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Good day everyone and welcome to the Farmer Mac Fourth Quarter and Full Year 2017 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. [Operator Instructions] Please note that today's event is being recorded.
I would now like to turn the conference over to Lowell Junkins, CEO. Please go ahead.
Good morning. I'm Lowell Junkins, Farmer Mac's Acting President and CEO. Farmer Mac is pleased to welcome you to the 2017 fourth quarter and year-end investor conference call. We have posted a slide deck to our Web-site that we'll refer to throughout today's call. Information on where these slides can be found is included in this morning's press release.
Before I begin, I'd like to 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. Steve?
Thanks, Lowell. 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 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 2017 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 measures to measure corporate 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 labelled 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-K and the earnings release posted on Farmer Mac's Web-site, farmermac.com, under the Financial Information portion of the Investors section. A recording of this call will be available on our Web-site for two weeks starting later today.
Thanks, Steve. Thanks to all of you for joining us. It's a pleasure to be on this call with you today. As you know, this is my first investor call as Farmer Mac's Acting CEO. I've been on the Board now for 22 years, Chairman for the last eight years, and have witnessed Farmer Mac's tremendous growth firsthand. As demonstrated in our 2017 results, Farmer Mac continues to perform extraordinarily well. I'm looking forward to working with Farmer Mac team to execute on this long-term strategy as we continue to search for a new CEO.
2017 was a remarkable year for Farmer Mac as we produced record volumes, double-digit core earnings growth. Our success was driven by our team's disciplined execution on our strategies, successful business development efforts, and an industry backdrop that continues to play to our strengths. The tighter credit environment combined with industry credit quality that remains good, providing ample business opportunities, are contributing to the growth.
2017, we grew our outstanding business volume by $1.6 billion. Core earnings per diluted common share increased by 22% to $6.08 per year. 2017 net volume growth was driven by healthy growth across all four of our lines of business, which in turn drove significant growth in net effective spread and core earnings.
As you read in this morning's press release and which can be seen on Slide 5, Farmer Mac announced a $0.22 per share increase in our quarterly common stock dividend of $0.58 per share, which would increase the annualized dividend yield on our Class C common stock by more than one percentage point to approximately 3%, based on yesterday's closing price.
Farmer Mac expects the new U.S. tax legislation enacted in December of 2017 to have a positive effect on the core earnings because of the lower federal corporate income tax rate that will apply to Farmer Mac starting in 2018. This was an important factor in Farmer Mac's decision to significantly increase the amount of quarterly common stock dividend beginning in 2018, consistent with its common stock dividend to target a core earnings payout ratio of approximately 30%.
This represents a seventh consecutive year that Farmer Mac has increased its quarterly dividend from the prior year and Farmer Mac believes that the most recent increase is supported by Farmer Mac's earnings potential and overall capital position.
As we have discussed over the course of last year, Farmer Mac continues to execute on its strategic initiatives to increase capacity and efficiency and maintain its leadership position in financing rural America. This includes significant investments in its people, technology, and infrastructure. The recently enacted tax legislation comes at a great time for us because it gives us even more resources for those initiatives, while also increasing the returns to our common stockholders.
For example, Farmer Mac has plans to hire approximately 10 to 15 employees in 2018, increase the compensation for our strong performers, and invest upwards of $10 million or more in its technology and its infrastructure in the next three to five years to further these initiatives. The recent tax legislation is expected to contribute significantly to providing incremental earnings to fund these investments.
Now I'd like to turn to Curt Covington, our Senior Vice President of Agricultural Finance, to provide you with an update on the current agricultural environment. Curt?
Lowell, thank you very much. While there was a modest increase in net cash income last year in 2017, initial projections from the USDA indicated a decline of about 5% to roughly $92 billion in 2018, which represents about a 37% drop from the peak in 2012. The decline is attributed generally to flat revenue in various commodities coupled with an uptick in farm expenses.
