Tim Buzby – President and Chief Executive Officer Steve Mullery – Senior Vice President, General Counsel and Corporate Secretary Dale Lynch – Senior Vice President, Chief Financial Officer and Treasurer.

Kevin Barker – Compass Point Chas Tyson – KBW.

Good morning and welcome to Farmer Mac First Quarter 2015 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note that this event is being recorded.

I would now like to turn the conference over to Tim Buzby, President and CEO. Please go ahead sir..

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 2015 first quarter and investor conference call.

Before starting this morning, I will ask Steve Mullery, Farmer Mac's General Counsel to comment on the forward-looking statements that management may make today, as well as Farmer Mac's use of non-GAAP financial measures.

Steve?.

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 as those described in our 2014 annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q and our other flings with the SEC. Farmer Mac uses core earnings, a non-GAAP financial measure to measure corporate performance and develops financial plans.

In management's view, core earning is a useful alternative measure for understanding Farmer Mac's economic performance, transaction economics, and business trends. This non-GAAP financial measure may not be comparable to similarly labeled non-GAAP financial measures disclosed by other companies.

Farmer Mac's disclosure of core earnings is intended to be supplemental in nature and is 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. We’re off to a good start in 2015. Farmer Mac has continued its favorable trends in business volume, spreads and credit quality and we also completed our capital restructuring initiative.

We’ve been telling our investors for over a year about our intent to redeem $250 million of higher cost preferred stock at its earliest redemption date, which we did on March 30, 2015.

This is a milestone for us because we now have our desired capital structure in place for the future and the redemption of the higher cost preferred stock will result in a significant reduction in the amount of preferred stock dividends we pay going forward.

As we highlighted in our press release and SEC filings, we expect to save over $14 million after-tax annually with $3.5 million after-tax per quarter beginning in second quarter 2015. This provides a considerable value to our common stockholders. Farmer Mac ended first quarter 2015 with outstanding business volume that was just shy of $14.7 billion.

We added nearly $503 million of new business, resulting in net growth after maturities and repayments of almost $63 million. This increase was due primarily to purchases of AgVantage securities in the quarter $215 million and moderate growth from the purchase of Farm & Ranch loans and USDA Securities.

The volume in AgVantage securities was driven by $200 million wholesale financing for the National Rural Utilities Cooperative Finance Corporation. The remaining $15 million was purchased under Farm Equity AgVantage facilities.

A variation of Farmer Mac's AgVantage wholesale financing product is as customized for financial investors and agricultural real estate. Since we introduced this product in third quarter 2014, its total business volume has grown to $110 million as of March 31.

The development of Farm Equity AgVantage is still in its early stages and we believe it has room for further growth given the increasing interest we have had from institutions and investors in the agriculture asset class.

On the Farm & Ranch loan side; we’ve experienced continuing stable demand for our loan products although our gross new loan volume has slowed modestly compared to last year, prepayment rates have also slowed more and net growth is expected to continue.

Farmer Mac’s net effective spread for first quarter 2015 grew in dollars compared to both fourth quarter 2014 and the year ago quarter. The sequential growth and year-over-year increase in dollars was primarily due to the overall growth in our program business.

Net effective spread in percentage terms decreased modestly, sequentially, but increased modestly year-over-year.

The sequential decrease was primarily due to carrying a larger investment portfolio in first quarter, which provides additional dollars of spread income, lowers the percentage spread because the percentage of return is lower than that of our program business. The year-over-year increase was primarily due to business growth.

The credit quality of our portfolio remains strong. As of March 31, 2015, $32 million or 0.06% of our $5.3 billion Farm & Ranch portfolio was 90 days delinquent, that's up from year-end 2014, but the increase is primarily related to a single $9.8 million loan.

This delinquency is not related to industry conditions or the profitability of the borrowers operation and we believe that we are well collateralized on that loan. We expect that over time, Farmer Mac’s 90-day delinquency rate will eventually revert to our historical average of approximately 1% due to macroeconomic and other potential factors.

As we’ve discussed on previous calls, 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 the drought conditions, the persistence of extreme drought conditions 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 plantings sector, where the value of the related collateral is closely tied to the production value and capability of the permanent plantings.

This is also true in the dairy sector, which 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.

Through regular discussions with our loan servicers that service loans in drought-stricken areas Farmer Mac continues to remain informed about the drought and its effects on the agricultural industries located in the western states and on Farmer Mac's Farm & Ranch portfolio.

