Timothy L. Buzby - President & Chief Executive Officer Stephen P. Mullery - Secretary, Senior Vice President & General Counsel R. Dale Lynch - Senior Vice President, Chief Financial Officer & Treasurer.

Chas Tyson - Keefe, Bruyette & Woods, Inc. Kevin James Barker - Compass Point Research & Trading LLC.

Good morning, and welcome to The Federal Agricultural Mortgage Corporation's Fourth Quarter 2014 Investor Conference Call. All participants will be in a listen-only mode. 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 Mr. Tim Buzby.

Please go ahead, sir..

Thank you. Good morning. I'm Tim Buzby, Farmer Mac's President and CEO. The Farmer Mac Management team and I are pleased to welcome you to our 2014 fourth quarter and yearend investor conference call.

Before starting this morning, I will ask Steve Mullery, Farmer Mac's 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..

Thanks, Tim. Some of the statements made on this conference call may constitute forward-looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance. We do not undertake any obligation to update these statements after the date of this call.

We caution you that forward-looking statements are subject to a number of 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 those described in our 2014 annual report on Form 10-K, which was filed with the SEC this morning. Farmer Mac uses core earnings, a non-GAAP financial measure to measure corporate performance and develop financial plans.

In 2014, Farmer Mac also presented core earnings excluding the effects of two short-term initiatives.

First, a cash management and liquidity initiative implemented in second quarter 2014, designed to increase our short-term investment alternatives and to gain access to the Fed's reverse repo facility, which is described in more detail on our SEC filings.

Second, a capital structure initiative that is also described in more detail on our SEC filings under which Farmer Mac issued preferred stock in 2014 to increase its Tier 1 capital position and to help fund in advance the redemption of all $250 million of Farmer Mac II LLC Preferred Stock on March 30, 2015.

In management's view, core earnings and core earnings excluding these two initiatives are useful, alternative measures for understanding Farmer Mac's economic performance, transaction economics, and business trends. These non-GAAP financial measures may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies.

Farmer Mac's disclosure of core earnings and core earnings excluding the indicated items is intended to be supplemental in nature. These measures are not meant to be considered in isolation from, as a substitute for, or as more important than the related financial information prepared in accordance with GAAP.

A recording of this call will be available on our website for two weeks starting later today..

Thank you, Steve.

Farmer Mac's business environment remained favorable in 2014 and we are very pleased with our results for the year, even more exciting is that our outlook going forward is very positive with many new business prospects for 2015 and a healthy credit portfolio that is well positioned to withstand any pressures that may stress the agricultural economy.

Farmer Mac ended 2014 with record outstanding business volume that was just shy of $14.6 billion, reflecting net growth of nearly $650 million for the year.

Our core earnings for 2014 were $53 million and net effective spread in all four of our business lines improved throughout the year, reversing the trend of contraction in all four lines during the previous years.

Credit quality continues to be very favorable as evidenced by 90-day delinquencies, covering the lowest end the Farmer Mac's historic range and net releases to the allowance for losses of $3.2 million.

The releases from the allowance were primarily due to significant repayments of ethanol loans during 2014 and improvements in the quality of the few remaining ethanol loans in our portfolio. During 2014, Farmer Mac undertook a couple of unique initiatives designed specifically to achieve important goals.

While, we are very pleased with those results, the reporting of those initiatives has made analysis of our financial results in comparisons to other periods more difficult.

We have provided investors with all of this information in our Form 10-K, which we filed with the SEC today and we hope it will help in isolating the impacts of these items and facilitate greater clarity regarding the fundamentals of our ongoing business.

On March 30th, once Farmer Mac redeems the preferred stock issued during 2010 it becomes callable on that day. We will have completed all of the goals we saw to achieve on these fronts. As we enter second quarter 2015, our financial results will more clearly reflect the fundamental business factors that drive our results.

So let me first discuss the two corporate initiatives. The first was a cash management and liquidity strategy to diversify Farmer Mac short-term investment alternatives to include the ability to invest in significant size repo investments through the Federal Reserve Bank of New York's reverse repo facility.

On January 16th, we were pleased to announce that Farmer Mac was approved by the Fed to be a counterparty in this facility. We believe this will be a valuable tool for us going forward, especially in higher interest rate environments.

The ability to execute these investments directly with the Fed removes any counterparty risk that would result from transacting with other non-governmental counterparties. During 2014, as Dale will explain in more detail later, the initiative also produced $11.4 million of additional earnings.