USDA farm income forecast this early in the year tend to be conservative and it's not uncommon for USDA to make slight upward revisions later in the year as crop and marketing conditions are better known. Despite the low income environment, farm wealth is expected to increase about 1.6% in 2018, mostly due to a rising national farm real estate [indiscernible].
USDA forecast of farm real estate values in 2017 will top out at about 3.3% higher than it was in 2016, with an additional 2.1% expected rise in 2018. However, offsetting this increase, liquid farm balance sheet assets, such as commodity inventories, are expected to decline as lower farm gate prices reduce the value of stored inventories and will result in another year of declining working capital.
However, the combination of rising farm real estate values and projected slowing debt growth means that the farm sector's debt to asset ratio, which is a key measure, should remain nearly [indiscernible] today in historically low levels. The farm sector's overall equity position should provide some flexibility to operators as well who need to right-size the balance sheet to improve working capital if farmers wait for commodity prices and profitability to improve. USDA will provide additional outlook and update farm income information and wealth statistics information later in the year, generally in August.
More broadly, the rural economy is showing some signs of resilience after a brief period of stress. In 2016, Farmer Mac's research team looked at economic indicators in agricultural states that suggested a spill-over of lower agricultural income into that general rural economy. Today these same leading indicators show a realignment of rural state economies with the overall U.S. economy, led by lower unemployment rates, higher wages, and expanding housing permits.
Unemployment rates in highly rural areas, such as Iowa and Minnesota, dropped well below national averages and permits for new buildings permits inched up. Wages in those rural areas also rose to 2.8% on an annualized basis in [2007] [ph]. While perceived strengths in general economy is certainly welcome news, there are some signs that the recovery is not as widespread as in all rural areas.
For example, courts in many ag-intensive states reported a slight increase in the number of bankruptcy proceedings in 2017 and we hear from many ag lenders that there has been an uptake in farm loan delinquencies during the calendar year. Additionally, wage growth in agricultural-focused counties across the U.S. has been slower than all other counties. Job growth in 2017 generally has been led by the service industry, which has not expanded as much in the agricultural areas compared to the urban and suburban areas. The loss in farm income is yet to be replaced by off-farm income in many of these rural communities and that is likely why rural America is slower to recover.
In summary, persistent lower commodity prices continue to pressure farm profitability, but the strength of the farm sector balance sheet and the slowly improving general economy are providing some support for farmers and ranchers.
And with that, I will turn it to Lowell.
Thanks Curt. I guess in this market backdrop, Farmer Mac's business model is thriving as we continue to gain the market share. Farmer Mac is created with a mission to increase the access to capital and reduce the cost of capital for rural America. And so, the 2017 financial results indicate Farmer Mac's strong delivery upon its mission is also consistent with the strong performance for our stockholders, as business volumes, net effective spread, and core earnings, all grew significantly.
Now I'd like to ask Dale Lynch, our Chief Financial Officer, to cover our financial results in more detail. Dale?
Thanks Lowell. Our 2017 results reflect Farmer Mac's commitment to continue growing and developing new customers, innovating our product set, and delivering upon our mission throughout market cycles. As Lowell mentioned, 2017 was a remarkable year for Farmer Mac. Results were strong across the board, including robust new volume growth, improving spreads, stable credit metrics, and growing profitability.
In terms of business volume, as you can see on Slide 6, Farmer Mac ended the year with a record outstanding business volume of $19 billion as of December 31, 2017. We completed more than $4.7 billion of business volume in this year, resulting in net growth of $1.6 billion after maturities and repayments. The increase in outstanding business volume was driven by broad-based portfolio growth across most of our product set.
Our Farm & Ranch loan purchases exceeded $1 billion in 2017, which was primarily driven by an increase in the average size of our loans purchased. During 2017, Farmer Mac purchased 1,445 Farm & Ranch loans with an average principal balance of $781,000, compared to 1,467 loans purchased with an average principal balance of $665,000 during 2016. We also added over $500 million of Farm & Ranch loans under standby purchase commitments, which is a 39% increase in that business as compared to 2016.
