Federal Agricultural Mortgage Corporation

Good day, and welcome to the PharmaMax second quarter 2023 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 today's event is being recorded. I would now like to turn the conference over to Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy. Please go ahead.

Good morning, and thank you for joining us for our second quarter 2023 earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at Farmer Mac. 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 risks and uncertainties that could cause our actual results to differ materially from those projected. Please refer to PharmaMax 2022 Annual Report and subsequent SEC filings for a full discussion of the company's risk factors. On today's call, we will 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 investor section. Joining us from management this morning are President and Chief Executive Officer Brad Nordholm, who will discuss second quarter business and financial highlights and strategic objectives. and Chief Financial Officer of Parna 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?

Thank you, Jalpa, and good morning, everyone. Thank you very much for joining us. I'm pleased to report that for the second quarter of 2023, PharmaMAC once again surpassed previous records in revenues, core earnings, and non-effective spread, building on the strength of our performance. Our capital base remains strong, which along with our disciplined asset liability management and uninterrupted access to the capital markets supports our long-term strategic growth objectives and also serves as a buffer against market volatility and changing credit market conditions. These results further demonstrate the resilience of our business model and the success of strategic initiatives designed to grow the company profitably while fulfilling our mission to rule America and generating shareholder returns across changing market cycles. In the second quarter, we recorded core earnings of $42.2 million, reflecting a 37% increase over the same period last year. We achieved gross new business volume of $2.2 billion during the quarter, resulting in total outstanding business volume of $26.7 billion as of June 30, 2023. Included in the $2.2 billion new volume was incremental volume in the form of an acquisition of mortgage servicing rights on $600 million of farm and ranch loans held by a third party. Since the strategic acquisition and expansion of our loan servicing functions in the third quarter 2021, we have looked for opportunities such as this recent acquisition to scale this portfolio while creating more process transparency and greater efficiencies across our loan servicing platform. This capability gives us more direct oversight and governance of our portfolio, enhanced security, more control over timely access to data, and better visibility into loan performance from inception to maturity. We'll continue to work with our key partners to identify ways to capitalize on this initiative to create a more efficient process for our customers and their borrowers. The volume growth we've seen in the first half of this year is largely attributable to the efforts we've made over the last few years to diversify our business model across several key markets. The agricultural finance line of business grew over $500 million in the second quarter, predominantly due to the previously mentioned acquisition of new loan servicing rights and growth in our corporate ag finance segment. There was good activity in corporate ag finance, reflecting our success in building our reputation in this market. For example, during the second quarter, we were invited to participate in deals with very large, well-known counterparties and have received more inquiries in recent months than we have ever seen before. Opportunities in this segment are generally more accretive from a net effective spread standpoint, though volume tends to be lumpy on a quarter-to-quarter basis. We remain focused on this segment as it is a key component of our diversification strategy central to our mission and impactful for earnings and continual growth. Activity in our farm and ranch segment continues to be moderate as a result of the higher interest rate environment, but prepayment rates remain at historically low levels during the second quarter. We saw an increase in the number of loan applications and approvals during the second quarter, reflecting borrowers' adjustments to the new rate environment. The agriculture mortgage market has seen a shift to primarily variable rate products, as borrower sentiment generally expects rates to decrease over the next 5 to 10 years. Another key contributor to the increase in loan applications this past quarter was the enhancement of our scorecard underwriting product, AgExpress. which allows more loans with up to 65% loan-to-value ratios, which is an increase from our previous criteria of 55% maximum loan-to-value. The expansion of this criteria allows us to better support our customers with a product that aligns with other lenders in the marketplace today, and we can do this without increasing our credit risk appetite. Turning to our rural infrastructure line of business, We saw continued healthy growth in the renewable energy segment during the second quarter. Our participation in syndicated renewable energy transactions has increased the number of opportunities we can participate in with key counterparties. The pipeline remains strong in the near term as we continue to focus on upsizing existing deals and bringing on new renewable energy opportunities. We also continue to invest additional resources to further support this segment. Offsetting growth this quarter was the maturity of a single large advantage security in the rural utility segment that resulted in a net decrease in the rural infrastructure line of business. During the disruptions in the banking industry in March, many of our counterparties opted to delay the refinancing of upcoming maturities to better navigate the market volatility and evaluate their capital and liquidity needs. In recent months, as market has stabilized, we've seen many of those conversations resume, and we're having more discussions about our product offerings as potential capital efficiency and liquidity conduit for our customers. We anticipate that this will result in a growing volume pipeline as we look ahead to the second half of the year and into 2024. Over the last few years, we've invested in our infrastructure by upgrading technology platforms, processes, and product offerings to improve the customer experience. I'm pleased to announce today that we will be rolling out a pilot program to complete collateral valuations using technology which, if successful, should reduce total loan processing times. This pilot will begin with many Midwestern properties with a goal of launching the program more broadly in the first quarter of 2024. As we've mentioned previously, we are well into a significant upgrade of our treasury and cash management platforms and embarking on something similar with our loan purchase and processing platforms. Our commitment to incorporating innovation and modernizing existing technology is expected to continue to differentiate farmer-MAC and contribute to the transformation of the agricultural sector overall. Our underlying business model, strong capital position, and uninterrupted access to the debt capital markets through the various market disruptions uniquely positions us to partner with our customers to help them manage their business and the risks they face around future capital requirements and liquidity. The foundation of our strategy is our consistent financial and operational execution, coupled with proactive management of our balance sheet and funding sources. This has positioned us well in changing credit environments and is expected to continue to create more opportunities to enhance shareholder value and fulfill our mission. So now I'd like to turn the call over to Aparna Ramesh, our Chief Financial Officer to discuss our financial results in more detail. Aparna.