With that as background, I would like to turn to Dale Lynch, our Chief Financial Officer, to cover our financial results in more detail.

Dale?.

a cash management and liquidity initiative and a capital structure initiative. Each of these added significant value to Farmer Mac’s stockholders, but also complicated our financial statements.

The cash management and liquidity initiative was completed last year, the capital structure initiative involves our Farmer Mac taking advantage of favorable market conditions to issue preferred stock earlier than a year to replace the higher cost preferred stock previously discussed.

This initiative resulted in extra dividend expense throughout 2014 and into 2015 and was completed in first quarter 2015. As we now entered second quarter and with these two accomplishments behind us, our financial results were more clearly reflects the fundamental business factors that drive our business.

Turning to the financials, Farmer Mac’s first quarter 2015 core earnings were $9.1 million or $0.80 per share, compared to $9.5 million or $0.84 per share for fourth quarter 2014 and $11 million or $0.97 per share in first quarter 2014.

The $0.4 million decrease in core earnings from fourth quarter 2014 was primarily driven by the recognition of the $0.8 million after-tax tax benefit in fourth quarter 2014 related to Farmer Mac’s cash management liquidity initiative. This decrease however was partially offset by $0.5 million after-tax increase in net effective spread.

The decrease of $1.9 million in core earnings from the year ago quarter was attributable to a number of factors. First, a $2.3 million increase in preferred stock dividend payments related to the issuance of preferred stock during the first half of 2014, again related to our capital structure initiative.

A $0.8 million after-tax increase in compensation expense, this quarter, due to higher incentive compensation driven by meeting certain performance targets, our increased headcount and annual salary adjustments.

And lastly, the loss of $1.4 million after-tax dividend income and $0.5 million of related tax benefits associated with the October 2014 redemption of CoBank preferred stock. These factors were offset in part by a $3.2 million after-tax increase in net effective spread when excluding the loss of the CoBank preferred dividend income.

As Tim mentioned earlier, we expected to reduce our preferred dividend payments by about $3.5 million after-tax per quarter beginning in second quarter 2015 as result of calling this more expensive preferred stock. Switching GAAP net income.

First quarter 2015 net income was $1.8 million or $0.16 per share, compared to $0.8 million or $0.07 per share for first quarter of 2014.

The $1 million increase compared to the previous year’s quarter was due in part to the effects of unrealized fair value changes on financial derivatives and hedged assets, which was a $0.6 million after-tax loss in the first quarter 2015 compared to a $2.4 million after-tax loss a year ago.

Additionally, first quarter 2014 included $7.5 million after-tax of premium amortization related to certain refinanced Rural Utilities loans. Partially offsetting these factors leading to the increase for two items in the first quarter of 2015.

First, an $8.1 million or $6.2 million after-tax loss on the retirement of preferred stock from the write-off of deferred issuance cost upon the redemption of the Farmer Mac II LLC Preferred Stock on March 30. And second, a $2.3 million increase in preferred dividend payments related to our capital restructure.

Turning to spreads, Farmer Mac’s net effective spread for first quarter 2015 was $29.3 million, or 86 basis points, compared to $28.4 million, or 91 basis points in fourth quarter 2014 and $26.4 million, or 84 basis points in first quarter 2014.

The five basis point decrease in net effective spread compared to fourth quarter was primarily due to an increase in the average balance of lower spread investment securities within the liquidity investment portfolio, as Tim mentioned, and to there have been two fewer days for interest accrual on certain assets in first quarter.

However, we were able to grow net effective spread by $0.8 million due to higher loan and securities balances.

The $2.9 million and two basis point increase compared to the year ago quarter was primarily due to lower funding cost related to refinancing of certain assets, higher average loan and securities balances and higher non-accrual income on Farm & Ranch loans.

Also contributing to the increase was the fact that the early refinance of certain Rural Utilities loans in the first quarter of 2014 caused incremental financing costs of about $1.3 million or 4 basis points in the year ago quarter.

This was partially offset by the loss of $2.1 million in preferred dividend income or about 7 basis points from redemption of the CoBank preferred stock in October 2014. Now turning to our four lines of business; net affective spreads for first quarter of 2015 and fourth quarter 2014 were as follows.

