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

Chas Tyson – KBW Jesus Bueno – Compass Point.

Welcome to the Farmer Mac Third Quarter 2015 Investor Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Mr. Tim Buzby, CEO. Mr. Buzby, Please go ahead, sir..

Thank you. Good morning. I'm Tim Buzby, Farmer Mac's President and CEO. Farmer Mac is pleased to welcome you to our third quarter 2015 investor conference call.

Before I begin, I would 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.

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 2013 Annual Report on Form 10-K, our subsequent quarterly reports on Form 10-Q and our other filings with the SEC. Farmer Mac uses core earnings, a non-GAAP financial measure to measure corporate performance and develop financial plans.

In management’s view, core earnings is a useful alternative measures for underlying Farmer Mac’s economic performance, transaction economics and business trends. This non-GAAP financial measures may not be comparable to similarly labelled 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 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. Third quarter was another solid quarter for Farmer Mac characterized by growth in outstanding business volume stable Net Effective Spread and continued strong credit quality. Farmer Mac also implemented a common stock repurchase program in September.

This program authorizes Farmer Mac to purchase upto $25 million of Farmer Mac's Class C common stock over the next two years. We established this program because we believe that the valuation multiples on the stock had become disconnected with what we view as the value of and prospects for the company.

Later during this call Dale Lynch will provide more information about the repurchases under the program so far. Farmer Mac ended third quarter 2015 with outstanding business volume of $15.6 billion. We added $1.4 billion of new business this quarter resulting in net growth of nearly $500 million after maturities and repayments.

This increases was due to a significant increase in our outstanding business volume with our Rural Utilities partner National Rural Utilities Cooperative Finance known as CFC, as well as new loan purchases across all our lines of business. The growth in outstanding business volume with CFC this quarter marks two important milestones for us.

It marks the first time that we have executed with CFC our long-term standby purchase commitment product, which provides credit protection on the designated pool of $522 million of rural utility loans. It also marks the first time that we have put into place a revolving floating rate AgVantage facility for CFC.

The $300 million three-year floating rate AgVantage facility provides a term financing vehicle, that Farmer Mac believes will help CFC manage its commercial paper and other short-term funding balances. These two developments are concrete examples of industry dynamics that can increase demand for the solutions that Farmer Mac provides.

Through just nine months of 2015, our total outstanding business with CFC has increased by more than $1.2 billion growing to $3.9 billion as of September 30, 2015.

This amount of total business with CFC includes $982 million of loan purchases, $2.4 billion of AgVantage securities, which includes the currently unfunded new floating rate AgVantage facility and $518 million of long-term standby purchase commitments.

Dale will cover our new volume information in more detail shortly, with our Farm & Ranch loan purchases were also strong this quarter, continuing the strong pace reported in the second quarter and more than offsetting the heavy repayment amounts that occurred in July, consistent with the historical experience for our portfolio that consists of many loans that pay semi-annually.

Continued strong participation from our bank customers and a modest expansion of our loan products contributed to this increase. Prepayment rates remain low during third quarter 2015, which contributed to the continuation of favorable trends in net loan growth during the quarter.

Our USDA Guarantees line of business also performed well, although the pace slowed modestly compared to second quarter 2015, which reflects a typical seasonal pattern that occurs late in the federal budget year.

Overall we are on pace for higher volumes in 2015 compared to last year, as banks are increasingly willing to sell the lower return guaranteed portion of loans to fund other new loan originations.

Farmer Mac's Net Effective Spread for third quarter remains stable on a percentage basis; it grew $600,000 compared to second quarter 2015, due to growth in business volume.

Overall new business spreads have been stable since mid-2013, but slowing prepayment rates in the past two years and a continuing business mix shift to higher margin products has contributed to stabilizing and generally higher average overall spreads in recent quarters. Credit quality of our portfolio remains healthy.

As of September 30th, $36.7 million or 0.67% of our $5.5 billion Farm & Ranch was 90 days delinquent compared to 0.58% in second quarter 2015.

As we have mentioned previously we expected over time Farmer Mac's 90 day delinquency rate will eventually revert to our historical average of approximately 1%, due to macroeconomic or other industry related factors. However, we have not an seen impact on our delinquencies related to such factors.

As discussed 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. The situation remains very similar to what we discussed during our second quarter call.

