Federal Agricultural Mortgage Corporation (AGM) Q2 2017 Earnings Report, Transcript and Summary

Good day and welcome to the Farmer Mac Second Quarter 2017 Investor Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Tim Buzby, CEO. Sir, 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 Second Quarter 2017 Investor Conference Call. We have posted a slide deck to our website that we will refer to throughout today's call. Information for where these slides can be found is included in this morning's press release. The General Counsel is not available today, so I will ask Christy Prendergast, Farmer Mac's Deputy General Counsel to comment on the 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 and our subsequent quarterly report on Form 10-Q and our other filings with the SEC. 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 3 non-GAAP measures that Farmer Mac uses are core earnings, core earnings per share and net effect of spread. Farmer Mac uses these non-GAAP measures to measure corporate economic performance and to develop financial plans. In management's view, they are useful alternative measures for understanding Farmer Mac's economic performance, transaction economics and business trends. These non-GAAP measures may not be comparable to similarly labeled non-GAAP measures disclosed by other companies. Farmer Mac's disclosure of 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 Farmer Mac's non-GAAP measures can be found in the Form 10-Q and the earnings release posted on Farmer Mac's website, www.farmermac.com, under the financial information, portion of the Investors section. A recording of this call will be available on our website for 2 weeks starting later today.

Thank you, Christy. Farmer Mac extended its strong start to 2017 in the second quarter. That the terms that had developed over the course of 2016 and into this year continued. Second quarter 2017 was particularly good in terms of new business volume and net growth, as Farmer Mac broadened its customer base across the number of products and lines of business. We are beginning to see more institutions recognize the value Farmer Mac can provide. For example, in addition to refinancing, several AgVantage securities this quarter our long standing institutional credit customer, Roble [ph] Agro Finance sold alone to Famer Mac for the first time. This success exemplifies our teams dedication to understanding our customer needs and providing alternative solutions. The overall business climate for Farmer Mac, remains positive, even a certain sector to the agriculture economy remain under pressure from lower grain and oil seed prices and net farm income decreases for many producers. We believe that the resulting tighter credit environment has actually help to increase demand for Farmer Mac's products and solutions. Farmer Mac's mission is to increase the access to credit and reduce the cost of credit for rural borrowers. Our market physician as a GSE and our lower cost of credit provides an advantage in the market and has contributed to this relative increase in demand for our agricultural, real estate and utility financing. This has allowed Farmer Mac, to help even more farmers, franchise and utility cooperatives as they seek to increase sources of operating capital. Against this market backdrop, Farmer Mac strong delivery upon its mission can be seen in our financial results this quarter. And as business volumes, spreads and core earnings grew significantly. We grew our outstanding business volume by $0.4 billion, spreads improved in dollars and as a percentage and our core earnings grew by 22% year-over-year. Farmer Mac ended second quarter 2017 with outstanding business volume of $18.3 billion we added $1.9 billion of new business during the quarter resulting in a net growth of $414 million after maturities and prepayments. This increase was primarily driven by increased demand for our Farm & Ranch and USDA loan purchase products, as well as our institutional credit line of business. Our Farm & Ranch loan purchases were more than $312 million in second quarter of 2018, which was up 30% increase from the year ago quarter. This was due to an increase in borrower demand for agricultural real-estate financing and an increase in the average size of loans purchased including several loans from larger financial institutions. We attribute the growth of our customer base partly to our increased efforts to build Farmer Mac brand across agricultural and real communities nationwide. These efforts include speak and engagements at industry conferences, hosting lender appreciation forums and educational webinars as well as promoting various perspectives on the current state of agriculture through our quarterly publications of the feeds. In terms of our institutional credit line of business, we purchased nearly $1.3 billion of AgVantage securities in the second quarter, which resulted in net growth of $126 million. This increase was mostly driven by new