First, $10.1 million or 197 basis points for Farm & Ranch compared to $8.7 million or 171 basis points in the fourth quarter, $4.2 million or 95 basis points for USDA Guarantees compared to $5.3 million or 119 basis points, $2.8 million or 115 basis points for rural utilities compared to $2.9 million or 118 basis points.

And lastly, $10.4 million or 77 basis points for Institutional Credit compared to $9.9 million or 78 basis points. From a credit perspective, total allowances for losses were $9.4 million or 0.18% of the $5.3 billion Farm & Ranch portfolio as of March 31, 2015, compared to $10.1 million or 0.19% of the same portfolio as of December 31, 2014.

So credit quality remains very favorable. Net release from the allowance were $0.7 million for first quarter 2015 and this compared to net provisions of $0.7 million in first quarter 2014. The net releases this quarter were related to the certain ethanol loans that were repaid this period.

There were no charge-offs in first quarter 2015 compared to $29,000 in the year ago quarter. As Tim mentioned in the Farm & Ranch portfolio, 90-day delinquencies were $32.1 million or 0.6% of the Farm & Ranch portfolio as of March 31, 2015, compared to $18.9 million or 0.35% as of December 31, 2014, and $29.4 million of 0.56% as of March 31, 2014.

The increase in the 90-day delinquency rate in first quarter compared to fourth quarter was primarily related to a single borrower to which Farmer Mac had about $9.8 million of exposures. Notably this delinquency was not related to industry conditions or the profitability of the farmers operation.

Farmer Mac's other lines of business, there are currently no delinquent AgVantage securities or Rural Utilities loans, and the USDA Securities are backed by the full faith and credit of the United States.

As a result, across all our Farmer Mac's four lines of business, the overall 90-day – level of 90-day delinquencies comprised entirely of Farm & Ranch loans was just 0.22% of total volume as of the end of the first quarter compared to 0.13% as of year end 2014 and 0.21% in the year-ago quarter.

We added nearly $503 million in new business this quarter, looking at the specifics for the quarter we did the following. First $215 million of AgVantage securities, $130 million of Farm and Ranch Loan purchases, $89 million of USDA securities, $59 million of Farm & Ranch standbys and $9 million of rural utility loan purchases.

After repayments, our net outstanding business volume increased by about $63 million this quarter, the increase was primarily driven by the $133 million net increase in institutional credit.

Also while first quarter tends to be the highest quarter for repayments in Farm & Ranch loans, we were still able to grow our loan purchase volume by almost $31 million. On the other hand, Farm & Ranch standby has decreased by $100 million as participation in this product amongst our existing customer set has decreased.

Regarding capital Farmer Mac's $531 million of core capital as of March 31, 2015 exceeded the statutory minimum capital requirement of $434 million by $97 million or about 22%. This compares to core capital of $766 million or $345 million above the capital statutory minimum at year-end 2014.

The decrease in core capital from this quarter resulted from the redemption of $250 million of Farmer Mac II LLC preferred stock on March 30, 2015.

Farmer Mac issued an aggregate of $150 million of non-cumulative preferred stock during the first half of 2014 and used the proceeds of this preferred stock offering and cash on hand to cause Farmer Mac II LLC to redeem all of the outstanding shares of Farmer Mac II LLC preferred stock.

The preferred stock issued in 2014 qualifies as Tier 1 capital for Farmer Mac whereas the Farmer Mac II LLC preferred stock that was redeemed did not qualify as Tier 1 capital. In terms of the liquidity, Farmer Mac had 183 days of liquidity at the end of the first quarter compared to the minimum regulatory requirement of 90 days.

More complete information about Farmer Mac's performance for first quarter 2015 is set forth in the 10-Q 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 completing the Farmer Mac's capital restructuring and of the results achieved during the first quarter 2015. We maintained the upward trend in business volume and credit quality remains strong overall. Looking forward, 2015 was promising.

We continue to grow our most profitable products, Farm & Ranch loans, which is helping to drive an overall increase in spreads.

We also believe we are well positioned to grow our wholesale lending products, including our new Farm Equity AgVantage product as financial investors increasingly purchase agricultural assets and seek wholesale debt financing to supplement their other sources of capital.

In fulfilling our mission to serve rural America, we are constantly looking to expand our customer base and work to innovate and develop new products that help to bring new capital to agricultural and rural communities. At this time, we’re happy to any questions you may have..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will comes from Kevin Barker of Compass Point. Please go ahead..