In our Institutional Credit line of business, we purchased $2.4 billion of AgVantage Securities over the course of 2017, which includes the refinance of a $1 billion AgVantage security with MetLife in the second quarter that we brought on balance sheet to earn a wider spread. After payments and maturities, net growth in AgVantage Securities was $617 million for the year, which was driven by business from two of our long-standing customers, Rabo AgriFinance, and National Rural Utilities Cooperative Finance Corporation, also known as CFC, as smaller institutional customers, including two new counterparties this year.
Our USDA Guarantees line of business also performed well, as we purchased $531 million in 2017 compared to $481 million in 2016. This growth reflected an increase in demand for USDA Guarantee loan programs and available funding for these programs.
In our Rural Utilities business, we purchased $137 million of rural utilities loans, resulting in net growth of $77 million, which was mostly offset however by a decline in rural utility loans under standby purchase commitments. The growth in our loans purchase demonstrates Farmer Mac's ability to provide more effective pricing on larger, more competitive loans to higher rated borrowers in the utility space.
Turning now to our financials, as you can see on Slide 7, core earnings for 2017 were $65.6 million or $6.08 per diluted common share, compared to $53.5 million or $4.98 per share in 2016. The $12.1 million year-over-year increase in core earnings was primarily due to an $11.9 million after-tax increase in net effective spread, a $1.1 million after-tax increase in net realized gains on the sale of REOs, and a $0.8 million after-tax increase in guarantee and commitment fee income.
The increase was offset in part primarily by a $1.5 million after-tax increase in operating expenses, driven by higher compensation and benefits and G&A expenses. The $0.9 million after-tax increase in comp and benefits expenses was due primarily to an increase in headcount and employee health insurance costs, and a $0.6 million after-tax increase in G&A expenses was due primarily to continued technology and business infrastructure investments, higher legal fees, additional office space, and expenses related to our business development efforts.
As Lowell mentioned earlier, Farmer Mac plans to continue to invest in its human capital and its technology and business infrastructure to increase our capacity, efficiency, and improve the achievement of our long-term strategic objectives. Accordingly, Farmer Mac expects the annual increases in its aggregate compensation and benefits and G&A expenses to be above historical averages over the next several years. Specifically, management believes the aggregate comp and benefits and G&A expenses will increase approximately 15% in 2018 relative to 2017, with increases likely to remain elevated in 2019.
Turning now to the quarter's results, Farmer Mac's fourth quarter 2017 core earnings were $17.9 million, or $1.65 per diluted common share, compared to $13.2 million or $1.23 per diluted common share in the fourth quarter of 2016. The $4.7 million increase in core earnings from the year ago quarter was driven by a $3.6 million after-tax increase in total revenues, which in turn was driven by significant business volume growth.
Turning to GAAP net income, 2017 net income attributable to common stockholders was $71.3 million, or $6.60 per diluted share, compared to $64.2 million or $5.97 per diluted common share for 2016. The $7.1 million year-over-year increase in net income was primarily driven by increases of $11.3 million after-tax and net interest income and a $1.1 million after-tax increase and net realized gains on the sale of REO properties.
The increase was offset in part by a $2.7 million after-tax decrease in gains in fair value of financial derivatives and hedged assets and a $1.6 million after-tax increase in non-interest expense. Also partially offsetting the increase was the re-measurement of our net deferred tax asset due to the recently enacted tax legislation, which resulted in a $1.4 million increase to income tax expense in 2017.
Turning now to spreads on Slide 8, Farmer Mac's net effective spreads for 2017 was $141.3 million or 91 basis points, compared to $123.1 million or 84 basis points in 2016. The $18.2 million increase in net effective spread was due to growth in on-balance sheet AgVantage Securities, Farm & Ranch loans, and other business volume, which increased net effective spread by approximately $15.1 million, as well as changes in Farmer Mac's funding strategies and improvement in the LIBOR funding market which contributed approximately $4 million to the year-over-year increase.