The persistence of extreme drought conditions in the Western states could have an adverse effect on Farmer Mac's delinquency rates, while loss experience in the future. But we have not yet seen a material impact.

We continue to remain informed about the drought and its effects on the agricultural industries located in the Western states on our Farm & Ranch portfolio through regular discussions with our loan servicers that service loans in drought stricken areas as well as, customers and other lenders in the industry.

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

Dale?.

Thanks, Tim. As Tim mentioned, third quarter 2015 was a milestone in terms of our business with CFC. And as the quarter characterized by good overall business volume growth, growing revenues and healthy credit. As we mentioned last quarter, we completed two unique initiatives not related to our program business in first quarter 2015.

A capital restructuring initiative and the cash management and liquidity initiative. Accordingly, our third quarter 2015 financial results were not affected by these initiatives.

However, as I cover our financial results this quarter, I will provide insights into prior period comparisons when those prior periods included the effects of these initiatives.

Turning to the financials, Farmer Mac's third quarter 2015 core earnings were $13.2 million or $1.70 per diluted common share, compared to $11.6 million or $1.02 per share in the second quarter 2015 and $9.3 million or $0.82 per share in the year ago quarter.

The $1.6 million increase in core earnings compared to second quarter of 2015, results primarily from $1 million after-tax reduction in credit expenses and a $0.4 million our after-tax increase in Net Effective Spread.

The $3.9 million increase in core earnings from the year ago quarter was driven by some of the unique items related to the two initiatives, I mentioned earlier, as well as a healthy increase in Net Effective Spread.

On the fundamental side, Net Effective Spreads for third quarter 2015 increased $1.8 million after-tax, excluding the impact of a loss dividend income from the redemption of the high yielding CoBank preferred stock, which is partially offset by $0.7 million after-tax increase in operating expenses and $0.4 million after-tax increase in credit expenses.

The increase in operating expenses was primarily attributable to the increase in consulting fees associated with IT initiative and new business opportunities, as well as by compensation expense associated with the consolidation of our new appraisal subsidiary Contour Valuation Services.

There are many increase in core earnings from the year ago was driven by the unique items mentioned earlier, which included a $3.5 million after-tax reduction in preferred dividend expenses for third quarter 2015, resulting from the completion of the capital restructuring initiative and $1 million our after-tax reduction in interest expense for a third quarter 2015, associated with the completion of the cash management liquidity initiative.

These benefits for third quarter 2015 compared to third quarter 2014, were partially offset by the loss of $1.9 million after-tax and dividend income on the high-yielding CoBank preferred stock previously held in our investment portfolio in which was deemed in fourth quarter 2014. Switching to GAAP net income.

Third quarter 2015 net income attributable to common stockholders was $8.4 million or $0.74 per diluted common share compared to $11.6 million or $1.02 per share in the year ago quarter.

The $3.2 million decrease compared to the previous year's quarter was primarily attributable to the effects of unrealized fair value changes on financial derivatives and hedged assets, which was $4.5 million after-tax loss in third quarter 2015 compared to a $2.7 million after-tax gain in the year ago quarter.

Turning to spread, Famer Mac's Net Effective Spreads for third quarter 2015 was $30.4 million or 88 basis points compared to $29.8 million or 88 basis points in the second quarter of this year and $29.8 million or 97 basis point in the year ago quarter.

The $0.6 million increase in Net Effective Spread compared to second quarter 2015 was attributable to growth in our outstanding business volume. On a percentage basis, Net Effective Spread was stable sequentially due to stable new business pricing and the relatively low level of prepayments on our loan assets.

The $0.6 million increase compared to third quarter 2014 was also attributable to growth in our outstanding business volume. A 9 basis point reduction in percentage terms compared to the year ago quarter was driven primarily by loss of the dividend income on the CoBank preferred stock mentioned earlier. Turning to our four lines of business.

Net Effective Spreads for third quarter 2015 and second quarter 2015 were as follows; $9.6 million or 180 basis points for Farm & Ranch compared to $9.7 million, or 182 basis points in second quarter. $4.6 million or 99 basis points for USDA Guarantees compared to $4.5 million or 98 basis points.