The second initiative was a revamp of Farmer Mac's capital structure to one that is of higher quality and a lower aggregate cost, that initiative included taking advantage of favorable market conditions twice during the first half of 2014 to issue preferred stock in advance of the planned redemption of the more expensive preferred stock at the end of this month.

The financial impact of the early issuances of preferred stock with additional dividends paid during the year of $6.3 million. With those items in mind, let's turn to the financial results for fourth quarter and the full year.

Core earnings for fourth quarter 2014 were $9.5 million or $0.84 per share, compared to $15.3 million or $1.36 per share in fourth quarter 2013 and $9.3 million or $0.82 per share in third quarter 2014.

The decrease compared to fourth quarter 2013 was primarily the result of a decrease in net effective spread resulting from the redemption of the CoBank preferred stock and the higher preferred dividend expenditures resulting from the early issuance of preferred stock mentioned previously.

The full-year 2014 core earnings totaled $53 million or $4.67 per share, compared to $54.9 million or $4.90 per share in 2013. The decrease was driven by the same factors that drove the year-over-year decline in fourth quarter 2014 core earnings, partially offset by tax benefits from the cash management and liquidity initiative.

Clearly, these two short-term initiatives had a material impact on Farmer Mac's core earnings throughout 2014. Management believes that analyzing core earnings excluding these items is helpful in understanding Farmer Mac's profitability because they are not expected to significantly affect Farmer Mac's financial performance beyond 2014.

Farmer Mac believes that this facilitates useful comparisons of financial performance between quarters within 2014 as the two initiatives were phased in and to other years when these initiatives were not in affect and therefore had no effect on the Farmer Mac's financial performance.

Core earnings excluding the effects of these two initiatives were $11 million or $0.97 per share for fourth quarter 2014 compared to $15.3 million or $1.36 per share in fourth quarter 2013 and $12.5 million or $1.10 per share in third quarter 2014.

The decrease compared to fourth quarter 2013 was primarily the result of a decrease in net effective spread resulting from the redemption of the CoBank preferred stock as well as a reduction in other tax benefits associated with the recognition of capital gains in 2013 as compared to 2014.

The decrease compared to third quarter 2014 was primarily the result of the redemption of the CoBank preferred stock. For the full year, core earnings excluding those two initiatives were $47.9 million or $4.22 per share for 2014 compared to $54.9 million or $4.90 per share for 2013.

The decrease was primarily the result of a reduction in net effective spread due to the redemption of the CoBank preferred stock as well as reduction in gains on the sale of one investment security and the repurchase of debt, neither of which reoccurred in 2014.

We've included a table in the overview section of our 10-K this year that provides more detail about these results and reconciles them to GAAP results. Dale will also provide more specifics on this shortly.

For GAAP results, net income attributable to common stockholders for fourth quarter was $5.6 million or $0.50 per share, compared to $12.5 million or $1.11 per share in the fourth quarter of 2013. For the full year 2014, GAAP net income was $38.3 million or $3.37 per share, down from $71.8 million or $6.41 per share.

The decrease in net income for these periods was attributable to several factors. The first effects of unrealized fair value changes on financial derivatives and hedged assets, which was a $3.7 million after-tax loss in the fourth quarter 2014 compared to an $8 million after-tax gain in the fourth-quarter of 2013.

For the full year, it was a $6.5 million after-tax loss in 2014, compared to a $29.4 million after-tax gain in 2013. The second factor was an increase in after-tax preferred stock dividend payments of $2.3 million in the fourth quarter 2014 and $6.3 million for the full year 2014.

The third factor was a decrease of $2.1 million related to income tax benefits associated with the recognition of capital gains on certain investment securities. The decrease for these periods was offset in part by the $11.4 million after-tax net benefit for the full year of 2014 related to our cash management and liquidity initiative.

Fourth quarter 2013 also included $10.3 million of after-tax premium amortization as Farmer Mac recast certain rural utility loans prior to their maturity that aided in retaining those loans on our books. In 2014, we added $2.8 billion of new business volume resulting in net growth after maturities and repayments of $647 million.

This increase was due primarily to purchases of AgVantage securities in the fourth quarter of $555 million and portfolio growth of on balance sheet Farm & Ranch loans and USDA Securities throughout 2014.

We have experienced continuing stable demand for our loan products in the Farm & Ranch line of business, although growth rates have leveled off as the refinancing trend has abated. However, net growth in Farm & Ranch loans is expected to continue as prepayment rates have slowed more than new loan volume.