business from Rabo [ph] AgriFinance and counterparties within our new AgVantage products such as AgVantage for firms and farm equity AgVantage. We also achieved a 100% refinance rate on the $1.2 billion of the AgVantage securities that mature this quarter with two large counterparties. This includes the refinance of a $1 billion AgVantage security with MetLife that we mentioned during our last conference call. This was great news for Farmer Mac as we manage to bring this volume on balance sheet and earn a lighter spread as appose to just a guarantee fee. Our USDA guarantees line of business also saw a significant growth in the second quarter of 2017. We purchased $169 million of USDA securities, which resulted in net quarterly growth of $87 million, our largest ever. This reinforces the trend of increased lender usage of USDA guarantee loan programs due to available federal funding for these programs. Farmer Mac's net effective spread for second quarter of 2017 grew significantly in dollars and as a percentage due to growth in our business volumes and improved LIBOR-based funding cost this quarter. Dale Lynch our CFO will describe those changes in more detail in a few minutes. The credit quality of our portfolio deteriorated modestly in terms of sub-standard assets, which increased slightly as a percentage of our Farm & Ranch portfolio. Our 90 day delinquency rate actually improved this quarter as a number of delinquent loans became current in the second quarter which is consistent with the seasonal pattern we've discussed in the past and which we will discuss in more details shortly. With that as background, I'll turn to Dale Lynch, our Chief Financial Officer to cover our financial results in more detail, Dale? Dale Lynch Thanks, Tim. Our second quarter 2017 results reflect Farmer Mac's commitment to continue growing developing new customers, innovating our product set and delivering upon our mission throughout market cycles. As Tim mentioned, we grew to a record outstanding business volume of $18.3 billion as of June 30, 2017. This growth was driven primarily from net growth in Farm & Ranch loans, AgVantage securities and USDA securities. Our spreads improved in both dollar and percentage terms both sequentially and year-over-year. Spreads on new assets generally remains stable, although Farmer Mac has recently tightened some pricing for the highest quality Farm & Ranch loans because we believe there is an attractive growth opportunity in this sector of the market. The funding cost on LIBOR based assets improved this quarter due to changes in our funding strategy and the LIBOR funding market that remains favorable throughout most of the quarter. As Tim mentioned earlier, we are seeing continued signs of stress in certain sectors of the Ag economy and some evidence of this has emerged within our Farm & Ranch portfolio as subsequent assets have increased moderately over the last several quarters going back to second quarter of 2016. Turning to the financials. As you can see on slide 6, core earnings for second quarter 2017 were $16 million or $1.48 per diluted common share compared to $13 million or $1.23 per share in second quarter of 2016 and $15.6 million or $1.45 per share in the first quarter of 2017. The $3 million year-over-year increase in core earnings was primarily attributable to higher total revenues which included a $3 million after tax increase in net effective spread and a $0.1 million after tax increase in guarantee and commitment fee income. Farmer Mac also realized net gains of $0.5 million after tax in the second quarter of 2017 on the sale of real estate owned properties compared to no sales of REOs in second quarter of 2016. Partially offsetting the year-over-year increase was a $0.7 million after tax increase in compensation and employee benefit expenses which is due primarily to an increase in staffing related employee health insurance cost and benefits and higher payouts of variable incentive compensation resulting from actual performance exceeding certain targets. The $0.4 million sequential increase in core earnings was attributable to a $1.8 million after tax increase in net effective spread and an increase in net realized gains of $0.5 million after tax on the previously mentioned sales of REO properties. The increase was primarily offset impart by a $0.8 million after tax decrease in other income primarily driven by a decrease in fees received upon the inception of swaps and a $0.5 million decrease in tax benefits was nice from stock based compensation. Other offsetting factors included a decrease of $0.2 million after tax and guarantee and commitment fees which are driven by the refinancing in the second quarter of the $1 billion augmented security from an off-balance sheet asset upon which Farmer Mac turned the guarantee fee to an on-balance sheet asset upon which Farmer Mac earns interest income. And secondly a $0.2 million after tax increase in compensation and employee benefits due to