$2.9 million or 118 basis points for utilities Rural Utilities compared to $2.8 million or 118 basis points. Lastly $11.3 million or 81 basis points for Institutional Credit compared to $10.9 million or 78 basis points.

From a credit perspective, portfolio quality remained healthy during the third quarter as substandard assets percentage decreased to 2.2% from 2.5% in second quarter. This modest decrease was driven by the repayment at par this quarter of two loans that were previously classified as substandard assets.

The total allowance for losses was $10.3 million or 19 basis points of our $5.5 billion Farm & Ranch portfolio as of the end of the third quarter compared to $10.6 million or 19 basis points of the Farm & Ranch portfolio at the end of the second quarter 2015.

Recognized $31,000 after-tax REO write-down for third quarter 2015, which were netted against the $197,000 after-tax reduction in the allowance, resulted in net credit related income of $166,000 after-tax this quarter.

As Tim mentioned in the Farm & Ranch portfolio 90 day delinquencies were $36.7 million or 0.67% of the Farm & Ranch portfolio as of September 30, 2015 compared to $31.99 million or 58 basis points as of June 30, 2015 and $24.7 million or 46 basis points in the year ago quarter.

As substandard assets our total allowance for losses 90 day delinquencies remain stable and towards the favorable end of our historical averages. The Farmer Mac's other lines of business, there were currently no delinquent AgVantage securities or rural utility loans and the USDA securities are backed by the full faith in credit of United States.

As a result across all Farmer Mac's four lines of business, the overall level of 90 day delinquencies comprised entirely of Farm & Ranch loans which is 23 basis point of total volume as of September 30, 2015 compared to 21 basis points of total volume in the second quarter of this year and 18 basis points in the year ago quarter.

In terms of business volume we added more than $1.4 billion in gross new business this quarter. Looking at the specifics we added the following new business lines. $529 of Rural Utilities standbys, a $300 million floating rate AgVantage revolver, which is not currently drawn upon but for which we do earn a modest annual fee on the full facility side.

$207 million of AgVantage securities backed by Farm & Ranch loans $176 of Farm & Ranch loan purchases, $91 million of USDA securities, $80 million of Farm & Ranch standbys and $54 million of Rural Utility loans.

After repayments, which included $610 million of scheduled maturities for Farm & Ranch securities backed by Farm & Ranch loans, our net outstanding business volume increased $498 million this quarter.

Turning to capital, Farmer Mac's $558 million of core capital as of September 30, 2015 excluded the statutory minimum capital requirement of $443 million, by $515 million or 26%. This compares to core capital of $553 million or $110 million of capital above the statutory minimum capital as of second quarter this year.

The core capital of $766 million or $345 million of capital above the statutory minimum capital requirement as of year-end 2014. The decrease in core capital from year-end 2014 resulted from the redemption of $250 million of FALConS preferred stock on March 30, 2015. As Tim mentioned Farmer Mac initiated a share repurchase program in September 2015.

As of November 6, Farmer Mac has repurchased approximately 172,000 shares for a total amount of $4.7 million. The share prices of which we're repurchasing these shares proved to be accretive to our remaining stockholders over time as we repurchased more shares.

In terms of liquidity, Farmer Mac had 124 days of quality as of the end of third quarter 2015 compared to the minimum regulatory requirement of 90 days of liquidity. More complete information about Farmer Mac's third 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. Sum it up, we had a very good quarter in terms of business volume growth especially with our Rural Utilities partner, CFC. While the agricultural economy continues to adjust to lower commodity prices and the persistent West Coast drought, the overall business climate for Farmer Mac remains positive.

We believe that the relative demand Farmer Mac's products could increase as credit becomes somewhat tighter and we believe this is beginning to occur. We're also pleased to have begun our share repurchase program at prices that we believe are very attractive. We look forward to the ongoing execution of this program.

In terms of delivering upon our mission, Farmer Mac continues to communicate the value of our products and solutions to current and prospective customers. We continue to sign up new banks for our loan purchase and credit protection products.

We see strong interest for Farmer Mac equity AgVantage financing from existing and potential new counterparties. We're also working hard to expand the rest of our Institutional Credit line of business to new agricultural lenders.

And fulfilling our mission to serve rural America, we are actively seeking to help bring new capital to agricultural and rural communities. At this time, we'd be happy to answer any questions you may have..

