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Good day, and welcome to the Farmer Mac Fourth Quarter and Full Year 2020 Earnings results. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Brad Nordholm. Please go ahead, sir.
Good afternoon. I'm Brad Nordholm, and I'm very pleased to welcome you to our 2020 Fourth Quarter and Year-end Investor Conference Call. We have a great report and a number of positive developments to present today. But before I begin, I will first need to ask Steve Mullery, our 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, Brad. Some of the statements made on this conference call may be forward-looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance, and we may not be obligated to update these statements after this call. We caution you that forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from the results expressed or implied by the forward-looking statements. In evaluating Farmer Mac, you should consider these risks and uncertainties as well as those described in our 2020 annual report on Form 10-K filed with the SEC this afternoon.
In analyzing 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, also known as non-GAAP measures. Disclosures and reconciliations of Farmer Mac's non-GAAP measures can be found in the most recent Form 10-K and earnings release posted on Farmer Mac's website, farmermac.com, under the financial information portion of the Investors section.
A recording of this call will be available on our website for 2 weeks starting later today.
Thank you, Steve, and good afternoon, everyone, and thank you for joining us. 2020 was certainly unlike any year that I've experienced in my 40-year business career, and I'm proud to report that Farmer Mac has once again demonstrated the resiliency and sustainability of our business model and disciplined growth of our business. From the pandemic to social and political unrest to record low interest rates to the seating of the new administration and of the strong volatility and rallies in agriculture commodity prices, 2020 presented more uncertainty than any single period in recent memory, and it has been challenging in many ways for so many people. As a mission and purpose-driven company that has always been acutely aware of our commitments to all of our stakeholders, and those include you, our shareholders, our customers, debt investors, our employees and especially the rural Americans, whom we are proud to serve, I'm extraordinarily proud of the team at Farmer Mac for executing on our ambitious strategic plan and for being able to trigger our business continuity plan so that we didn't miss a beat. Our employees did this with flexibility, hard work, commitment and grace.
So let's break some of the numbers apart. Core earnings were a record $100.6 million for the year. That's up about 7%. Net effective spread was 93 basis points, and it's trending upwards. That's at the -- towards the top line of our 90 basis point plus or minus 5 basis points guidance. Total outstanding business volume increased by greater than $800 million or 4%, and new loan purchases in our Farm & Ranch line of business were $2.5 billion. That represents an 82% increase over last year, which, by the way, was another record. A significant portion of this refinancing was done at lower market rates of interest, which means that we put more money in the pockets of farmers and ranchers and their families. And keep in mind that well over 90% of these Farm & Ranch borrowers are family-owned farms.
And we did that while also providing new capital to agri businesses and rural infrastructure projects that increase the competitiveness, the tax base and the viability of rural America. We did this while enjoying the uninterrupted support of our debt investors, and that's reflected in our tight borrowing spreads to treasury rates of interest. And we also provided highly customized opportunities for those debt investors to get the structures that they wanted.
We did this while appreciating the essential role of our network of more than 700 financial firms who originate loans for us, and they do this recognizing that we are the leading secondary market source for purchase of those loans. They have reciprocated their appreciation as measured by an increase of greater than 40% in our 2020 Net Promoter Score. That's the score that measures their satisfaction with us. Especially important during this last year, when we operated on a 100% remote basis, and we did that since March 11, it's almost a year ago now. It was made possible by our effective business continuity plan.
And during this period of time, quite remarkably, we onboarded 34 new employees who provided strong benefits and work-from-home support and services to all of our employees, and they were amazingly productive. I can't tell you how proud and grateful for all that they have done for Farmer Mac under what have been very trying circumstances.
As you saw in our press release earlier this afternoon, we announced a 10% or $0.08 per share increase in our quarterly common stock dividend. It now, for this quarter, will be at $0.88 per share. In deciding to increase Farmer Mac's common stock dividend and maintain our payout target of approximately 35%, the Board of Directors considered our strong capital position, the consistency of and outlook for our earnings, our priority of capital to support our business and also to succeed our regulatory requirements. This represents the 10th consecutive year that Farmer Mac has increased its quarterly dividend from the prior year.
Farmer Mac remains a well-capitalized financial institution with solid liquidity, a very strong balance sheet and strong credit quality. We have maintained our consistent underwriting standards for credit approvals, and we are continuing to closely monitor the impact of COVID-19, and I might add, very recently, in the last 1.5 weeks, the Texas Arctic Freeze on our portfolio.
Some of our borrowers were adversely affected by COVID-19 and the economic consequences, and Farmer Mac quickly stepped in to provide payment relief. As of January 15, 2021, we have approved and executed 472 payment deferrals related to COVID-19. Those have total principal balance of about $432 million and represent about 2% of our total outstanding business volume. As of the same date, January 15, $22.7 million of Farm & Ranch deferments have been repaid in full and another $277.9 million of deferments or 88% of the loans deferred have ended their deferral periods and none of those are delinquent. This is a strong testament to both the need for flexibility during adverse economic conditions and to the strength and integrity of the borrowers who applied for and received this accommodation.