the higher payouts of variable incentive comp during second quarter. Turning to GAAP net income second quarter 2017 net income attributable to common stockholders was $17.5 million or $1.62 per share compared to $12 million or $1.13 per share for the year ago quarter. The $5.5 million year-over-year increase was driven by an increase in net interest income of $3.5 million after tax. Also contributing to the increase for the effects of fair value changes on financial derivatives and hedged assets which was a $1.4 million after-tax gain in second quarter 2017 compared to a $1.3 million after-tax loss in second quarter 2016. The increase was offset impart by a $0.8 million after-tax increase and net interest expense which was primarily driven by a higher compensation employee benefits. Turning to spreads on Slide 7, Farmer Mac's net effective spread for second quarter 2017 was $35.6 million or 92 basis points compared to $31 million or 84 basis points in the year ago quarter and $32.9 million or 91 basis points in the first quarter of 2017. The $4.6 million year-over-year increase in net effective spreads and dollars was primarily due to the effects that I previously mentioned changes in Farmer Mac's funding strategy and a favorable LIBOR based funding market which added approximately 5 basis points. The increase in percentage terms was offset impart by a decrease in the amount of cash basis in interest income recognized on non-accrual Farm & Ranch loans which reduced net-effective spread by approximately 2 basis points. The $2.7 million sequential increase in net effective spreads and dollars is primarily due to growth and on-balance sheet AgVantage securities. Farm & Ranch loans and other business volume which increased net effective spread by approximately $2 million and changes in Farmer Mac's funding strategies and LIBOR based funding that remained favorable throughout most of the second quarter which added approximately $0.7 million. The 1 basis points sequential increase in net effective spread in percentage terms was primarily due to the LIBOR based funding cost that I just mentioned, which added approximately 2 basis points. Increase was offset impart by the effect of the refinancing of the $1 billion AgVantage securities into three new on-balance sheet AgVantage securities at an average spread that was less than the overall average net effective spread and percentage terms for Farmer Mac. Net effective spreads for our four lines of business for second quarter of 2017 and first quarter 2017 were as follows. $11.3 million or a180 basis points for Farm & Ranch compared to $10.7 million or a 180 basis points in first quarter 2017. $4.7 million or 90 basis points for USDA guarantees compared to $4.7 million or 91 basis points. $2.7 million or a109 basis points for our utilities compared to $2.6 million or 106 basis points and finally $14.4 million or 81 basis points for institutional credit compared to $12.6 million or 82 basis points. Turning to credit now on slide 8, as of June 30, 2017 the total allowance for losses was $8.1 million or 13 basis points of the $6.4 million [ph] Farm & Ranch portfolio compared to $7.6 million or 12 basis points of the Farm & Ranch portfolio as of March 31, 2017. The provisions fee allowance for loan losses recorded during second quarter 2017 were attributable to increase in the general allowance due to overall net volume growth and on balance sheet Farm & Ranch loans. This provision was offset impart by a modest decline in loss rate used estimates the probable losses. The provision to the reserve for losses recorded during the second quarter of 2017 was primarily due to an increase in the general reserve due to downgrades and risk ratings on certain unpaired crop and permanent planting loans underlying purchase commitments and off balance sheet Farmer Mac guarantee of securities. There were no charge offs recorded during the second quarter of 2017. As we mentioned on our first quarter earnings call this year, in April 2017 Farmer Mac sold properties related to the two impaired crop loans to one borrower that before closed in transition to REO during the first quarter of this year. Farmer Mac previously recorded specific allowance of $0.2 million on these impaired loans as at the year-end 2016. Farmer Mac then sold the two properties for $5.4 million and recognized a $0.8 million gain on the sale of REO. As of June 30, 2017 Farmer Mac's 90 day delinquencies were $41.9 million or 0.65% of the Farm and Ranch portfolio compared to $50.8 million or 0.81% of the Farm & Ranch portfolio as of March 31, 2017 and $21 million or 0.34% of the Farm & Ranch portfolio as at the year-end 2016. 