lot of things that come into play, whether it's global trade, overall level of rates, commodity prices, land values all those things have impacts on the portfolio broadly. And even more so on sort of the macro economic statistics that you might come see come out of USDA. Lot of times I try not to get too overwhelmed by all the data and information at the global and macroeconomic levels and pay more close attention to the things that we see on our portfolio and what we're hearing anecdotally. So while all those things will have an impact, ultimately in the fullness of time, I think we know -- we try not to get too far looking out, too far as to what ifs and what could happen and take a look at what we are hearing in the industry.

Okay fair enough and then just on the net effective spread, it was up 3 basis points from the September quarter, but the Farm & Ranch yields were down about 12 basis points, if they spike up in the third quarter and came back down. Was there something in the September quarter that drove that Farm & Ranch yield up that wasn’t there in the fourth quarter?

The two things, keep in mind that in those segments spread that you see, there is going to be certain noise. For example, in Q3 in the Farm & Ranch segment, we had a pretty significant influx of cash interest income. In another words, loan was non-accrual, but when we get paying if we book it. Right and so, and those are haphazard, those aren’t by definition recurring, those are not non-accrual. So we had a large influx on a large amount that hadn't paid for a certain period of time, and I think it was as much as $800,000 or $900,000 pretax in Q3 and that did not reoccur in fourth quarter. So that explains the 12 basis points decline points decline from Q3 and Q4 and Farm & Ranch. As far as the overall spreads picking up and Q4 versus Q3 driving factor that was a couple of things, primarily we decreased our cash and equivalent balances very significantly from Q3 to Q4 and that alone probably had as much as a four basis points impact then we did complete some attractive AgVantage bonds and in the fourth quarter as well that were well priced and accretive. So it was primarily a decrease in cash balances that drove the overall increase in spreads in Q4.

Okay, thanks very much.

[Operator Instructions] And our next question is from the line of Brian Hollenden at Sidoti.

With a significant dividend increase, does this imply a lower long-term volume growth outlook compared to the past few years?

No, I think overall when we look at our levels of capital that we have and run our stress test and we look at our regulatory capital metrics, we project out where we think our capital is put best to use. We also concentrate on providing stockholder value. So overall we think we are well capitalized and the intent is to return some of that value to stockholders and at the same time we do consider there to be a lot of growth opportunities. I think the first question was asked about what do we see and I think opportunities is the best way to classify that. We do not anticipate any reduction in growth and therefore that’s the reason that we’re increasing dividends, it's actually the opposite.

And just we were -- if you looked at us versus other financial banks, banks payout 30% to 40% of their earnings every year on average in common stock dividend and prior to this change we were paying our low teens, 12% to 13% and so we viewed ourselves as being probably amongst the lowest end that what the financial may have paid out. So we wanted to put our dividend yield back in the context of other financials. And keep in mind that we’re still self-funding. Even with the entire dividend amount, we’re building access capital. We can sell fund growth at rates that are reasonably far greater than we’re currently booking. So we’re not growth constraint, we’re building equity capital well, at the same time also paying out a higher portion of this earnings every year.

Thanks. Can you talk about business development efforts to grow volume or maybe potentially give us range of net volume you expect to add in 2017, even if it’s a broad range?

We won’t make any predictions. I can say our business development efforts happen every single day, every week, lot of people on the road, a lot of people that we’ve dedicated to just that. If you look back and you see the growth that we’ve had over the past several years, we’re very pleased with that growth and hope that we can replicate similar types of growth in the future, absent any specific predictions I think you can probably take a look and recognize that we feel good about the business that we’ve put in place and feel good where we’re headed and expect growth to continue.

And one final question, with the continued makeshift towards lower spreads volume, would you expect spreads to remain under 90 basis points in 2017 as a whole?

Well you know if you’re looking at the balance sheet in total, when you look at spreads, the percentage is different than spreads per dollar. Dan referred earlier to higher increase in cash balances which brings down the spread of the percentage, but we do have to like a modest small return on cash and other investments that we have. A lot of times within different segments of the business, we charge different spreads based on the risk profile of the assets and the line of business. So again, when you mix all those different things, together sometimes you can see a basis point or two up for the quarter, a basis of a points or two down for the quarter. I think overall though in a credit environment where there is a little bit more stress and other things, I think there is a little more opportunity for us to earn spreads there. We don’t expect that spreads overall will be going down significantly, that said there are times when we can do a large transaction of several hundred million dollars and it can bring down the overall spread. We don’t do that as a bad thing, that’s a good thing. So again a lot of moving parts there.

This concludes the question and answer session. I would like to turn the conference back over to Tim Buzby any closing remarks.

Thank you all for listening and participating this morning. We look forward to our next quarter to report first quarter 2017 results in May. Thank you.