As reflected in our 2020 results, we've been able to stay focused and achieve many of our strategic plan initiatives in a much different business environment from what we originally projected. Our culture has consistently pursued new channels and innovative ways to further our mission of helping rural businesses and farmers and ranchers attain the low-cost financing they need. Whether it is a large agribusiness loan, a renewable energy project finance, a loan to a small or family farm or a new broadband system financed through a rural electric cooperative, Farmer Mac's mission and business model provide for financing opportunities across all aspects of American agriculture and rural communities.
The core mission of Farmer Mac inherently centers around the betterment of rural America, and we continue to demonstrate the diversification and resilience of our business model throughout the inevitable agricultural economic cycles. We are fortunate to have a Board that is composed of strong independent directors with diverse backgrounds, expertise and qualifications. They're strongly aligned with our management's long-term strategic vision to build upon our history as a mission-driven organization. Our governance practices are uniquely designed to award executives and Board members with our nonvoting C Class stock. This fosters a performance-pointed culture and aligns the interest of our management and our shareholders and our Board, allowing us to focus on maximizing value creation associated with our mission.
Management and the Board have recognized that these characteristics are key contributors to our consistent and sustainable long-term performance. And as a result, we have developed a new ESG policy intended to build towards enhanced reporting of all the inherent environmental, social and government -- governance practices that we have underway and aspire to at Farmer Mac. With the support of the Board of Directors, we believe our unified commitment to Farmer Mac's mission in conjunction with these efforts and the organization's talented and committed employee base will enable us to take Farmer Mac to new heights in the years ahead. With that, I'd like to turn to Zack Carpenter, our Chief Business Officer, to give you an update on our customer and market developments. Zack?
Thanks, Brad. Before I begin, I'd like to thank our Farmer Mac team who continued to demonstrate their dedication to our customers, their borrowers and our mission during this volatile and challenging environment. In times like these, our customers truly value our commitment to being a relationship-oriented institution. And our performance this year reflects everyone at Farmer Mac's extraordinary efforts as well as the strength of our franchise as we continue to fill our mission of providing affordable and efficient credit solution to the agricultural and rural communities we serve.
In 2020, outstanding business volume grew $806 million to $21.9 billion, primarily driven by our on-balance sheet loan purchase products. Farm & Ranch, USDA guarantees and rural infrastructure net loan purchase volume grew approximately 27% in 2020 or $2.1 billion. This compares to net loan purchase volume growth in 2019 of $1.4 billion, which did include the portfolio purchase of seasoned rural utility loans from CoBank of $546 million. Excluding that strategic portfolio purchase, 2020 net loan purchase volume growth was almost 2.4x greater than the same period in 2019, reflecting our continued focus on supporting agriculture and rural communities in a very challenging environment.
Gross loan purchase volume in our Farm & Ranch line of business was $2.5 billion during the year, an 82% increase compared to 2019. This resulted in net volume growth of $1.2 billion, more than double the net volume growth in 2019 of $604 million. The consistent growth we've seen in our Farm & Ranch loan purchase volume reflects the success of our customer acquisition and retention initiatives; our ability to provide competitive interest rates across our entire product set; and our efficient and effective execution in the loan approval and loan purchase process. As we have noted on prior calls, our focus in our Farm & Ranch line of business is to broaden our capital deployment to new customers but also to deepen our penetration within our existing markets.
During 2020, 80% of the $2.5 billion increase in gross loan volume origination was attributable to active lenders, and that's a lender that has transacted with Farmer Mac in both 2019 and 2020. Notably, however, 20% was attributable to new or previously inactive lenders, showing that we are expanding our ability to provide mission-critical capital to new lenders at an increasing rate. We also successfully deepened our relationship with our lenders, as evidenced by an 80% increase in number of lenders selling us loans totaling $1 million or more versus 2019.
As Brad mentioned, the results of our 2020 Net Promoter Score highlight a strong relationship with our lender network as their satisfaction in working with Farmer Mac reached all-time highs. Another key component of our strong loan purchase volume growth in Farm & Ranch is our strategic initiative to pursue larger, more complex loan exposures, which we generally define as loan in excess of $10 million to agricultural producers and agribusinesses that support agriculture production, food and fiber processing and other agricultural supply chain production. This is a relatively new area of growth for Farmer Mac that provides borrower and sector diversity, accretive yields as well as new relationships. During 2020, we executed approximately $370 million of gross new loan purchases in this emerging growth initiative. For these larger loan exposures, which may have different risk profile from other Farm & Ranch loans, we have obtained additional resources to support the strategic initiative as well as implemented methodologies and parameters that help assess credit and other risks based on the appropriate sector, borrower construct and transaction complexity. Our pipeline remains at a healthy level as we continue to broaden our relationship in this new territory and across the agricultural lending spectrum.
