Federal Agricultural Mortgage Corporation

Good day, and welcome to the FarmerMac fourth quarter and full year 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Jalpa Nazareth, Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for our fourth quarter and full year 2022 earnings conference call. I'm Jelpa Nazareth, Director of Investor Relations and Finance Strategy here at FarmerMax. 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 the risk and uncertainties that could cause our actual results to differ materially from those projected. Please refer to PharmaMac's 2022 annual report on Form 10-K filed with the SEC earlier today 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 2022 Form 10-K and earnings release posted on PharmaMac's website, PharmaMac.com, under the financial information portion of the investor section. Joining us for management this morning is our president and CEO, Brad Nordholm, who will discuss 2022 business and financial highlights and strategic objectives, and CFO, 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 morning, everyone, and thank you for joining us. I'm very pleased to announce that we had a record year for revenue, earnings, net effective spread, and outstanding volume in nearly all of our business segments while maintaining strong credit quality. Throughout 2022, we continued execution on our strategic initiatives building partnerships with our customers, maintaining asset liability management discipline, and continuing to diversify our revenue streams while maintaining a singular focus on our mission. More specifically, we concluded the year with 16% year-over-year growth in net effective spread, 10% growth in core earnings, and 10% growth in outstanding business volume or asset center management. I'm incredibly proud of the contributions of our 158 team members. It starts with them and their passion for American agriculture and rural infrastructure. And they deliver because of their expertise and specialization that differentiates us. I happen to believe that it is this passion, expertise, and specialization, coupled with our exceptional access to debt and securitization, market funding, and asset liability management that enables us to deliver consistently strong financial results. One of our strategic initiatives has been to broaden our business, those segments that we report to you. And the benefits of that increasing diversification were apparent in our 2022 results. When rapidly rising interest rates had a more immediate impact on our farm and ranch segment, it had the opposite impact on our wholesale funding, our egg vantage product. because we were more comparatively competitive with Federal Reserve Bank alternatives than we were during the pandemic. Similarly, our rural infrastructure segment showed less interest rate sensitivity, and we booked record amounts to telecom and renewable energy project finance loans. Diversifying our loan portfolio has been a key priority over the last few years, and that diversification is benefiting us through changing market cycles. In 2022, we provided a gross $9 billion in liquidity and lending capacity to lenders serving rural America, reflecting net year-over-year outstanding business volume growth of $2.3 billion. The agricultural finance line of business grew $1.7 billion last year, which is predominantly driven by growth in the Farm and Ranch Advantage securities portfolio and loan purchase volume. The overall growth in the wholesale financing space continues to reflect many of our institutional counterparties, adding longer-term advantage securities to manage their asset liability maturity profiles given the recent increases in interest rates and the comparative competitiveness of PharmaMac advantage pricing relative to other market and Federal Reserve Bank-derived options. We added in that $880 million in new farm and ranch advantage securities in 2022 compared to $300 million in 2021. Looking ahead, we believe that especially in this volatile interest rate environment, that Farmer Mac can continue to be viewed as a crucial relative value for refinancing and possibly for incremental borrowing for a longstanding advantage counterparties. To add some additional detail, our farm and ranch loan purchase volume growth of 8% year over year was modest compared to prior years as borrowers were adjusting to higher rate environments and being more opportunistic. We're optimistic that potential increases in loan purchase opportunities in 2023 will happen given the strong cash position of farmers and ranchers as they head into their 2023 planning and planting seasons. Our corporate ag finance segment grew $65.7 billion to $1.6 billion. That's year-over-year 2022 to 2021. This is a relatively new business initiative for PharmaMac that supports loans to larger, more complex agribusinesses focused on entities that span the food supply chain. The persistent volatility and uncertainty in the market slowed deal opportunities in 2022, with many transactions on pause, waiting for signs of market stabilization. While net growth saw only a modest increase in 2022, primarily due to sizable payoffs, we were able to purchase approximately $330 million of new homes at very accretive spreads, which supported a very strong increase in revenues for this segment. However, in the fourth quarter of 2022 and so far in the first quarter of 2023, we've seen an increase in deal flow in the market and are starting to build a strong pipeline for this year. These deals continue to be very accretive from an NES standpoint and a key component of our diversification strategy. We expect this segment to have meaningful impacts on results in the future and to enable FarmerMac to continue to strengthen and deliver on our mission. 2022 was a very strong year for rural infrastructure as the diversification of this line of business is providing significant growth opportunities across numerous key sub-segment markets. During the year, we added $608 million of business reflecting year-over-year growth of about 10% in the renewable energy, telecommunications, and core rural utility subsectors. Loan purchase volume in the rural utility sector increased 22% in 2022, primarily due to borrowers' normal course capital expenditures that were related to maintaining and upgrading the utility infrastructure, as well as investments in broadband infrastructure. Farmer Mac acquired over $230 million in telecommunication loans in 2022, and there is a growing investment in fiber and broadband in rural America and an increasing recognition of the need for widespread investment in these areas. We remain committed to increasing investment to reduce the cost of capital for telecommunication providers, and we look forward to providing updates on this new avenue of growth for PharmaMAC. Our renewable energy portfolio had an exceptional year with over $140 million in net growth in solar and wind transactions from a number of counterparties. Our participation in a few broadly syndicated renewable energy transactions has increased potential counterparties to source transactions from us in future years. 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. As you may have seen yesterday afternoon, I'm very pleased to announce that we have successfully closed on our third $300 million, approximately $300 million, agriculture mortgage-backed securitization transaction. Securitization continues to be a tremendous opportunity for FarmerMac and offers us many long-term benefits. One, for example, since the successful introduction of our series program, we've met with customers who have shown interest in potential securitization products that help them achieve their return objectives. While we're still in the early stages of building the program, our return to the market shows our commitment to being a regular issue for the set of securitization products that align with both our borrower and investor interests. Developing this capital flow to American agriculture producers exemplifies PharmaMac's core mission to lower costs for the end borrower and improve credit availability in rural America, while also creating a well-received new investment opportunity for leading institutional investors. The US agricultural economy continues to benefit from strong export demand and elevated commodity prices. Farmland values reached record highs in many states in 2022, primarily due to record levels of farm income over the last couple of years. While input costs are expected to remain elevated in 2023, limited global annual crops should continue to support commodity prices. 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, as agriculture, food, and infrastructure industries tend not to be directly correlated or positively correlated with the general economy. We believe these sectors are generally well positioned to withstand and economic downturn due to ample consumer demand as well as government support. Now, before turning to APARNA, I'm very pleased to announce a 16%, 15 cent per share increase in our quarterly common stock dividend. That'll take it to $1.10 per share starting in the first quarter of 2023. In deciding to increase PharmaMac's common stock dividend and maintain our payout target, our board of directors considered our strong capital position and the consistency of and outlook for our earnings, all to support our business and to exceed our regulatory capital requirements. This is the 12th consecutive year that PharmaMac has increased its quarterly dividend. Looking ahead, we will strive to continue to be a source of stability to our customers by remaining adaptive and flexible to meet their needs in this changing environment while remaining vigilant about any implications of potential market interaction. The foundation of our strategy is our strong financial position and proactive management of our balance sheet and funding sources, which positions us well in changing credit environments and enables us to continue to deliver our mission and create more opportunities for us to enhance shareholder value for you. And with that, I'll turn to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail. Aparna?