In percentage terms, net effective spread increased 7 basis points in 2017 compared to 2016, primarily due to the decrease in the average balance of lower-earning cash and equivalents and investment securities, as well as the previously mentioned changes in Farmer Mac's funding strategies.
Farmer Mac's net effective spread for the fourth quarter in 2017 was $37.5 million or 93 basis points, compared to $31.5 million or 88 basis points in the year ago quarter. The $6 million year-over-year increase in net effective spread was primarily due to growth in on-balance sheet AgVantage Securities, Farm & Ranch loans, and other business volume, which increased net effective spread by about $4.7 million. Also contributing to the increase were reductions to Farmer Mac's LIBOR-based funding cost, which added approximately $1.2 million.
The 5 basis point year-over-year increase in net effective spread in percentage terms was primarily due to a reduction in the average balance of lower-earning investment securities and the reduction of LIBOR-based funding costs.
Turning now to credit on Slide 9, as of December 31, 2017, the total allowance for losses were $8.9 million, or 13 basis points of the $6.9 billion Farm & Ranch portfolio, compared to $7.4 million or 12 basis points of the Farm & Ranch portfolio as of year-end 2016. The $1.5 million increase in 2017 to the allowance was primarily due to net volume growth and on-balance sheet Farm & Ranch loans and downgrades in risk ratings. There were $327,000 of charge-offs recorded during 2017.
Turning now to delinquencies, as of December 31, 2017, Farmer Mac's 90-day delinquencies were $48.4 million, or 0.71% of the Farm & Ranch portfolio, compared to $21 million or 0.34% of the Farm & Ranch portfolio as of prior year-end. Those 90-day delinquencies were comprised of 51 delinquent loans as of year-end 2017 compared to 38 delinquent loans as of year-end 2016.
The year-over-year increase in 90-day delinquencies was primarily due to the delinquency of several larger loans and certain crop and permanent planting loans, mostly due to borrower-specific factors and not related to the macroeconomic factors within the ag economy. In particular, $15.3 million of permanent planting loans to a single borrower became delinquent in first quarter 2017, and this accounts for over half of the increase in 90-day delinquencies throughout the course of 2017. Farmer Mac believes it is adequately collateralized on this exposure.
Farmer Mac's 90-day delinquencies have historically fluctuated 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 first and third quarters and lower levels generally observed at the end of second and fourth quarters. This is as a result of the annual and semi-annual payment terms of most Farm & Ranch loans. Farmer Mac expects that over time its 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 as a percent of its Farm & Ranch portfolio over the last 15 years is approximately 1%. The highest 90-day delinquency rate observed over that period occurred in 2009 at approximately 2%. This coincided with increased delinquencies in loans within Farmer Mac's then-held ethanol portfolio that Farmer Mac no longer holds.
Although the vast majority of the year-over-year increase in 90-day delinquencies is due to borrower-specific factors, other factors such as the macroeconomic trends and the cyclical nature of the ag economy could contribute to an increase in 90-day delinquencies in the future.
As of December 31, 2017, Farmer Mac's substandard assets were $221.3 million or 3.2% of the Farm & Ranch portfolio, compared to $165.2 million or2.7% of the Farm & Ranch portfolio as of prior year-end. Those substandard assets were comprised of 307 loans as of December 31, 2017 and 287 loans as of the prior year-end.
The $56.1 million increase from year-end 2016 was primarily driven by credit downgrades in on-balance sheet loans. The new substandard asset volume since year-end 2016 includes several large exposures and also represents a relatively diverse set of commodities. Farmer Mac expects that over time its substandard asset 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 substandard assets as a percent of its Farm & Ranch portfolio over the last 15 years is approximately 4%. The highest substandard rate observed over that period occurred in 2010 at approximately 8%, and this also coincided with the increase in substandard loans within Farmer Mac's then-held ethanol portfolio. If Farmer Mac's substandard asset rate continues to increase from current levels, it is likely that Farmer Mac's provision to the allowance for loan losses and the reserve for losses would also increase.