Our Farm & Ranch growth continues to outpace the broader agricultural credit markets. Our agricultural mortgage loan portfolio for net loan purchases in our Farm & Ranch line of business, grew 17% over the last 12 months compared to the year-over-year growth rate of the total agricultural mortgage loan market of approximately 5% through September 2020. 2020 was also a record year for our USDA guarantees lines of business as we added $778 million of gross loan purchase volume, the highest volume ever recorded in a single year. The net volume growth of $254 million reflects the positive effect of the product structure adjustments we made in an increasingly competitive interest rate environment, our continued focus on key customer relationships with our financing partners as well as the increased USDA loan limits authorized by the 2018 Farm Bill.
Net loan purchases in our rural utilities line of business increased by $589 million during the year, which reflects steady loan purchase demand from our 2 primary rural utilities counterparties, National Rural Utilities Cooperative Finance Corporation and CoBank. As -- also included in our new rural utilities volume growth is $64 million of loan purchases that support the rural energy initiatives in our strategic plan. The pipeline in the renewable energy sector remains strong as our rural utilities team has been doing an outstanding job of enhancing our foundation and infrastructure to build its reputation as a key player in the renewable energy market. Partially offsetting the record $2.1 billion in net loan purchase growth were scheduled maturities and repayments in our institutional credit line of business. Our institutional credit line of business experienced a net decrease of $701 million in 2020, primarily due to the reduced need for incremental liquidity from some of our larger AgVantage customers.
We continued to see significant liquidity support in the market, which is a direct result of the Federal Reserve's actions to continue to facilitate the functioning of the capital markets. As such, investment-grade credit spreads for large financial institutions remain at historically low levels. We do continue to look for new and innovative ways to support these customers as our liquidity directly provides financial support to farmers, ranchers and rural communities in the sectors we serve. However, we also must be appropriate stewards of our capital. And in times like these, where there is significant available liquidity for these customers, we tactically must determine when to refinance maturing securities based on the current market price and return dynamics. As market conditions and credit spreads moderate over time, we expect to continue to broaden our relationships with these important customers.
In 2020, some financial institutions did pause capital deployment to the sectors we serve given the impact associated with the pandemic. However, the core agricultural and rural utilities lenders continue to compete for transactions, which in many cases is causing competitive pressure in terms of price, structure and execution and closing. We will continue to work alongside our growing customer base and build upon our more dynamic and responsive business model that has led to improved customer satisfaction, volume retention, penetration in existing and new markets and transform the way we deliver upon our mission. During 2020, we invested in our infrastructure by upgrading technology platforms, processes and product offerings to improve the customer experience. For example, in the fourth quarter of 2020, we increased the eligible loan size for our Ag Express scorecard products from $750,000 to $1.5 million. This process enhancement has allowed our lender network to provide faster execution for their borrowers and has thus yielded increased volume and positive feedback from our customers. In fact, during the fourth quarter of 2020, the first 4 quarter -- excuse me, first full quarter incorporating the larger eligible loan size, we averaged approximately 120 Ag Express loan applications per month, well above the overall 2020 average of 84 loan applications. In addition, the total Ag Express loan application volume for the fourth quarter of 2020 was approximately $220 million, which is about 45% of the total Ag Express loan application volume for the entire year of 2020. Growing this popular underwriting solution is a major part of our strategic plan to broaden and deepen our business, and we are on track to provide an entirely new online portal for submitting Ag Express loans this spring. This newly redesigned Ag Express origination platform will provide customers a new online pathway to sell loans to Farmer Mac using enhanced technology and processes. By bringing this platform fully online, we are on the path to becoming a more commercial and efficient and ultimately helping us fully deliver upon our mission. Ag Express is one of the many product offerings we provide to support small farm and family farms in this challenging environment. During 2020, approximately 50% of the total number of loans purchased in the Farm & Ranch line of business were loans to small farms, which is defined as farms that generate less than $350,000 in annual gross sales of agricultural products. We continue to innovate product offerings and financing solutions to allow our lenders to support small farmers and family farms, especially in this challenging environment.
As we look to 2021 and beyond, I am extremely excited and energized about our multiple growth opportunities, but also our ability to continue to support our customers in such a challenging environment. We consistently listen to our customers and find innovative ways to support and meet their financing needs. We are focused on executing a straightforward, customer-oriented strategy, and we believe continued execution of this strategy will enable long-term growth, profitability and creating value for all of our stakeholders, but more importantly, allow us to fulfill our mission in a more holistic way. I'll turn it back to you now, Brad.
Thanks very much. I am going to turn to Jackson Takach in a moment here to give you an overview of what's going on in the agricultural economy. But before I do, I'd like to just mention that we do anticipate that we will have a new Chief Credit Officer starting at Farmer Mac in the next couple of weeks. I look forward to introducing that new Chief Credit Officer to you as soon as possible. But in the meantime, I'd really like to commend the credit team, and that includes Mike Juergens, Danny Odom, Del Gustafson, along with Rob Maines, our Enterprise Risk Officer, who has stepped in to help. We've got good bench strength here at Farmer Mac, and they have done a wonderful job to assure that we provide consistent underwriting and consistent application of our underwriting standards to our business. And with that, I'd like to turn to Jackson, our Chief Economist, to give you an update on what's going on out there in agricultural economy. Jackson?