90 day delinquencies were comprised of 42 delinquent loans as of June 30, 2017 compared with 57 delinquent loans as of March 31, 2017 and 38 delinquent loans as at the year-end 2016. More than half of the net increase in Farmer Mac's 90 day delinquencies as a percentage of it's Farm & Ranch portfolio from the year end is also from the delinquency of the single borrower on two permanent planting loans to which Farmer Mac had a $15.4 million exposure as of June 30, 2017. That delinquency was due to factors specific to that borrower and not related to the macroeconomic conditions in the Ag economy. Farmer Mac believes that it remains adequately collateralized on these loans. The improvement in 90 day delinquencies in first quarter of 2017 is consistent with the seasonal pattern of Farmer Mac's 90 day delinquencies fluctuating from quarter-to-quarter both in dollars and as a percentage of the outstanding Farm & Ranch portfolio, with higher levels generally observed at the end of the first and third quarters and lower levels generally observed at the end of second and fourth quarters of each year. As a result of the January 1 and July 1 payment dates of most Farm & Ranch loans. Farmer Mac expects that overtime, it's 90 day delinquency rate will eventually revert closer to and possibly exceed Farmer Mac's historical average due to macroeconomic factors and the cyclical nature of the Ag economy. Farmer Mac's average 90 day delinquency for the past 15 years for the Farm & Ranch line of business is approximately 1% and the highest 90 day delinquency rate observed over that period of time occurred in 2009 and was approximately 2%. However this coincided with Farmer Mac's higher delinquencies on it's then-held ethanol portfolio which we no longer hold. The Farmer Mac's other lines of business there are currently delinquent Ag gain of securities overall utility loans held or underlying standby purchase commitments and the USDA Securities are backed by the full facing credit of the United States. As a result across all of Farmer Mac's four lines of business the overall level of 90 day delinquency is comprised entirely Farm & Ranch loans with just 0.23% of total volume as of June 30, 2017 compared to 0.28% as of March 31, 2017 and 0.13% in the year ago quarter. As of June 30, 2017 Farmer Mac's sub-standard assets were $192.1 million or 3% of the Farm & Ranch portfolio compared to $165.2 million or 2.7% of the Farm & Ranch portfolio as of December 31, 2016? Those subset of assets were comprised of 287 loans as of June 30, 2017 and as of December 31, 2016. The $26.9 million increase from year end was primarily driven by credit downgrades and purchase commitments. Farmer Mac expects that overtime it subsidiary asset rate will eventually closer to and possibly exceeds Farmer Mac's historical average due to macroeconomic factors in the agricultural economy. Farmer Mac's average substandard assets as a percent of its Farm & Ranch portfolio over the last 15 years is approximately 4% and the highest subsidiary asset rate over that period of time incurred in 2010 it was approximately 8%. This also coinciding with Farmer Mac then-held ethanol portfolio which we no longer hold. As a sub-standard asset percentage rises, it is likely the Farmer Mac [indiscernible] allowance to losses and the reserve for losses will also increase. Although compared losses are inherent and the business of agricultural landing Farmer Mac believe that any losses associated with the current credit cycle moving moderated by the strength and diversity of our portfolio which Farmer Mac believe is adequately collateralized. Now turning to business line, as you can see on slide 9, we added $1.9 billion of new business in the second quarter of 2017. Looking at the specifics for the quarter we added the following new business volume. Purchased $1.3 billion of AgVantage securities, purchased $312.2 million of newly originated Farm & Ranch loans. Purchased $115.8 million of the USDA Securities added $55.9 million of Farm & Ranch loans under purchase commitments. Issued $53.5 million of Farmer Mac guarantee USDA Securities and finally purchased $25 million of our utility loans. After maturities and repayments, our net outstanding business line increased $414 million during the quarter. Turning to capital on slide 10, Farmer Mac $639 million of core capital as of June 30, 2017 exceeded our statutory minimum requirement of $505 million by a $134 million or 27%. This compares to core capital of $610 million or $143 million of capital above the minimum requirement as of the year-end 2016. The decrease in core capital from year-end 2016 was due to an increase in minimum capital require to support the growth of on balance sheet assets which included the $1 billion net loss AgVantage securities that was refinanced to an on balance sheet assets from an off balance sheet assets originally. This decline was offset impart by an increase in our retained earnings. In terms of liquidity Farmer Mac had 208 days of liquidity as of the end of second quarter 2017 compared to the minimum regulatory requirement of 90 days. More complete information about Farmer Mac's performance for second quarter 2017 is set forth in our 10-Q which we filed today with the SEC. With that, I'll turn it back to you, Tim.