Although some credit losses are inherent to the business of agricultural lending, Farmer Mac believes that any losses associated with the current ag credit cycle will be moderated by the strength and diversity of our portfolio, which Farmer Mac believes is adequately collateralized.
Turning now to capital on Slide 10, Farmer Mac's $657 million of core capital as of year-end 2017 exceeded our statutory minimum capital requirement of $520 million by $137 million or 26%. This compares to core capital of $610 million or $143 million of capital in excess of the minimum requirement as of the year-end 2016.
A decrease in core capital in excess of our statutory minimum from year-end 2016 was due to an increase in the minimum capital required to support the growth of our on-balance sheet assets over the course of 2017. Also contributing to the decline was a one-time equity reclassification related to the recently enacted tax legislation. This resulted in a $9.1 million increase to accumulated other comprehensive income and a corresponding decrease to retained earnings.
More complete information about Farmer Mac's performance for 2017 is set forth in the 10-K we filed today with the SEC. And with that, Lowell, I'll turn it back to you.
Thanks Dale. Farmer Mac continues to deliver upon its mission throughout agricultural economic cycles. This has never been truer than throughout this last year. Our capital base is strong and growing, providing plenty of capacity for future growth. We believe that our dividend policy has helped enhance stockholder value. Farmer Mac continues to bring in new personnel to fill key positions, new positions, and is expanding its investment in the technology and the capacity to grow our business.
These investments will be evident over time in the increase in compensation and G&A expenses. Farmer Mac continues to broaden its customer base, which is reflected in our results. More institutions are recognizing the value of Farmer Mac and what Farmer Mac can provide. And more customers are choosing different products and solutions across our lines of business.
We continue to sign up new lenders for our loan purchase and credit protection product, including new types of customers for these products. We see strong interest in the AgVantage family of products, including the new business opportunity that provide wholesale funding to the financial funds that originate and invest in agricultural mortgages. And we continue to grow the Farm Equity AgVantage and look forward to working with new customers in that area. Farmer Mac has been a champion for and an integral part of this nation's rural economy for 30 years. We look forward to the decades that are ahead.
As you know, I became Acting CEO this past December and Farmer Mac is actively conducting a search for a new CEO. We have established a subcommittee of the Board to lead the search efforts and we are currently evaluating the internal and external candidates. Farmer Mac deserves a world-class CEO to help lead us into the bright future ahead. We look forward to being able to provide you with more information on our next earnings call. Now, we'll be happy to answer any questions that you may have.
[Operator Instructions] The first questioner today will be Eric Hagen with KBW. Please go ahead.
I know the goal has really been to target about a 30% payout ratio. It looks like in reality though the ratio for 2017 was more like 25%. I think in previous years it's even lower than that. So, just given your new dividend, I guess earnings are pretty sensitive to whether we as analysts use something that's closer to what it was this past year versus the 30% that you sort of guide to. If we assume the payout ratio is really more in line with where it was last year and we net out for the higher expenses you talked about, I think we are talking about top line revenue growth, which is pretty meaningful this year. Can you just sort of guide us to where you think you'd be adding the majority of new volume in order to achieve that growth rate?
Eric, this is Dale. So keep in mind, when we came out with our new dividend policy back in 2015, the objective was over the next several years to migrate to a dividend payout ratio of approximately 30%. At that point we were around 12% or 13% payout ratio. So, if you look over the past couple of years, we've roughly increased by about 500 basis points a year. So if you kind of continue that trend in 2018, that would imply that 2018 would get you closer to that 30% payout ratio, and then we were last year around 25% give or take, maybe a little less.
So, I would estimate – and this is the third year that we sort of implied in that several year transition, so I would expect it would be in and around that 30% target, not precisely but plus or minus a couple of hundred basis points at that level, as opposed to say 25%, which is where it was last year.
