Federal Agricultural Mortgage Corporation

Good morning, ladies and gentlemen, and welcome to the Farmer Mac fourth quarter and full year 2023 results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, February 23, 2024. I would now like to turn the conference over to Jalpa Nazareth. Please go ahead.

Good morning, and thank you for joining us for our fourth quarter and full year 2023 earnings conference call. I'm Jalpa Nazareth, Senior Director of Investor Relations and Finance Strategy here at FarmerMac. 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 PharmaMag's 2023 Annual Report on Form 10-K filed with the SEC 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 2023 Form 10-K and earnings press 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 Chief Executive Officer, Brad Norholm, who will discuss 2023's 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 join us to provide additional information on business trends and credit conditions. 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 today. 2023 was a remarkable year for PharmaMac. we've produced double-digit earnings growth and record net effective spread, and we substantially grew business volume, all while maintaining credit quality and holding our efficiency ratio below our target of 30%. Our success continues to be driven by our team's execution of our multi-year strategic plan, disciplined asset liability management decisions and funding execution, and successful business development efforts which have resulted in the diversification of our revenue streams. Our strong capital base and uninterrupted access to the capital markets support our long-term strategic growth objectives, while also providing a buffer against market volatility and changing credit market conditions. So let me be a bit more specific. In comparison to the prior year, 2022, We concluded 2023 with a 28% growth in net effective spread to $327 million, a 38% growth in court earnings to $171 million, and a 10% growth in outstanding business volume to $28.5 billion. I believe that it is the combination of our passion for our mission, our expertise and discipline, coupled with their exceptional access to debt securitization markets and consistent asset liability management that enables us to deliver consistently strong financial results. I fervently believe that passion for mission, the passion from our employees, our board, our executives, I believe that it really turbocharges our expertise and discipline to deliver these exceptional results. As you read in this morning's press release, we announced that 27% 30 cent per share increase in our quarterly common stock dividend to $1.40 per share beginning the first quarter of 2024. This reflects the 13th consecutive year that farmer Mac has increased its quarterly dividend. We are resolved to increase our dividend on an annual basis. with a policy focused on achieving a targeted payout that balances a reasonable growth of both previous and future earnings, along with maintaining an adequate level of capital to exceed our requirements and support our expectations for our future business volume growth. As I've said for a couple of years, diversifying our loan portfolio and serving more of our clearly defined market segments has been a key priority over the last years, and that diversification is benefiting us through changing market cycles. In 2023, we provided a gross $8.3 billion in liquidity and lending capacity to Lenders Serving Rural America, reflecting net year-over-year outstanding business volume growth of over $2.5 billion. The rural infrastructure line of business grew $1.4 billion, or 21%, year-over-year to $8 billion as of year-end, primarily due to new advantage facilities with existing and new counterparties and growth within the renewable energy and telecommunications portfolios. The agricultural finance line of business increased 1.2 billion, or 6%, year-over-year to $20.5 billion, primarily driven by the acquisition of approximately $600 million of mortgage servicing rights for farm and ranch loans held by and serviced for a third party, new advantage securities with their longstanding institutional counterparties, and loan purchase growth in farm and ranch corporate agribusiness. New advantage securities in the wholesale financing space were a key driver to overall volume growth in both lines of business. The continued demand within the space reflects the comparative competitiveness of PharmaMac's egg vantage pricing relative to market alternatives. Looking ahead to 2024, we believe, especially given the uncertainty and volatility around the interest rate environment, that PharmaMac will continue to be viewed as a unique relative value and diversifying funding source for many institutional counterparties. Thriving exceptional growth in the rural infrastructure line of business were the renewable energy and telecommunications portfolios. As we predicted on a number of prior calls, our total renewable energy segment more than doubled in size during the year. and our telecommunications portfolio grew nearly 60% year over year. Given the strong demand for renewable power generation and storage and the growing investment in fiber and broadband in rural America, we continue to focus on strategic talent acquisition in these two areas to build our expertise and capacity as market opportunities arise. Our farm and ranch segment modestly increased over 2022, primarily because of the higher interest rate environment. There was relatively strong activity in the fourth quarter of 2023, and the higher demand for Farm and Ranch loan purchase product has continued into the first quarter of 2024, further reflecting borrowers' adjustments to the new rate environment. We are cautiously optimistic about the increase in Farm and Ranch loan purchases in 2024. Farmers generally have strong cash positions, but we have seen a slower increase in land values versus the prior years, and we expect a decline in 2024 farm incomes as input costs remain elevated and commodity prices continue to recede. As we previously mentioned, we acquired $600 million of mortgage servicing rights on farm and ranch loans held by and serviced for a third party in the second quarter of 2023. During 2023, we also purchased servicing rights for approximately $700 million of mortgage servicing rights for PharmaMac loans owned by PharmaMac. These transactions have enabled us to expand our servicing portfolio for the first time since we added the servicing function in the third quarter of 2021. 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. Looking ahead, we will seek to continue to capitalize on this initiative to create a more efficient process for our customers and their borrowers and achieve economies of scale with minimal incremental expense. Another area of significant focus is our farm securitization program. We have closed a $300 million transaction every year for the last three years and expect to be back in the market in the first half of 2024. We're committed to being a regular issuer in the market with a set of securitization products that align with customer, borrower and investor interests. Developing this capital flow to agricultural producers exemplifies PharmaMax's core mission to lower costs for the end borrower and improve credit availability in rural America, while also creating an underlying agricultural investment opportunity in the capital markets. Looking ahead to 2024, we will strive to continue to be a source of reliable capital for our stakeholders as we navigate the ongoing uncertainty in the broader markets. We want to step in where we can to be a partner to our customers and more effectively fulfill our role as a secondary market provider of low-cost liquidity and capital efficiency with the ultimate goal of strengthening the rural economy. On prior calls, I've talked about an expansion of our approach to marketing and branding. here at Farmer Mac. You will soon begin seeing our efforts to use branding to deepen our connection with our stakeholders in a compelling and uniform way to support the expansion of our mission-driven work that helps build a strong and vital rural America. The initiative is intended to highlight our distinctive position as a secondary market partner that fosters greater connections between Wall Street and Main Street America. as well as across the entire value chain, fuel growth, innovation, and prosperity in America's rural and agricultural communities. In no small part, the fuel for that growth also comes from our active creation of more investment opportunities for the capital markets and strong access to capital. A significant competitive advantage for us is our people and their interwoven connection of mission, expertise, and discipline. I don't believe you can separate those attributes. And how they are committed to accelerate opportunities for rural America. To recognize their contributions and even more fully align these attributes, we have continued to enhance our benefit offerings to include all employees in an equity for all program to make them eligible to receive annual grants of equity-based compensation. I'm extremely proud of our team and all they've accomplished in 2023. Now I'd like to turn over the call to Aparna Ramesh, our Chief Financial Officer, to discuss our financial results in more detail.