Thanks, Dale. Farmer Mac continues to deliver upon it's mission throughout agriculture economic cycles, especially in today's more difficult environment. And this has never been more true than throughout the last year and a half. Our capital base is strong and growing providing plenty of capacity for future growth and we believe our dividend policy is help to enhance stock holder value. Farmer Mac continues to bring a new personal to fill key positions, create new positions and it's expanding its investment, new technology and the capacity to better grow our business. Farmer Mac continues to broaden its customer base with more institutions recognizing the value Farmer Mac can provide. And this is showing up in our results as more customers choose different products and solutions across all lines of business. We continue to signup new vendors for our loan purchase and credit protection products, we see strong interest for our AgVantage familiar products including new business opportunities to provide wholesale funding to financial funds that originate and invest in agricultural mortgages. And we continue to grow Farm equity AgVantage and look forward to working with new customers in this area. Over the last year Farmer Mac have significantly increased it's profile and name recognition as a nationwide 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 our first question will come from Eric Hagen with KBW. Please go ahead.

Hey, thanks. Good morning, guys. I join a little late, so I apologize if you said this in your opening remarks. But begin on sales from REO during the quarter, how many properties was that from how long was the property in REO for and how did you - how did the sale price compare to your expectations? Thanks.

That was one property in Georgia. I believe that the [indiscernible] two loans to one obligor, we put effect reserve on it and fourth quarter I believe of 2016, and it transition to REO in first quarter 2017 and we saw that in April of 2017 for about $0.8 million gain pretax, after tax about a $0.5 million. I think we felt pretty good about getting our own asset, again the collateral was very good on it and we had a pretty active bidding process for us to get how many in total probably had and five active bidders in the auction. So I think we felt pretty confident even if that was transitioning to REO that we get out with our - at least our capital attack. So I expect the $0.8 million gain, but I think we forget about getting out and getting your money back.

Oh let's get the bid lists sounds like it was robust. That's positive to hear. And then how do you - if you just guide us to how you provision for some of the pickups in substandard assets? For example, have you provisioned the act for the pickup that occurred at the end of last quarter and just the kind of trend that you think about as you provision generally? Thank you.

Yeah, as loans fall down the scale into substandard assets, the models that we used to estimate our allowance for losses pick those up in a timely manner. So you see a couple of things happening as loans become - more loans become substandard you'll see increases to the allowance for losses as more loans become delinquent then they further becomes - further substandard and the allowances occurred at that point. So they are trailing indices is the way to work out it.

I'd like to highlight to Tim's point. It's important that the dollar increase that you saw in the allowance this quarter wasn't due to that. The degradation we saw in the credit quality was actually quite modest. The entirety of the net growth in the dollars of the allowance this quarter, the total allowance is driven by the volume growth entirely. I think the dollar increase and the allowances or $0.5 million. The volume impacted that was roughly $800,000. So there is actually net offsets other areas of the portfolio. But it was growth really this quarter. But to Tim's point yes academically those numbers are in the provision, the degradation and [indiscernible] assets.

They are already in the provision?

Correct.

Okay.

But they will offset by other factors. This is my point.