Thank you, Brad. Like most industries, the agricultural and rural economies experienced heightened volatility in 2020. The COVID-19 pandemic reshaped food and fuel demand in the early and middle parts of the year, putting considerable stress on the U.S. food supply chain. According to U.S. Census data, sales to food and beverage places fell by 53% compared with a year earlier. CBC report showed outbreaks occurred in more than 200 meat and poultry processing facilities, forcing many to restrict output or close entirely for a short period of time in April and May of 2020. Plant closures led to increases in food prices and decreases in livestock prices, both detrimental to local and national economies. Demand for core grains like corn and soybeans dropped in mid-2020 with fewer miles driven hitting ethanol production and stiff competition from Brazil driving down export demand for soybeans. 87% of all COVID-19-related Farmer Mac loan payment deferrals were approved during the second and third quarters of 2020 due to these unpredictable conditions. Despite these pressures early in the year, the agricultural and food sectors endured with a rebound in economic conditions to end 2020.
Food consumption at home rose considerably. U.S. census data shows an 11% increase in sales at food and beverage stores in 2020 compared to 2019. USDA research demonstrates that farmers and food processors take a higher net margin of the food dollars spent at home. So the shift of consumer spending to food at home could offset some or all of the losses from sales to restaurants and schools. Consumer mobility increased steadily in the second half of 2020, restoring fuel demand and pushing ethanol production back to 88% of 2019 levels by December. Record-setting government support payments to farmers and ranchers helped offset the midyear disruptions. The USDA estimates total farm program payments to farmers at over $46 billion for the year, a combination of typical farm programs, payments from the trade-oriented Market Facilitation Program, or MFP, forgivable loans from the Paycheck Protection Program, or PPP, and 2 rounds of Coronavirus Food Assistance Program payments, or CFAP. Finally, reduced global supply of grains and increased export demand for grains combined to push world grain prices to 7-year highs. USDA corn and soybean cash price indices closed the year 30% and 42% above 2019 levels, respectively. Of the major agricultural commodities, only cattle and dairy prices did not end the year higher than when it began. Higher commodity prices, combined with elevated government support payments, lifted farm income and profitability in 2020. USDA projections for net farm income and net cash farm income in 2020 are the highest levels since 2013 at $121.1 billion and $136.2 billion, respectively. As a benchmark, $100 billion is an average year for farm income. So both 2020 metrics are well above historical averages. In nominal terms, the USDA's estimate for 2020 net cash farm income will set a new high if it holds, beating out 2014, the peak of the agricultural super cycle. Early USDA estimates for 2021 show a stable income outlook of $111.4 billion in net farm income and $128.3 billion in net cash farm income due to a sizable reduction in government support payments but an offsetting increase in grain cash receipts.
The USDA projects a more typical year for government program payments in 2021. However, additional government payments for food programs, disadvantaged producers and carbon bank development could provide a lift to the agricultural economy. Farmland values held steady throughout much of 2020 after rising at approximately the rate of inflation for the last 2 years. In most regions, USDA estimated farmland values average, they were flat to slightly increasing in 2020. The COVID-19 pandemic slowed public auctions and sales in the first half of 2020, but transactions picked up in the third and fourth quarters and values trended higher in the fourth quarter.
Data from the Chicago Fed show an increase in Midwestern land values of 4% in the fourth quarter alone. An improved profitability outlook, combined with low market interest rates, could provide continued support for land values into 2021. February estimates from the USDA project a 2% increase in farm real estate values in 2021. Historically, increases in farm real estate values lead to increases in farm real estate secured debt, increasing a primary market in which Farmer Mac transacts. The combination of higher profitability, rising land values and lower interest rates had a net positive effect on credit conditions during the fourth quarter of 2020. Portfolio substandard ratings and default rates were elevated for much of the year, but as conditions improved, these rates fell back below historical levels. Loans rated substandard represented 3.4% of the Farm & Ranch portfolio as of December 31, 2020, with risk rating upgrades in permanent plantings, crops and livestock loans driving the improvement. 44% of the loans past due 90 days or more in the third quarter of 2020 cured or paid off by December 31, 2020, driving the percentage of loan seriously delinquent down to 0.54% of the Farm & Ranch books or 0.21% of all loans and guarantees.
There remains a significant concentration in seriously delinquent loans as the top 10 borrower exposures represent more than half of the 90-day delinquencies as of December 31, 2020. One large exposure to a specialized poultry processing facility remains the largest single exposure within the delinquent volume, and the same loan resulted in the $5.4 million charge-off booked in the fourth quarter. The adverse credit activity in the fourth quarter is specific to individual conditions and not systemic risk, evidenced by low overall default and charge-off rates outside of this one specialized facility loan. The rural energy industry has less cyclicality than the agricultural sector but does trend with conditions in the general economy. Higher levels of unemployment and adverse credit markets are typically associated with drops in energy demand, such as lower commercial, industrial or residential demand and increases in industrial ratings downgrades.