Okay, that's helpful, Dale. So, I guess still just kind of give us a guidance on just where, which segments of the portfolio you expect to add incremental volume, is it going to be off or on-balance sheet assets, Farm & Ranch or standbys?
So, I mean I think the trend line is sort of – the factors that have been in place for the last several years haven't really changed. The results that we just posted this morning indicate that. So we have continued to have strong Farm & Ranch loan growth, loan purchase growth, strong AgVantage, on-balance sheet AgVantage growth.
Our credit protection products in aggregate are more stagnant. We have some sectors within that that are growing rapidly and other sectors that are not. So that product has not been a growth driver for us in recent years.
And the utility business this year for the first time kind of picked up on the loan purchase side. We think that the outlook for that remains optimistic. If you read our 10-K and the Outlook section, you will see some commentary around that. So, I would expect the same driving forces that we listed in the K around the outlook to continue to be in force for the foreseeable future. But as you know, we are not going to get specific there as you know.
Yes, sounds good. Thanks for the comments.
Our next questioner today will be Scott Valentin with Compass Point. Please go ahead.
Just Dale, I don't know, with the new U.S. corporate tax rules, have you guys kind of figured out what the effective tax rate should be going forward for 2018 roughly?
We should be right around our statutory tax rate of 21%. We don't have any material difference of timing or anything along those lines that would drive any differences.
Okay, thanks. That's very helpful. And then just in terms of net spread, it was up linked-quarter. I know you guys are managing your [indiscernible] risk pretty tightly. Is that a reflection of just the product mix shifting a little bit more Farm & Ranch, and then going forward you mentioned Farm & Ranch would be a source of growth, should we expect the net spread to expand as that mix shifts again towards more Farm & Ranch?
Yes, I mean that's in force. I think what you saw in the fourth quarter, that had more to do with several other factors. We had some day count differences which impacts our USDA portfolio. But primarily it's that and our funding levels. It's not really – that mix shift is less than 1 basis point of impact, but over time certainly I would expect that we'll continue to have growth in these new products, like Farm & Ranch loans and Farm Equity AgVantage which has a higher spread than the rest of our AgVantage business. It more approximates our loan spreads. Those factors should combine to at least provide stability to spreads, if not a mix shift toward an accretion spreads over time, all else being equal assuming pricing doesn't change materially from where it is today.
Okay, all right. And then just a bigger picture question, just on – I mean NAFTA is in news, I don't have any particular insight into what happens on that, so I was just wondering how you kind of game-plan for a situation where maybe NAFTA gets terminated and you start seeing maybe more tariffs? I'm just wondering, as you go through scenarios and modelling and budgeting, how you guys account for maybe the potential fact that NAFTA may not be successfully renegotiated?
Curt, do you want to – you still on line, Curt?
Yes, I can answer that. Thanks for the question and it's actually a very good question. The Secretary of Agricultural Produce has kind of been on a road trip at least for the last six months and he has been meeting with farm groups and bankers. [Indiscernible] and of course he has suggested in all of those meetings that the administration is aware, adheres, and it's sensitive to the issue.
From a portfolio perspective, I would lay out maybe something that we could talk about here just real quickly. We have about less than half of our portfolio would be sensitive to the [indiscernible]. So you talk about grains and dairy, those parts of the ag economy typically would be affected the most. But the balance of the agricultural economy, and therefore our portfolio, actually when NAFTA was dated back in 1994, actually impaired some of those what I would refer to as specialty crops.
So our portfolio is very diverse and we do recognize that there would be an impact on the corn, bean and potentially the dairy sector, but there is another 60% to 65% of our portfolio that may or may not have the same kind of impact.
That's very helpful. Thanks very much.
Our next questioner today will be Brian Hollenden with Sidoti. Please go ahead.
Similar to the last question, I mean do you see any major positive or negative changes in the industry conditions in 2018 on a more aggregate basis?