Right. Now I hear you. Thank you. One more from me, if you don't mind. If you can talk about prepayment rates right now. How you expect those to trend and just any certain areas of the country or among different farms or type of farms that have a concentration different prepayment rates?

We haven't seen an increase in prepayment rates. The reality with the agricultural economy sort of struggling probably a strong word, but things aren't that good. You don't see a lot of people paying down their loans on an early basis where we see loans being paid off as usually due to the sale of farms or other factors, but we don't expect an increasing level of prepayments.

Got it. Thank you. Thanks for the comments.

Our next question comes from Scott Valentin with Compass Point. Please go ahead.

Good morning. Thanks for taking my question. Just you've mentioned Ruble [ph] bank I think did their first or sell the first loan to you guys and there are large Ag lender, I'm just wondering if you see lot more opportunity to get growth from that relationship?

We certainly do. They've been a long standing relationship with us for many years. There have some new leadership in place and they are looking at their business models strategically and we're certainly partners there is and looking to help them and as they move forward. So we do expect that relationship to continue and expand.

And there's other large counter parties as well Tim right?

Certainly. There is just one of the few that we started doing business with in a different way this quarter. There are other vendors that we have not done business with historically that we continue to talk to and hope to be able to provide value to them as well.

Okay. So the next question, just on the net growth just over $400 million, how should we think about that going forward, you talked about Ruble Bank maybe new relationships. Should we see an acceleration in that net growth going forward?

I think we see opportunities, it's matter of whether or not we're able to bring those opportunities for fruition. We have experienced strong and steady growth over the past couple of years. We expect that to continue and continually looking for ways to provide better service and products that customers seek value in. So I would expect that we obviously are hoping to grow the company and expect we will be successful.

And just I apologize, if I missed this. On the net effective spread which upon 1 basis point linked quarter, just thinking about future spreads in terms of one any mix shift you see in the competition of the business that drive any kind of net effective spread expansion and two, if we do get a rate increase in December, I believe that will be positive from net effective spread?

I think that last part first on the rate increase, I'm not sure that's enough to be impact. You really need if you're talking if you're eluding to generalize widening of spreads in commercial credits. You don't need to see a material on sustaining for using a tenure treasury rate and that's just hasn't proven to be the case, so I'm not sure that I see that as a driver of an increase in spread tactically in the near term. As far as your first point, the sequential increase in spread was driven by improvements in our LIBOR based funding cost, so we've kind of try to be smart about how we're doing those funding between one and three month assets balancing the term outs and looking at certain structures that we can issue that will achieve lower cost and generally it's a good market in the second quarter as well. So I think we've picked up $2.5 million of interest savings between Q1 and Q2 year-to-date on our refinance LIBOR based assets, going forward when you look at the funding market today it is, the levels are at right now, the levels that I would call it normal, I mean these are levels that you kind of be seem to revert to over the last 10 years or so. So ongoing further improvements are possible but I wouldn't - they don't feel as likely to be as material as the improvements we've seen in the last, I'd say three to four quarters in our funding rates but the levels that we are at now are good levels and they feel like they are stabilized somewhat.

It's very helpful, appreciate. And one final question just I think, Tim I think you mentioned that for your highest rated credit you guys tighten pricing little bit got, I thought a better word, more aggressive on pricing to get some more business, and get some volume we thought there was an attractive risk reward. In terms of apart from pricing in terms of other underwriting maybe tax service coverage ratio is LTV, is there any thoughts that maybe changing some of the criteria there would also help on the origination fund or to just more stay focused on pricing?

We are certainly not going to degrade our underwriting standards in order to bringing additional loans, I mean the pricing aspect is really just a matter of competition and serving the customers' needs. A good example we've brought the MetLife bond on balance sheet and refinance that and that's going back to the comment about spreads that brings down our overall spreads in terms of basis points because it's a high quality customer and a large bond. But at the same time, it increases a lot of dollars spread, so economically it's a great asset coming on the books, but if you look at it in terms of basis points it's impacted to an overall level of basis points down. So when we look at an individual loan, if we're doing a large loan to a agro business type of entity, they have other sources of financing as well that they're looking at we're just one source of their financing they have a lot of other borrowings. So we need to position ourselves in the marketplace in order to be beneficial and sometimes that means tightening our spreads.