The economic distress caused by the COVID-19 pandemic has led to historic levels of unemployment as well as reduced energy demand from the commercial and industrial sectors. However, residential sales during the same period were up 2% compared to 2019 as residents spent more time at home during state, local and self-imposed quarantines. Residential power sales are typically more profitable than those for commercial and industrial consumers. The recent arctic freeze highly disrupted the power markets across Texas, but through February 25, we are not aware of any damage from the weather event that would result in a material credit loss. Economic stress in the rural electric markets remain elevated, but Farmer Mac has not observed material degradation in the financial performance of its rural utilities portfolio.
While COVID-19 and related economic conditions continue to add uncertainty and volatility to the food, agricultural and rural energy sectors, they all enter 2021 from a position of relative strength, and Farmer Mac is positioned to further that stability. And with that, I'll turn it back to you, Brad.
Thank you, Jackson. Credit events at Farmer Mac have historically been unique really to each rural business and in many cases, to each individual borrower. And that was certainly the case with the credit that we took -- write-down that we took at the end of 2020, which, by the way, was the same credit, which we took the additional allowance at the end of 2019.
As is the case with our provision in the fourth quarter, the increase in the total allowance for losses was primarily due to a borrower specific factor. We really don't see this linked at all to macroeconomic or systemic factors in the overall agricultural economy. And I hasten to add that we do remain committed to our historically high standards of credit quality. We have not changed our underwriting standards. But as we do look at ways to further execute on our mission and provide credit to different parts of rural America, there may be some circumstances in which Farmer Mac's risk tolerance needs to flex to accommodate different agricultural conditions or borrowers. When we evaluate these situations, they will be assessed with diligence of care that's led to our strong historical results, and we will price for any additional risk that we take so that on a risk-adjusted basis, we have an expected outcome that is comparable to or even better than what we have on the overall current book of business.
And with that, I'll turn the call over to Aparna, our Chief Financial Officer, to discuss our financial results in more detail. Aparna?
Thank you, Brad. Before I get started with our financial results, I wanted to comment that January 2021 marks my first year with Farmer Mac as CFO. Over the year, Farmer Mac performed exceptionally well despite the enormous challenges we all faced as a nation. Our results and performance during 2020 reinforced the reasons why I was compelled to join the Farmer Mac team, which stems from our strategic vision, the strong caliber of the team and our dedication, most importantly, to our mission of providing low-cost credit to rural America. I'm incredibly proud to be a part of this team, and I look forward to continuing to collectively execute on our exciting vision in 2021.
Before I delve into the annual results, I'd like to provide a few highlights around our fourth quarter results. Core earnings were $26.4 million or $2.45 per share as compared to $27.7 million in third quarter 2020. Our net effective spread increased 5% sequentially to $54.5 million, and our outstanding business volume decreased $65.2 million from September 30, 2020, to $21.9 billion, primarily due to repayments and maturities in our institutional credit line of business. As Zack mentioned, the Fed's intervention in stabilizing market conditions resulted in other sources of alternative and cheaper funding for our counterparties.
Turning to our 2020 full year results. Earnings were strong and driven by growth in higher spread business volumes, continued disciplined general and administrative, or G&A, expense control, and we saw substantially lower funding costs, given our strong access to debt capital markets and the strong relationships that we have maintained and built with our investor base. Our access to the capital markets remains strong throughout this unprecedented year. We issued debt daily, and we continue to maintain our disciplined asset liability management policies and practices that have resulted in a consistent net effective spread.
Farmer Mac's net effective spread for 2020 was $197 million. This represents a 17% increase from $168.6 million in 2019. In percentage terms, net effective spread improved to 93 basis points compared to 91 basis points last year. The $28.3 million year-over-year increase in NES was due to new higher spread business volume as well as a decrease in non-GAAP funding costs. Our effective use of callable debt instruments to mitigate prepayment risk from the low interest rate environment has allowed us to widen our overall spread in 2020. Callable bonds have proven to be a very attractive tool for us in hedging our downside interest rate risk, and we aren't paying a substantial price either for that optionality.
As we prepare for a steepening yield curve, especially at the long end of the curve, we are very carefully analyzing our duration and convexity matches on both sides of the balance sheet to ensure that we minimize our interest rate risk as rates rise. In general, our net effective spread is well cushioned against rising rates. We're also seeing strong demand and pricing success at the long end of the curve in our debt funding, which should help us as the yield curve steepens.
Just to give you a little additional perspective, throughout 2020, we saw very favorable pricing and demand for our debt in the greater than 6 year tenors especially. And in these tenors, we added $1 billion or more in 2020 as compared to 2019. As I mentioned previously, the option on our callable issuances remained attractive. And even if rates rise, it will be a good hedge for us against prepayments if the rate environment remains flat or decreases. This disciplined approach of managing our portfolio duration and convexity has allowed us to have a consistent performance in our net effective spread.