I can answer. Look, we look at this regularly and I would characterize it this way. The grain sector is probably going to be flat to slightly declining, particularly through the upper plains, Midwest area. The dairy sector is going to be suffering for the next six months with some slight improvements expected towards the second half of the year and particularly towards the final quarter of the year. The other sectors of agriculture, and taking NAFTA out of the picture here, the other sectors of agriculture have performed very, very well, particularly the specialty crops across the West, the Pacific Northwest, and in the South and into the Southeast.
So, we actually see that those specialty crops generally speaking will perform at or potentially slightly above how they have performed over the last three to five years, but we do see continued kind of doldrums for the corn, soybean and dairy sector heading into 2018.
And can you provide an update on your new business initiatives, the traction that you have gained so far, and the overall opportunity set now that you [indiscernible] talk with potential new customers, what's the overall sort of feedback been like?
So I'll give sort of a two-pronged answer to that. On the Institutional Credit side, which is our marketing efforts to primarily financials or other large lenders in the industry, it's been very successful. I think in 2017 you go back and deconstruct, that added upwards of $150 million of net growth on those new product sets at a spread range that's probably not substantially different than our Farm & Ranch loan portfolio's weighted average spread, so meaningful.
I think our pipeline in that line of business, as we talk about, we implied in our Outlook section in our K, remains pretty robust and we added two new counterparties this past year and that takes our total counterparty count in this new product set to in and around roughly 10 counterparties that were doing various sorts of business with these new products.
Our outlook for 2018 remains pretty robust. This has been, this is now full year three I believe of sort of institutionalizing this effort, and I think we are starting to really get traction. When we go to conferences and sponsor conferences these days, people tend to seek us out and ask how we can help them. But they are aware of the Farmer Mac name now and what we can do with these product sets. So I think our expectation and hope is that the future will continue to be attractive and we should continue to gain momentum in these product sets over time.
On the loan side, on the mortgage purchase side, maybe Curt, you want to add some color to that?
Yes, I would just say, over the last year we have seen a significant uptick in the number of new sellers and activity with existing sellers. We also have instituted a new Big Bank strategy and there is a lot of opportunities with regionals and middle-market banks that [indiscernible] terms of agricultural lending. They are a little more difficult to penetrate just because of the nature of the organization, but the last year, in 2017, we added two or three new counterparties in that area that accounted for some noticeable growth in our Farm & Ranch business. So, 2018 is going to stay focused on that. Plus we are working on a scorecard program to help with the 700 or so rural community banks that we deal with across the U.S., and we think that also is going to be attractive.
Great. And then last one for me, on the technology side, can you talk about what you are investing in and what are the expected benefits?
It's a lot of technology. Our technological platform continues to evolve as we get larger and we start to produce the volumes that we produced in last several years. And the Farmer Mac's technology needs to evolve and move into a more modern context.
I think a lot of our systems are 8 to 10 years old in some cases, and so in our minds they are approaching sort of their end of life and we are looking to replace them. And as part of that, we are evaluating how best to pursue our technological strategy.
A lot of our systems are home-grown, developed in-house, and we are beginning to evaluate whether we need to depend upon some outside resources to help us develop a lot of our infrastructure, and to host and manage it for us as well.
So, there is a lot of change coming. I think it will add efficiency, capacity, safety and security to our transaction, volume, reputation and protection to Farmer Mac, and it may also lead to some longer-term abilities for Farmer Mac to maybe transact its business volume in slightly different ways, perhaps more automated, perhaps more efficient ways, in a more digital fashion too.
So, a whole host of things on the project list, it's a pretty tall list that we're looking at, and that's part of the reason of driving the 10 to 15 hires we mentioned earlier on the call today, but it's a lot of initiatives around that.
Thank you.
And this will conclude our question-and-answer session. I would now like to turn the conference back over to Lowell Junkins for any closing remarks.
Seeing no other questions, I would like to thank you all for listening and participating this morning. I look forward to our next call to report our first quarter 2018 results in May and thank you all very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.