Okay. Thanks very much.

Our next question comes from Brian Hollenden with Sidoti. Please go ahead.

Good morning and thanks for taking my questions. Should we still think about annual net volume growth in terms of the billion dollars give or take or does that seem low in the current environment?

Really it depends quarter-to-quarter. We've kind of that's what we've seen in the past over the years, it's been roughly a billion maybe a little bit more over the year, so I think again as we see opportunities coming in and we see a little bit of pressure in the Ag economy that provides - that causes a situation where other financial institutions look at their business models and think about ways that they can mitigate risks and often times that leave to business with Farmer Mac. So I'm not going to say that a billion dollars is low but I think that's kind of where we sort of take a look at where we're going to be in the future and what we can sustain and capitalize ourselves, we certainly have room for greater growth in that but there are no lot of Ag lenders out there quite frankly who are estimating sequential growth much more than that would be as in terms of percentage of Farmer Mac's book of business. But obviously we hope to exceed that and grow our business and continue to sell fund.

We've grown $800 million six months arguably I think that the billion dollars looks like is are we going to grow more than 200 million at the balance of the year and the Farm & Ranch loan clients [ph] running it 50% hit last year which was a record year and we had a record, USDA loan volume quarter, this quarter. Tim's broader point, when the credit market is tighter, we're seeing a secular trend towards Farmer Mac's business expanding. So we eluded to the fact that we're hiring people and investing in infrastructure. I think we're doing that because we see a longer term opportunity for Farmer Mac that's probably not fleeting.

Thank you. And then can you talk about your effort to increase your customer base overall, what are you doing differently now that's driving new customers?

I would say it sort of positioning ourselves in the industry, we have talked in here earlier about hosting webinars and we have a prudently publication to see that we fund out to all of our customers and other prospects in the industry. We continue to do our road shows that we do, marketing, we have expanded that a little bit, we have hosting additional Lender conferences, we are hosting three this year, last year it was two, the year before it was one. So it's really working on name recognition and position ourselves in the industry and making sure we are out in front of potential customers. Conferences that we attend are also can be very high profile for us, speaking engagements another things they are all successful. So I think it's a general investment in our name and our brand I think is how we characterize it overall.

Alright, thank you very much.

And our next question is a follow up from Eric Hagen with KBW. Please go ahead.

Thanks, I wanted to ask my broken method question on AgVantage. It looks there is a little over $2 billion that's coming due next year, do you think you can replace that with the wider spread that you did the April deal with MetLife that instead of just doing with GC? Thanks.

We don't have any subsequent too larger maturities that dynamic that are off balance sheet and just earnings do you see the balance of our, - we have gotten through all the large maturities with MetLife and this last one was the only one that was off balance sheet. So the other AgVantage maturities that we have upcoming in the 12 to 24 months forward period are just traditional on balance sheet spread business for us. It just comes down to what time period that asset was put on the ball through with the competitive dynamics were then relative to what spreads are today. I think we have generally this year been unable to refinance most of our bonds, even away from this MetLife bond at spreads that were leases why - if not wider than the original spreads. But I would expect not a significant changes from what the spreads were to what the refinance spreads would likely be. Presenting into LIBOR funding market doesn't have a dramatic change, and so that's change dramatically from where it is today.

Roughly how many bonds does that two and change billion that's coming to next include?

I don't know, I'd say the average AgVantage size we have remaining for issuances might be a $150 million.

Okay, lesser to other bonds probably. Great, thank you guys.

This concludes our question-and-answer session for today, I'd like to turn the conference back over to Tim Buzby for any closing remarks.

Thank you for listening and participating this morning. We look forward to our next call to report our third quarter 2017 results.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.