Turning to core earnings now. Our core earnings for 2020 grew 7%, as Brad mentioned, to a record $100.6 million, and this is $9.33 per diluted common share compared to $93.7 million in core earnings or $8.70 per diluted common share in 2019. The year-over-year increase in core earnings was primarily due to the increase in NES that I mentioned previously, which was partially offset by a $7.5 million after-tax increase in operating expenses. These increases are related to continued investments in compensation and employee benefits. We also saw a $3.9 million increase in preferred stock dividends due to the 2 issuances that we did in 2020 and a $3.6 million after-tax increase in the provision for loan losses.
Operating expenses increased by 18% in 2020 compared to 2019, and this is primarily due to increased headcount, higher bonus expenses and a onetime separation payment to an executive who resigned during the first quarter of 2020. Our G&A expenses modestly increased relative to last year due to increased spending on licenses and software technologies, and these were offset by lower levels of expenses related to consulting fees, travel and conferences. I should note that the reduction in such expenses this year is temporary, and we expect these to normalize post pandemic once normal activity resumes.
We plan to continue such investments for the foreseeable future, primarily to modernize our infrastructure, enhance our technology platforms that will support our revenue strategies that Brad outlined, and we'll continue to add relevant talent across the organization. While we expect these efforts to continue and increase over the next 12 to 18 months as we continue to innovate and grow our business, we will continue to closely monitor our efficiency ratio, which ended the year at 27%, which was 1 percentage point higher than in 2019.
Going forward, we expect operating expenses to increase commensurately with revenue growth. But to stay within a range that is consistent with our historical performance, we intend to stay below a 30% operating efficiency level. We also foresee that over time and as we scale our business using technology, that we will start to get even more efficient in the execution of our business, and it is very likely that our efficiency ratios will stabilize at historical levels.
As of December 31, 2020, the total allowance for losses was $17.6 million, and this represents an increase of $5 million from December 31, 2019. As we've mentioned to you previously, we adopted and implemented CECL on January 1, 2020. And we had a fairly significant reserve in the first half of the year, and this is mainly due to pandemic-related deterioration of economic forecast. Those increases started to slow in the second half of the year as macroeconomic conditions and related forecast improved and as the parameters of our loans remained strong. However, net new loan volume growth in the rural utilities portfolio and the impact of the previously mentioned specialized poultry loan, contributed to the overall increase in the allowance for loan losses.
Farmer Mac also recorded a direct charge-off of $5.8 million, primarily related to the same single poultry loan that Farmer Mac has deemed a portion to be uncollectible at this point in time. And this is really just due to the specialized nature of the facility. Under the CECL accounting standard, the highly specialized nature of power generation and transmission utilities results in significant losses given default estimates that drive our model assumptions. This is true even though that the actual probability of default is very low. And it's important to note that as of December 31, 2020, Farmer Mac's $2.8 billion in outstanding rural utilities loan purchases and long-term standby purchase commitments have no historic or current delinquencies. Likewise, our Farmer Mac Farm & Ranch portfolio continues to perform very well, and our substandard assets and 90-day delinquencies remained below historical levels, as Jackson described.
Turning to capital. We remain an extremely well capitalized financial institution with strong liquidity and a robust balance sheet. Farmer Mac's $1 billion of core capital as of December 31, 2020, exceeds our statutory requirement by $325 million or 48%. This brings our Tier 1 capital ratio to 14.1% from 12.9%, and this represents an increase of 1.2% from the prior year. This can be credited to strong retained earnings as well as the successful issuance of 2 separate tranches of preferred stock.
To provide additional detail on these two issuances, we did an $80 million Series E preferred stock issuance in May and a $120 million Series F preferred stock in August. Both of these issuances were oversubscribed and yielded favorable levels of pricing relative to prior issuances. Given that, we also redeemed our Series A preferred stock based on the favorable pricing that we received on our Series F issuance in August.
Our liquidity, as I mentioned, remains strong, and it far exceeds our regulatory requirements. Heading into 2021, we will continue to maintain a higher-than-required level of cash as we've done throughout in 2020, and this should bolster our liquidity and allow us to weather any unexpected cash flow shocks given continuing economic uncertainties. It will also allow us to adequately fund deferments should we need to, to meet our customers' needs, and it will help us retain the flexibility to maintain lower but ample levels of liquidity as market conditions change.
As Brad mentioned, we are very pleased to announce an $0.08 per share increase in our first quarter common stock dividend. This will result in a total of $0.88 per share, and it represents a 10% increase from a year ago and an annualized dividend yield on a Class C common stock of approximately 4% based on the average closing price. We believe that our strong earnings and capital position supports this dividend increase and our long-term target payout of 35% of core earnings.