[Operator Instructions] And our first question will come from Chas Tyson from KBW. Please go ahead..

Hey guys, good morning. The first question I just wanted to ask on the growth in the Rural Utilities segment is obviously very robust this quarter.

I was wondering if you guys could give some color behind what's driving that, whether it'd be new requirements from debt rating agencies or lenders moving away from the Rural Utilities service?.

Thanks, Chas, in terms of CFC's decision to enter into the long-term standby product with us, I think it's consistent with them looking at their financial position and their desire to serve their borrowers as a cooperative, they want to have themselves positioned such that they can serve any of their owner members that need financing.

So I think as they look at their balance sheet structure and how others may look at their balance sheet, they're constantly looking for ways to increase the financing that they can provide. And I think we're fortunate that this a tool that they viewed as way to be able to help them to position their equity position..

Okay. Got it. Then in the updated equity presentation you put on the website. That the USDA updated its estimates for farm mortgage related debt for 2014 and 2015. It seems like that the rate of that debt is increasing at a higher rate, but the denominator kind of may be pushed down your market share that would be estimated for 2015.

Can you give some color behind that and maybe the competitive dynamics of the space we're increasing and what your thoughts are?.

I think that line of business for us is pretty mature in terms of the amount of growth that we see on an annual basis, it's grown a little more than $100 million on a net basis each year. I think as the industry dynamics have changed there is competition for those products.

But again that's sort of a steady as she goes line of business for us, not an area that where we would expect high levels of growth..

Got it. And then last one, just on the reserve release around the permanent planting credit. I was wondering if you gave some color there in terms of what the characteristics of that loan were.

What the LTV that was underwritten at, what the severity assumption that you're making were - and then what changed that caused it to tick on, and perform better than what you were thinking originally?.

I think in our disclosure we indicated that it was an updated appraisal, which drove that, so it really wasn't anything specific to the property that, sort of fundamental to the industry.

It was just seeking new information making sure that we had that property appropriately valued and turned out that it will actually increase in value from when we had the original appraisal bun..

Okay. Thank you..

[Operator Instructions] Our next question will come from Jesus Bueno from Compass Point. Please go ahead..

Good morning, thanks for taking my questions. Just a quick question on Contour. Just to provide an update, I noticed that its notes included now and then, about $300,000 in other income and the cost that looks like it's close to breaking even.

But if you could just kind of outline expectations for that and we should think about that going forward?.

Well, as that - it's a start-up entity for us that started just within the past year as that becomes more developed and mature we will provide greater financial information and with comparable information period to period. We're pleased with the progress that we've seen there.

Again, we know started that partnership in that company with the idea that there was a lack of timely appraisals in certain parts of the country. It has expanded to a few different parts of the country and we'll continue next year. But again it's just kind of up and running and getting going and we'll provide more information in the future.

But we're excited about the prospects there..

One thing Jesus, you can infer financially as we talked about this in the second quarter, when we consolidate the revenues and expenses of this, you could see in the second quarter call we told you the $0.25 million step up in our compensation expense line was attributable to the compensation expenses of Contour at that point in time.

So you can you, kind of approximate that the comp is roughly $0.25 million a quarter, at least it was sort of in the second quarter and its probably at that or it might be modestly more than that now. But the lion share of the increase in our compensation expense was driven by that..

Great. That's a great color. Thank you very much. And just going back to credit. You mentioned that there was a decline in substandard loans, but at the same time there was an increase, a special mention. If you could just offer any color kind of around that dynamic was it, I guess, loans coming off a substandard that increases special mention.

And was there any kind of, one area or a category that caused the increase in special mention..

Nothing systemic or related to any industries. Again when we have so few substandard assets or delinquent loans, the reality is one, or just a small handful of loans from one category to other can move numbers. So from that perspective, again, we continue to say that we could see adverse conditions in the future.

So the fact that things went the other direction this quarter is just sort of in some ways an anomaly. I wouldn't focus too much on those small modest changes within those categories..

And you mentioned kind of the normalized kind of 1% the Q overtime.

I guess in terms of kind of a normalized provisions, I guess, what should we expect over the long-term there?.

Well, it will really depend on the makeup of how delinquencies would get back up to that level.

