Federal Agricultural Mortgage Corporation

Good day and welcome to the FarmerMac third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Jelpa Nazareth, Director of Investor Relations and Finance Strategy. Please go ahead.

Good afternoon, and thank you for joining us for our third quarter 2022 earnings conference call. I'm Jelpa Nazareth, Director of Investor Relations and Finance Strategy here at Armormac. As we begin, please note that the information provided during this call may contain forward-looking statements about the company's business, strategies, and prospects. which are based on management's current expectations and assumptions. These statements are not a guarantee of future performance and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to PharmaMAC's 2021 annual report and subsequent SEC filings for a full discussion of the company's risk factors. On today's call, we will also be discussing certain non-GAAP financial measures. Disclosures and reconciliations of these non-GAAP measures can be found in the most recent Form 10Q and earnings release posted on PharmaMac's website, PharmaMac.com, under the Financial Information portion of the Investors section. Joining us for management this afternoon are President and Chief Executive Officer Brad Nordholm, who will discuss third quarter business and financial highlights and strategic objectives. and Chief Financial Officer Aparna Ramesh, who will provide greater detail on our financial performance. Select members of our management team will also be joining us for the question and answer period. At this time, I'll turn the call over to President and CEO Brad Nordholm. Brad?

Thanks, Jalpa. Good afternoon, everyone, and thank you for joining us. I'm very pleased to announce that we've achieved another record quarter with all-time high net effective spread and earnings, and continued strong credit quality. Our results not only highlight the strength of our core business, our disciplined approach to interest rate risk management, and the resilience of the U.S. agricultural economy, but also the benefits from the investments in and the strategic management of our business, really in support of our long-term success. The diversity of our revenue streams, combined with our credit and asset liability management disciplines, have enabled us to deliver a very, very strong quarter. We provided a gross $2.7 billion in liquidity and lending capacity to lenders serving rural America during this last quarter, resulting in outstanding business volume of $25.3 billion at quarter end. The agricultural finance line of business grew $675 million during the third quarter, which is predominantly comprised of growth in the farm and ranch segment across multiple products, including egg batches securities, loan purchases, and long-term standby purchase commitments. The overall growth in the wholesale financing space primarily reflects many of our institutional counterparties leveraging our continued access to low cost of funds as they seek to add longer term AgVantage securities to manage their asset liability maturity profile given the recent increases in interest rates and the comparative competitiveness of PharmaMac AgVantage pricing relative to other market and Federal Reserve derived options. Here to date, we've added a net $580 million in new farm and ranch egg vantage securities compared to a net decline of $20 million in the same period last year. Looking ahead, we believe egg vantage volume will continue to increase as PharmaMac's relative value is viewed favorably by longstanding counterparties. This is the quarter for the harvest of many agricultural crops in rural America. Yet farm and ranch loan purchase volume growth this quarter has performed ahead of our expectations. Simply put, borrowers are adjusting to the higher rate environment and they're being opportunistic. Given the strength in the agricultural markets, we're optimistic about potential increases in loan purchase opportunities given the strong cash position of farmers and ranchers as they complete their harvests. In a reversal from prior years, we also saw new volume in our farm and ranch long-term standby purchase commitment product with one of our farm credit system customers. We see this as a testament to PharmaMac's product flexibility in providing credit solutions to farm credit system partners and relative value throughout market cycles. Our corporate ag finance segment saw net growth of $67.5 million during the third quarter, primarily due to our continued efforts to support loans to larger and more complex agribusinesses focused on businesses that span the food supply chain, as we say, outside the farm gate. We expect this relatively new area of business activity to enable FarmerMac to continue to strengthen and deliver on our mission. Turning to rural infrastructure, this line of business added $510 million of business year-to-date in renewable telecommunication and core rural utility sectors as a result of continued strong relationships with rural electric cooperative lenders. In the wholesale finance space, we successfully refinanced $400 million of outstanding advantage volume with rural utility counterparties. and we currently do not have any large rural infrastructure advantage maturities expected in the next three years. Loan purchase volume in the rural utility sector was consistent, with telecommunication loans a strong contributor in 2022. Farmer Mac has acquired $162 million in telecommunication loans year-to-date, holding a total balance of $243 million as of September 30th. While loans to telecommunication companies that provide wireless, cable, fiber, transport, and broadband services to rural America is a newer area for PharmaMac, we strive to increase investments and reduce the cost of capital for telecommunication providers as it is an area of growing importance to rural communities. Our renewable energy portfolio ended the quarter at nearly $200 million as of September 30th, reflecting $48 million in net growth in the third quarter, the largest quarterly increase to date. The pipeline remains strong in the near term as we continue to focus on upsizing existing deals and bringing on new renewable energy opportunities. As I've said on prior calls, Renewable energy is both an important economic development opportunity for rural America and a business opportunity for us at FarmerMac. During our last earnings call, we discussed the successful execution of our second $300 million securitization transaction in evolving and, quite frankly, a difficult market. We remain committed to being a regular issuer in the securitization marketplace with a set of securitization products that align with our borrower and investor interests. Developing this capital flow to agricultural producers exemplifies PharmaMac's core mission to lower costs for the environment and improve credit availability in rural America, while also creating a well-received new investment opportunity for leading institutional investors. While agricultural commodity prices have thus far outpaced the significant increase in input costs, the impact on global commodity markets from the Ukraine conflict creates further uncertainty for farmers and ranchers in terms of global production, prices, and input costs for the remainder of 2022 and into 2023. We believe our portfolio is sufficiently balanced to withstand the market volatility that could arise should the U.S. economy move into a recessionary period soon, as many fear as the agriculture, food, and infrastructure industries tend not to be directly correlated with the general economy. We believe these sectors are generally well positioned to withstand an economic downturn due to ample consumer demand and government support. Looking ahead, we'll strive to continue to be a source of stability to our customers by remaining adaptive, and flexible to our customer needs in this changing environment. The branding initiative we embarked on earlier this year, which is wrapping up in the next months, has helped us gain a deeper insight from each of our stakeholders and help determine how we describe Farmer Mac in more compelling ways. This, we hope, will continue to build on our strong reputation as the nation's trusted provider of low-cost credit to rural America. And now I'd like to turn the call over to Aparna Ramesh, our Chief Financial Officer, to discuss the financial results in more detail. Aparna.