In conclusion, we finished the year on a strong note with record earnings, strong business volume demand and uninterrupted access to debt capital markets. We look forward to our near-term and long-term growth opportunities with a firm belief that our liquidity and capital position will enable us to navigate uncertain times very effectively. And with that, Brad, I'll turn it back to you.
Aparna, thank you very much. We've given you a bit more detail on our comments today, and I know we're eager to turn to your questions. So really, I'd just like to leave you with my closing thought, and that is that Farmer Mac is really a mission and purpose-driven company. We are here determined to improve the economic conditions of rural America by increasing availability and reducing the cost of credit for farmers, for ranches, for agri businesses and the rural infrastructure that supports them. We do this with a discipline that allows consistent and predictable returns to our shareholders to the fullest extent possible.
I have the utmost confidence that we have the right team in place to continue executing on this so that we can take Farmer Mac to the next level while continuing to produce strong financial results, strong shareholder value, and we can do that while strengthening the communities and the customers across rural America, whom we serve.
And so with that, operator, I'd like to now see if we have any questions in response to these comments. Thank you.
[Operator Instructions] And our first question today will come from Greg Pendy with Sidoti.
Just a couple of questions I had. First of all, I don't want to oversimplify the 90-day delinquency trend, and I know you gave some color in the press release. But it's not -- when you guys mentioned commodity groups and then you talked about the storage processing facility, is it fair to say you've got relief commodity groups from the higher commodity prices? Is that the general underlying trend there?
Greg, Brad here, and thanks very much for coming on today. Yes, our 90-day delinquencies have trended down. Our classified credit has trended down. So we're seeing that trend in positive directions. We really can't point to any one commodity group that is the result of that. As you know, we historically have not had any delinquencies in our rural infrastructure portfolio. That continues to be the case. In our institutional credit, we really don't have it. So when we talk about these delinquencies, we're talking about the Farm & Ranch portfolios. And as you know, it's well diversified, 23%, something like that, Upper Midwest; 25% California. It's also very well diversified by different crop types, over 100 different crop types financed by Farmer Mac.
So to try to say that is attributable to any one commodity really doesn't work. But I would add that during 2020, we did see a record level of federal transfer payments under a couple of different programs, including those intended to help address financial issues associated with tariffs, imposition of tariffs and also from COVID-19. And those transfer payments ended up being at a record level and contributed to farm income being at a record level, at least for -- through the last cycle. I think we'd have to look back to 2012, 2013 before we saw anything close to what we had this last year.
So looking ahead this year, we do see an expectation of some continuation of those payments, although not quite at the same levels. And we have a forecast, as Jackson mentioned, for very strong net farm income in 2021, in greater part attributable to very, very strong rally in many agricultural commodity prices over the last quarter. So the fundamentals are really showing up in the economic health of American agriculture. And of course, that's what farmers want, and that's what we like to see.
Great. That's helpful. And then just moving over, just -- it looks like for the year, you had about $64 million in solar and wind, I guess, the majority of that is solar. How should we be thinking about that? You mentioned earlier a team in place and just kind of how the outlook will -- how should we be thinking about the outlook in 2021 in that area?
Sure. Yes, the majority of that was solar. We actually did close one wind transaction. But our expectation is that going forward it's primarily in the great majority solar finance opportunities. Over time, we expect that, that will be a growing line of business. Certainly, the new administration, the Biden administration is putting an emphasis on renewable energy and decarbonization of the economy. We haven't seen specific policy proposals yet that might drive that. But I think the general tone of the political climate is -- makes us very bullish for renewable energy.
So as you know, it was earlier in 2020 when we really had our systems and some of our master agreements in place to start generating business. We fully expect that over the course of 2021 and into future years, that we will see continued growth in that business. Looking out 5 years or more, I think it will become a very important line of business at Farmer Mac that begins to move the needle. So we're happy with the $64 million in 2020.
And how long -- how far out does the typical solar deal go? Or is it too early to...
No, no, not at all. So the solar project finances that we do, our classic project finance, these are loans that are underwritten to credit metrics that if you pull down a Moody's or S&P report on typical underwriting metrics for large-scale solar project finance loans, our guidelines are very much in line with that. So one of the principles of it is that, generally, the loans are amortizing over the life of the fixed price power purchase contract on that facility. Sometimes that's 15 years, sometimes that's 20 years, sometimes it's even 25 years. And so typically, the amortization is against -- it's variable quarter-to-quarter against the projected cash flow of the facility. Obviously, a solar facility is going to produce a bit less in most climates, most environments in the winter than in the summer.
So the amortization is sculpted to maintain an anticipated constant fixed coverage ratio and amortized fully over the life of the contract. So by the time that power purchase contract is expired, 15, 20, 25 years out, our loan is fully amortized and retired. These loans are fixed right, and we typically have very strong prepayment protection on them. So these loans actually become some of the most predictable performers from a nonprepayment standpoint in the portfolio.
Great. That's helpful. And then just one more, just on the expenses. Did I hear correctly in the sense that expenses are expected to be maybe outsized for the next 12 to 18 months and then normalizing more in line with revenue growth from an operating expense standpoint?
Yes. I think that was basically Aparna's comment on that. I think for a better part of 2 years now, we have tried to manage your understanding and expectations that we're going to be spending a bit more money investing in technology. And frankly, our comments were ahead of our actual ability to spend money in 2019. And our efficiency ratio gravitated towards, I think, it was about 26% that year. This year, we did start getting some of those expenditures, primarily in the form of investment in our platform, and a lot of that was hiring of new people, particularly in IT and project management.
And we -- expenses, we did push them up a bit. As Aparna said, they were about 27% on efficiency ratio standpoint, that is expenses to assets, last year. And we're -- as she also mentioned, we're going to keep that under 30%, I think, for the next year, 27%, maybe even 28% is what you would expect to see. But then greater efficiencies should kick in from these -- the investments that we're making. And it should start gradually trending down on an efficiency ratio standpoint.
[Operator Instructions] Our next question will come from [ Harry Gorman ] with [ Harry Gorman Investor ].
I saw your interest spread, obviously, widen out in Q3 and then again in Q4. Looking at the lines of business, it looked like a lot of it came from USDA portfolio and the utilities portfolio. So maybe you could talk a little about what was going on in those 2 portfolios to widen the spread.
Yes. I'll turn to Zack Carpenter to jump into this one and give you -- so he can give you a little bit more color on the portfolios. As Aparna mentioned, we also had particularly good execution of some of our funding. And so a small part of that is from improved execution in the debt capital markets. But there are some shifts going on in the portfolios and maybe a deemphasis of some of what we call our institutional business and more market-based pricing and other parts of it. And so Zack, can you please take -- carry through how you're seeing that portfolio shifting taking place?
Yes, sure, Brad. Great question, Harry. I think one of the key pieces to think about, aside from the favorable funding dynamics that Aparna mentioned, is we did have quite a sizable maturities in our institutional line of business from some large counterparties. And those are really at tight spreads, especially in this current market. So while that volume shifted off, it was at much lower NES spread than the overall portfolio. In addition, the Farm & Ranch growth, the $1.2 billion in net growth is one of our higher spreading business. So while market rates in those lines of business came down, we had more beneficial funding costs. So we were able to, I'd say, clip a little bit higher NES than we historically had and that continues.
And then lastly, a couple of things just to note in some of these new initiatives. We've talked about renewable energy. Those bills are more accretive spreads. And then we also mentioned, in the prepared remarks, that we booked about $370 million of larger commercial agribusiness-type loans. Those loans are, I'd say, shorter in duration. So it helps from a funding perspective, they diversify our portfolio and generally with more market-based pricing, as Brad mentioned. When you look at some of our businesses, we are a secondary wholesale pricing shop. And so that really comes at a wholesale rate. These deals that we're executing and be taking a part of were more at market rates. So we've been able to get more attractive yields there.
So the combination, I think, of the favorable funding, the lower institutional credit volumes and then our pursuit of some of these larger transactions in the renewable and agribusiness that have higher yields are really helping attribute that growth in NES over the second half of the year.
Okay. So that, the portfolio shifts, is that something that persists going forward or there's a reason to go back to more traditional?
As we look going forward, I mean, I think our initiatives focus on some of these new areas of growth. As Brad mentioned, renewable energy, that's an area of growth. The agribusiness side is another strategic initiative that we talked about. We've put a lot of resources and foundational improvements to be able to execute at a larger rate and amply scale up those initiatives over the next 1, 2, 3 years, but also focus on our core businesses in Farm & Ranch and USDA. And if we can continue to manage our funding costs tremendously like we have and market-based price a lot of our products, then I think the portfolio shift will happen as well, but also continue to get strong NES from our existing portfolios.
Sorry, one last thing. These agribusiness loans, I'm not really familiar with them, what are they? What sort of collateral you have?
Yes. It's -- so it's all within our charter in terms of first lien on agricultural real estate. This is a broad array of agricultural production. So maybe much larger loan exposures to just normal Farm & Ranch type loans or in California, there are significantly large parcels of pistachios and almonds that have a much larger exposure. And so we look at those a little bit differently. But also new initiatives up the value chain in the ag space, really to drive the commodity price from the farmer and rancher.
So manufacturing of pulp or timber or sugar beats, facilities that really takes the commodity, improves it to the next level and pull it through the chain. So again, these are more market-based structures with pricing. And many instances are loans that are done with numerous financial institutions. And so we've been looking to partner with those financial institutions and support those new initiatives.
And this will conclude our question-and-answer session. I'd like to turn the conference back over to Brad for any closing remarks.
We appreciate the questions very much. We -- as indicated, we provided a little bit more detail in comments, and it's getting late. We understand that. So please reach out to Jalpa and if you have follow-up with any additional questions or call, we're always happy to do that. We appreciate your interest very much. And look forward to speaking with you in another quarter. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.