Obviously we have both specific allowance for losses and general allowance for losses, if there was a general degradation, such that as you see delinquencies you also see a trend toward higher substandard assets you would see additional provisions to the allowance.

We would obviously cater our disclosure to what we're seeing in the portfolio if that allowance were to rise.

In sort of a normalized period over the course of our history in my experience at Farmer Mac to have $1 million of allowance or even a little bit more in any particular quarter get put into the allowance for losses would not be anything that we would deem to be out of the ordinary.

In the business where we're extending credit, we expected over time we will have some losses and obviously delinquencies. Fortunately, we're in industries that perform very well and over time our credit profile has been the cornerstone of our success..

Just one last question on credit, before you had provided kind of an update on your exposure to the drought footprint, kind of a California footprint.

Do you have an update on that and I guess, could you comment or any delinquencies, I guess, currently flagged as delinquent loans, are there any within the drought footprint?.

I'm sure we do have some delinquencies in the footprint, but we don't have anything that I would attribute specifically to the drought. We haven't seen any categorical decline in credit in those areas.

As we disclose, we do keep in pretty close touch, given the conditions out there with industry players and people we do business with, particularly in California and Western states.

We hear generally consistent theme that yeah, there are certainly areas where the drought is a challenge and for some producers it's more of a challenging than for others. At the same time, we haven't seen the producers in our portfolio, anything bubbling up to the point where it says a specific and - specific concerns.

So we continue to monitor the conditions. I think we said in our disclosures, it's pretty much the same situation that we saw at the end of second quarter. So again hopefully it would be a good, I hope we will get some rain and the snowpack over the winter will improve and we look forward to that occurring.

If continues out in the future, we'll continue to update our disclosures and what we see in our portfolio..

Thank you so much for taking my questions..

This concludes our question-and-answer session. Actually we do have a follow-up question. We have a follow-up from Chas Tyson from KBW. Please go ahead with your question..

Hey guys, just wanted to ask one more on the buyback.

How are you thinking about that? What kind of valuation methodologies do you use to try to determine when you think your shares are undervalued and how should we think about that going forward?.

This is going to be a classic kind of return calculation, Chas, where we look at it and we say do we think the valuation multiples are which we can acquire those. Reward our remaining shareholders with a material amount of increase in accretion, such that it would be worth the capital trade, right.

So when we look at all the ways we can provide returns to shareholders, we can put that capital and work by originating program assets. We can increase dividend payments to stockholders or we can repurchase shares. Obviously, when we're trading at a 5 times PE multiple amount that's pretty straightforward.

Are trading well below book value when we launched the programmatic, we're trading at 72% of book value at that point in time. So I think we haven't set any concrete parameters beyond, which we wouldn't buy the shares. But we are still trading below book value. We are still trading at a low PE multiple.

So I think when you look at the various portfolio of metrics, it's still advantageous to repurchase shares and probably we'll continue to see us do that like we have in the recent weeks..

Yeah, and then one more on the revolving floating rate facility with the CFC. Should we think that the spreads for that are pretty in line with overall release or at least spreads? I mean, how should we think about the contribution of the fixed rate fee kind of we're modelling.

Is that significant, if we're trying to model maybe an increased draw on that, should we just be thinking that's all incremental spread from there?.

Yeah, so the fee is modest. I mean, it's sort of in line with what you know or below what you might think of as a bank line fee, right. We haven't disclosed exactly what it is, not in our Q. But it's a very modest fee and it's on the full facility now, whether it's drawn or undrawn. So we get that fee over the course of the year.

And that we do get fees on drawn balance and again those are going to be in line with where we might be expected to fund CFC on a wholesale AgVantage basis. So when you think of the spreads, it's not spreads on the RU line of business, like loans, it's going to be spreads consistent with AgVantage funding.

CFC does get very competitive funding on the short-end of the curve in particular. So this is sort of a surrogate to that, so the spreads aren't significant. They're in the context of what our shorter term AgVantage sprints on Institutional Credit.

Are those generally ranged from, they can be as low as 20 basis points to as high as 40 basis points in that maturity depending on credit ratings, so it's in that range..

Okay. That's helpful. That's all from me..

Having no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Buzby for any closing remarks..

Thanks everyone for listening and participating this morning. We look forward to our next quarter report our fourth quarter 2015 results in March. Thank you very much..

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