We are also pleased with our success in signing up new banks as potential customers. The 792 total approved lenders as of year-end, up from 669 at start of the year.

Of the AgVantage securities, new business volume for 2014, $95 million was purchased under Farm Equity AgVantage facility, a variation of Farmer Mac's AgVantage wholesale financing product is customized for financial investors and agricultural assets.

The development of Farm Equity AgVantage is in its early stages and we believe it has room to grow given the increasing interest from financial investors in the agriculture asset class. The credit quality of our portfolio remained strong.

As of December 31, only $19 million or 0.35% of our $5.4 billion Farm & Ranch portfolio was 90 days delinquent, that's down from $28 million or 0.55% year ago and it's hovering at record low levels.

Minor fluctuations from current levels of delinquencies are to be expected as the delinquency or cure of just one loan at these levels can have a sizable impact on the reported numbers, such activity would not indicate a fundamental shift in credit quality, will be sure to clearly communicate the source of any changes.

As we highlighted last quarter, the western part of the United States including California continues to experience drought conditions with the water level in many California reservoirs at historically low levels, although to-date Farmer Mac has not observed any material effect on its portfolio from drought conditions, persistence of extreme drought in the western states could have an adverse effect on Farmer Mac's delinquency rates or loss experience.

This is particularly true in the permanent planting sector and the dairy sector. For permanent plantings, the value of the related collateral is closely tied to the production value and capability of the permanent plantings.

The dairy sector may experience increased feed costs as water is diverted away from hay acreage commonly relied upon by dairy producers and toward land supporting other agricultural commodities.

Farmer Mac continues to monitor the drought and its effects on the agricultural industries located in the western states, as well as its effects on Farmer Mac's Farm & Ranch line of business. With that as background, I'd like to turn to Dale Lynch, our Chief Financial Officer to cover our financial results in more detail.

Dale?.

$455 million of AgVantage securities, $196 million of Farm & Ranch loan purchases, $87 million of USDA Securities, $72 million of Farm & Ranch standbys and $7 million of rural utility loan purchases. After repayments, our net outstanding business volume increased $593 million in fourth quarter of 2014, so a very good quarter.

Turning to capital, Farmer Mac's $766 million of core capital as of yearend exceeded the statutory minimum capital requirement of $420 million by $345 million or 82%. This compares to $192 million capital above the statutory minimum capital requirement at yearend 2013.

A majority of this increase results from the issuance of $150 million of non-cumulative preferred perpetual stock in 2014 in anticipation of redemption of the FALConS in March 2015.

When the FALConS are redeemed, Farmer Mac will recognize $8.1 million of direct issuance costs related to these securities, which will be recognized as an expense in that period, but which will be excluded from core earnings, consistent with our prior treatment of such non-cash costs.

With this redemption, our capital structure initiative will be complete and we don't anticipate issuing any additional preferred stock related to the initiative. In terms of liquidity, Farmer Mac had 146 days of liquidity at yearend, compared to the regulatory minimum requirement of 90 days.

More complete information about Farmer Mac's performance for 2014 is set forth in the 10-K which we filed today with the SEC. And with that, Tim, I'll turn it back to you..

Thanks, Dale. Our management team is proud of the results achieved during 2014, outstanding business volume, is at an all-time high and our credit performance continues to be about as good as it can be. We continue to grow our most profitable product Farm & Ranch loans, which is helping to drive an overall increase in spreads.

We also believe we are well positioned to grow our new Farm Equity AgVantage product as financial investors increasingly purchase agricultural assets and seek wholesale financing.

In fulfilling our mission to serve rural America, we are constantly looking to deepen and broaden our customer base and work to innovate and develop new products that help bring new capital to agricultural and rural communities.

We are proud of our ability to ultimately help farmers and ranchers while at the same time delivering good profits and strong credit quality for our investors. At this time, we're happy to answer any questions you may have..

Our first question comes from Bose George of KBW. Please go ahead. Please go ahead..

Hey, guys. Good morning, this is actually Chas Tyson on for Bose. Just wanted to ask the first question about the portfolio. It looked like it grew pretty nicely in the fourth quarter, I know it's a pretty healthy business volume but also a pretty low amount of pay downs.

Just wanted to ask on the pay downs if there's anything in particular that drove that in 4Q and how you guys are thinking about that in 2015?.

Well, I think as far as pay downs slowing a bit, it is simply a function of those who were in the portfolio who were going to refinance likely have already done so. So comparing to prior years where you did see more refinancing activity, which was open in payoffs.

We didn't see that this year and probably don't expect that to see a resurgence of any refinance activity going forward. So we expect slower prepayments to continue throughout the year..

And we didn't have maturities in the fourth quarter either, Chas, so that certainly helped..

Right, right. That makes sense.

In terms of the prepayment rate that you're seeing on the portfolio, just thinking about it over 2015, should we be using kind of a fourth-quarter-type rate or should we maybe bump that up to a little more where you've seen over the rest of 2014? Or what is the right way to think about that?.

Well, we do have a chart that we include in our 10-K that shows all the scheduled maturities. You definitely need to take a look and see what AgVantage bonds there might be maturing during the year while we are hopeful to refinance those with the counterparties who are prepaying them, that doesn't always occur.

With respect to the ongoing loan volume, I would expect that you could look at what you saw in say the third and fourth quarter and model that forward for the upcoming year..

Just keep in mind that there is seasonality, Chas. Q1 and Q3 tend to be the quarters where you're going to get the prepayments Q2 and Q4, tend to be very low prepayment quarters. So there is seasonality throughout the year. But to Tim's point, overall, we've seen prepayment rates fall very significantly.

I mean, you can sort of do the math and come to the fact that they've decreased approximately 60%. And that's probably a good run rate going forward just given what we know now..

Okay. That's helpful. And then lastly on excess capital, obviously you guys are pretty significantly overcapitalized right now given that the capital management initiatives you put in place and yet it seems like even after you have repay the FALConS, there'll still be about $100 million of excess capital left over.

What are you guys thinking about in terms of uses of that and how do you guys think about an appropriate buffer over the required capital you have to hold?.

I think that amount of somewhere between $100 million and $150 million of excess is about where we were before we issued the additional preferred stock that we're going to use to redeem that stock on March 30. So we're comfortable with a triple digit excess that's available to provide capital for future growth opportunities.

And going forward, we expect that, we'll take a look at our capital position with respect to dividends, business growth opportunities, and other things, but you'll probably see us maintain above a triple digit excess..

Okay. That's helpful. Thank you..

Thanks, Chas..

. Our next question comes from Kevin Barker of Compass Point. Please go ahead..

Good morning.

Can you talk a little bit more about the effective spreads and how they continue to widen specifically around the Farm & Ranch loans? Is there any particular driver that you are seeing there?.

Oh, I'd say as largely Dale mentioned in his words earlier, that we did increased these spreads on our pricing for new incoming business that was about the midway point through the year.

So that's causing spreads to come up a little bit on new business, also some of the business that's rolling off that affects the overall spreads as well so it's really a mix of the two items.

We've had made a conscious effort during the year to look at our spreads which had been contracting for a couple of years to try and reverse that trends, and we were successful in doing that across all lines of business.

So I think that bodes well as we go forward as well with rates – overall interest rates where they are currently so low that has tended over the past couple of years to kind of narrow spreads as well.

So as overall interest rate environment may rise over the course of the next couple of years that may also create an opportunity for us to further widen spreads a bit..

Was any particular type of credit or region that you are targeting, specifically on your Farm & Ranch loans to increase their spreads?.

Not in particular. The business has skewed towards the Upper Midwest, just because that's where most of the farm land and financing activities has been coming from overall with that volume being pretty healthy not only because land values are up, so obviously loan size is larger.

But for as far spreads, no we don't target any particular geographic region, and try to price product differently throughout the country. It's pretty consistent throughout as well.

Same thing with loan size, we don't – different from what many retail lenders we don't increase spreads for smaller loans, we keep it the same for both small and large customers..

Is there any particular type of crop exposure that you would have that has grown the most in the last two to three years?.

Row crops in general, corn and soybeans being the primary two, again as we've seen our portfolio shift towards the Upper Midwest compared to many years ago, when we were skewed toward the Southwest in particular California, the commodity mix has changed somewhat because of the different crops that are grown in those two areas.

But, yeah, from a commodity standpoint, row crops is probably the most significant.

I think, overall from a credit risk standpoint, that's in our view, a safer crop compared to those that might be permanent plantings where you can see long-term damage and problems from a bad year compare that to a row crops where you often see farmers switching from one crop to another depending on where they expect yields to be and future prices..

Okay. Thank you for taking my questions..

Thanks..

At this time, I'm seeing no further questions. I would like to turn the conference back over to Tim Buzby for any closing remarks..

Thanks, everyone, for listening and participating this morning. We look forward to our next call to report our first quarter 2015 results in May. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..