Good morning..

Good morning, Kevin..

I was hoping if you can give us just a little bit of more color on the one loan that went delinquent that causes tick up in the Farm & Range loans this quarter.

And then just expand a little bit on what your thoughts are on increasing delinquency rates up to 1% in the next year given what’s happening in California and the state of the agricultural loans today?.

Sure, with respect to that one borrower, we’re not concerned about collecting on net loan at – I don’t want to go into specific details about an individual, but it is a situation again whereas we indicated it’s not related to the industry or the profitability of that operation, it’s simply called a family issue that’s been resolved, and we think will be resolved favorably over time for Farmer Mac, so we’re not concerned there.

As far as the overall delinquency levels and expecting that delinquencies will increase over time and revert to the norm, we’ve quite frankly been expecting that for quiet sometime, it just hasn’t come to fruition yet. That could be a variety of factors.

It could be the drought in the western states in California that could ultimately have an impact on delinquencies and losses or it could be related to commodity prices that are certainly lower than what they’ve been over the course of the past several years. The reality is that’s normal.

In lending, we expect to have delinquencies and we do expect to have losses with a very favorable run for several years other than what we’ve seen in our ethanol portfolio a few years ago. And still we expect that to return to normal. We’ve been fortunate here in the past.

With that said, I’ll also say that there are farmers that if they do have problems or face issues, they have had a very strong run for a while. So they’re able to withstand any adverse scenarios that may come about.

So we expect delinquencies will increase, but we factor that into our business on our pricing and we grow our position to withstand any adverse scenarios..

Okay.

And when we think about that that one loan that went delinquent, I mean, could you give us a little more color on what your largest exposures are in the Farm & Range side and where are your median exposures?.

Largest exposure, our single loan limit historically has been $30 million, but we have very few loans that exceed $20 million in the Farm & Ranch line of business. As far as the median, I think we averaged around $700,000 these days in the Farm & Ranch portfolio.

That’s come up over the past couple of years as land prices have increased and consolidation has occurred. So I’d say, it’s somewhere around $700,000 in the median..

Okay.

And then when we think about some of the other trends that are going on in agriculture, what specifically is your biggest worry? Is it the drought in California or is it commodity prices of the specific portfolios that you would expect the most losses to come out?.

I would say if I had to pinpoint a concern, it would probably be the drought and I don’t think that’s a near-term concern that we’re worried about having losses in the next month or two.

But over the course of the next year or plus, if the drought conditions continue that could become – could start to produce effects on the portfolio, with respect to commodity prices, not quite as concerned there. Again corn, soybean and other crop farmers have done very well over the past couple of years.

So I think they’re in position to withstand the low prices there. Also as we indicated with investors and others looking to purchase land, they fact that commodity prices could ultimately have – put downward pressure on land, but we do think there are many in the industry are willing to step in and purchase lands over the long-term.

So, I again back to the initial question, I would say if I had to pinpoint the one thing, it would be the drought in the western states..

Kevin, this is Dale. Just one point, I mean, the focus on the normalization of the ag credit markets is a good conversation to have.

We’ve focused a lot on the downside here, but just wanted to offer the – the normalization of the market, we’ve seen spreads of grain 70 basis points to 80 basis points tighter in Farm & Ranch loans in the last three years. Well, that’s the balance of power has really been skewed toward the borrower.

I think based on normalization of that going forward whatever time that takes, it would be healthy in terms of shifting some of the balance of power back to the lender side, which would hopefully manifested itself and wider spreads and that’s been the cycle for decade.

So that’s just something we’re looking – we think the environment where you have wider spreads and a more normalized delinquency rate and a more normalized annual loss rate. On balance if you net those factors out and net out of an – sort of a net plus from an earnings perspective frankly in a more normalized market..

So the follow-up on those comments, are you seeing any players within the agriculture market pullout or be a little bit less aggressive in making [indiscernible]?.

Haven’t seen anybody specifically pulling out, I will say competition has been hot particularly for the best borrowers. We hear it regularly what Farmer Mac’s primary purpose in financing rural America is to provide competition.

So we see here from many sides banking, farm credit, the insurance companies, they’re seeing heated competition and spreads being compressed.

And I think as Dale said, I think over time as things a little bit of pressure, adversity comes to the industry, you’ll see people taking may be as a little different approach to how they price a risk and certainly we’ll – we expect over time also as interest rates raise that there will be an additional room for spreads to increase as well..

Okay, thank you for taking my questions..

Sure, thank you..

[Operator Instructions] The next question will come from Bose George of KBW. Please go ahead..

Hi, guys. This is actually Chas Tyson on for Bose. I just want to ask on the AgVantge product, that’s a product you’ve been seeing some success with recently and one on the traditional AgVantage side. I’m wondering if you guys have been able to make any progress on expanding that outside the core customer group of Rabobank and MetLife and the CFC.

And then two on the newer farm equity AgVantage product, if we should expect to see new customer sign on just coming in the next couple of quarters or if you’re just looking to expand it with the current customers?.

On the traditional AgVantage, no, we haven’t seen any expansion other than the score – companies that you have mentioned. On the farm equity AgVantage, yes, we do expect that you’ll see additional customers added to the list there.

We’re having numerous conversations with a number of institutions and investors and are hopeful and have an optimistic outlook that we will have additional customers there throughout 2015..

Okay.

On the traditional AgVantage product, is that a near-term priority to expand the customer side or is that may be something you’re thinking about over – may be near or the long-term?.

I’d say both. We regularly have conversations with numerous lenders and the track of those conversations is trying to analyze and understand what their needs are.

The realty is that there aren’t a lot of lenders seeking liquidity at this point, particularly in the banking sectors, those banks are washed with liquidity, so they’re not looking to borrow money to make available. So, again as things change in a more normal interest environment, we think that that product certainly has prospects for it.

It’s just that the current economics don’t really lend itself to that, the few customers that we do have that are taking advantage of that have specific needs. They are not traditional banking customers. So from a liquidity standpoint, they manage that as an additional source of capital for themselves..

Okay, that makes sense. And then just a couple on spreads, I know as the Farm & Ranch spread was up a little bit in the quarter and the USDA spread was a down a little bit.

I’m wondering if there’s anything in those numbers or it was just kind of what – what you were seeing out there and – from a volume perspective in the quarter?.

Yes, so the step-up you see in the first quarter there are sequentially from fourth quarter. The lion’s share that’s really due to – we put a footnote in there and the key you’ll see that we’ve refined the way we’ve designed and separate interest expense between the four lines of business. And I think over time we’re making that more precious.

So we allocate more interest expense to some of the longer-term loan products within USDA guarantees and with Rural Utilities. So spreads in Farm & Ranch went up relatively speaking and the spreads in the other two segments came down modestly. So, I think it’s just really a revision.

But I will say in addition to that sort of technical allocation difference. I think we came through the first quarter pretty well. In terms of first quarter, seasonally has been one where repayments – heavy repayments and prepayments tend to skew spreads lower. We didn’t really see that dynamic this quarter.

Prepayment rates have slowed so significantly and the loans that are repaying and prepaying now tend to be repaying and prepaying at lower spreads than the new assets going on. So I think we came through that first quarter better than we did last year..

Okay. And then just lastly to piggyback on some earlier questions from the credit side in terms of what you guys are worried about. Do the – I mean we started to see in some places farm land prices reversed a little bit, I know they’re obviously up markedly over the last couple of years and decades.

But does that – where you guys at all to and then how do you think about that from a credit perspective?.

From a credit perspective, it doesn’t really concern us. Our maximum LTV is 70% and the average in the portfolio is in the low 50s and that’s even before you’re taking into consideration and that’s the original LTV before you consider that the loans have paid down as well.

So the modest reversion that we’ve seen in certain parts of country doesn’t concern us from a credit perspective. Obviously, we’d like to see a healthy ag economy and increasing land value is over time are certainly a part of that. We have seen a run up and then the modest pullback in certain areas here as well.

But overall that’s not necessarily a bad thing either, did not have a superheated land value trend I think in general as well.

A little adversity for agriculture and the lenders of certain community is a good reality check in a lot of ways and quiet frankly could benefit Farmer Mac over the long run in terms of lenders looking and how they manage their business and their credit risk and they may look to Farmer Mac as a solution for some of that.

So, no, I would say overall we’re not concerned about the general conditions..

Okay. Thanks so much..

And this will conclude our question-and-answer session. I would like to hand the conference back over to Tim Buzby for any closing remarks..

Thank you. Thanks for listening and participating this morning. I look forward to our next call to report our second quarter 2015 results in August. Thank you..

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines..