Good morning and welcome to the Federal Agricultural Mortgage Corporation Fourth Quarter 2015 Investor 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 this event is being recorded.

I would now like to turn the conference over to Tim Buzby. Please go ahead..

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

Before I begin, 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 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 2015 Annual Report on Form 10-K, which was filed with the SEC this morning.

Farmer Mac uses core earnings and non-GAAP financial measure to measure corporate economic performance and develop financial plans, because of management’s view, core earnings 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. Farmer Mac had a great year in 2015 across multiple fronts as our growth and financial results continued their positive trends over the course of the year. Additionally, we announced today a significant increase in our common stock dividend which I will discuss in more detail shortly.

Today’s announced change to our dividend policy combined with the share repurchase program we announced last September are designed to enhance stockholder value over the long-term and we believe there is significant developments for our common stockholders.

In the first quarter 2015 we restructured Farmer Mac’s capital base with redemption of all $250 million of Farmer Mac II Preferred Stock. In 2014, Farmer Mac issued preferred stock to increase its Tier 1 capital position and help fund this redemption.

With those items completed Farmer Mac has a strong capital position in place to support our business for the long-term. Farmer Mac recently implemented two significant changes that affect how we return capital to our common stockholders with an eye towards enhancing long-term stockholder value.

First in September 2015 we implemented a common stock repurchase program authorizing Farmer Mac to purchase up to $25 million of our Class C common stock through September 2017. We established this program because we believe that the valuation multiples on the stock had become disconnected with what view as the value of and prospects for the Company.

By year-end, we had repurchased approximately 362,000 shares at a total price of $10.5 million and we continue to repurchase shares into 2016.

More recently as you have read in today's press release, Farmer Mac has increased its regular common stock dividend by more than 60% to $0.26 per share per quarter beginning with the dividend to be paid for first quarter 2016.

This increased quarterly dividend amount which equates to $1.04 per share per year, would increase the dividend yield on our Class C common stock by more than 100 basis points to 3.2% based on yesterday's closing stock price of $32.25 per share.

With the strong and growing capital base firmly established we were able to reevaluate our common stock dividend policy and decided that we should provide a greater payout of our core earnings to our common stockholders, one that is more in line with other publicly traded financial companies.

Farmer Mac seeks to provide a competitive return on its common stockholders investments through the payment of cash dividends while retaining sufficient capital to support future growth in its business and to meet regulatory requirements and metrics established by Farmer Mac’s Board of Directors.

Farmer Mac expects to maintain a growing and sustainable common stock dividend and to target a common dividend payout ratio of its core earnings to common stockholders that is anticipated to grow over time to approximately 30%.

However, the declaration and payment of future common stock dividends are at the discussion of Farmer Mac's Board of Directors and depend upon many factors including Farmer Mac's financial condition, actual results of operations and earnings, capital needs of Farmer Mac's business, regulatory requirements and other factors that Farmer Mac's Board deems relevant.

Turning to our results for fourth quarter and full-year 2015, we realized strong growth in our outstanding business volume and in our dollars of net effective spread and our credit quality continues at favorable levels. Farmer Mac ended 2015 with outstanding business volume of $15.9 billion.

We added $3.2 billion of new business this year resulting in net growth of $1.3 billion or 9% after maturities and repayments. 2015 mark two important milestones for us in terms of business development.

It was the first time that we executed our long-term standby purchase commitment product with National Rural Utilities Cooperative Finance Corporation or CFC to provide credit protection on a designated pool of rural utilities loans. 2015 was also the first time that we put into place a revolving floating rate AgVantage facility for CFC.

This facility provides a term financing vehicle that is designed to help CFC manage its commercial paper and other short-term funding balances. These two developments are concrete examples of the evolving industry dynamics that can increase demand for the solutions that Farmer Mac provides.

In terms of total new business volume for 2015, we realized strong performance across most of our products and lines of business. Our Farm & Ranch loan purchases were more than $748 million this year compared to $698 million last year.

A solid level of primary demand for mortgage credit continues strong participation from our bank customers and a modest expansion of our loan products contributed to this increase. We also added nearly $428 million of Farm & Ranch loans under long-term standby purchase commitments this year, compared to $370 million in 2014.

Our USDA Guarantees line of business also performed well with $377 million of purchases in 2015 compared to $343 million in 2014. Banks are increasingly willing to sell the lower return guaranteed portions of loans to fund other new loan origination which seem to be increasing for many banks.

Rounding out our total new business volume for 2015 were $743 million of AgVantage securities and $108 million of rural utilities loan purchases.

Farmer Mac’s net effective spread for 2015 decreased modestly on a percentage basis compared to 2014 due to the redemption of a high-yielding preferred stock investment in fourth quarter 2014, but grew in dollar terms due to the growth in outstanding 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. The credit quality of our portfolio remains favorable.

As of December 31, 2015, $32.1 million or 0.56% of our $5.7 billion Farm & Ranch portfolio was 90 days delinquent compared to 0.35% at year-end 2014.

As we’ve mentioned previously, we expected over time Farmer Mac's 90-day delinquency rate will eventually revert closer to our historical average of approximately 1%, due to macroeconomic and other factors.

On balance, we believe the reversion closer to our historical average is healthy and we believe Farmer Mac's business can benefit in such an environment.

As we’ve discussed on previous calls, the Western part of the United States and in particular California continues to experience drought conditions with the water level in many California reservoirs at or near historically low levels. The situation remains very similar to what we discussed during our third quarter call.

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

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

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

Thanks, Tim. Although certain segments of agriculture are facing their challenges, Farmer Mac is executing well on the opportunities within its markets and we believe the outlook for us is positive in 2016. We have good opportunities to continue growing, developing new customers and innovating our product set.

Our 2015 results reflect this, as we grew to a record outstanding business volume of $15.9 billion by year-end 2015. As Tim mentioned this growth was driven primarily from net growth and Farm & Ranch loans, growth in loans under long-term standby purchase commitments and the addition of a new floating rate AgVantage facility.

Our spreads have formed and are growing in dollar terms and our credit quality remains very strong. As we have discussed in detail previously, we completed two unique initiatives not related to our program business in first quarter 2015 and fourth quarter 2014. Our capital restructuring initiative and a cash management and initiative respectively.

As I cover our financial results for fourth quarter and full-year 2015 I’ll provide insights into prior period comparisons when those prior periods included the effects of these initiatives.

Turning to the financials, core earnings were $47 million or $4.15 per diluted common share for 2015, compared to $53 million or $4.67 per diluted common share in 2014. The $6 million decrease compared to 2014 was primarily due to two unique factors.

First, the absence since 2015 of the net economic benefit of the cash management and quality initiative completed in 2014, which was $11.4 million and second, the loss of $5.6 million and after-tax preferred dividend income resulting from the fourth quarter 2014 redemption of $78.5 million of high-yielding preferred stock.

And increase in operating and credit related expenses also contributed to the year-over-year decreased. Partially offsetting the decrease from 2014 to 2015 were two primary factors.

First, $7.7 million after-tax increase in net effective spread in 2015 resulting from net growth in our outstanding business volume, excluding the effect of the 2014 redemption of the high-yielding preferred stock and second, $7.6 million after-tax decrease in preferred dividend expense in 2015 resulting from the redemption of all the outstanding shares of Farmer Mac II Preferred Stock in first quarter 2015.

Farmer Mac’s fourth quarter 2015 core earnings were $13.1 million or $1.17 per diluted common share, compared to $13.2 million or $1.17 per diluted common share for third quarter 2015 and $9.5 million or $0.84 per diluted common share in the fourth quarter 2014.

The $3.6 million increase in core earnings from the year ago quarter was driven by the impact of the capital restructuring initiative I mentioned earlier as well as a $1 million after-tax increase in net effective spread due again in growth and outstanding business volumes.

The completion of our capital restructuring initiative in first quarter 2015 reduced preferred dividend expense in fourth quarter 2015 by $3.5 million after-tax, compared to fourth quarter 2014.

Partially offsetting the increase in core earnings from the year ago quarter was the absence in fourth quarter 2015 of the benefit of the cash management and liquidity initiative which contributed $0.8 million of net benefit in fourth quarter 2014.

Turning to GAAP net income, 2015 income, net income attributable to common stockholders was $47.4 million or $4.19 per diluted common share, compared to $38.3 million or $3.37 per diluted common share for 2014.

The year-over-year increase was primarily due to the effects of unrealized for value changed on financial derivatives and hedged assets, which was a $7.1 million after-tax gain in 2015, compared to $6.5 million after-tax loss in 2014.

Turning to spreads, Farmer Mac net effective spread for 2015 was $119.4 million or 87 basis points, compared to $113.7 million or 91 basis points in 2014.

The contraction and percentage terms in 2015 was due to the loss of $6.5 million or five basis points and preferred dividend income in 2015 from the October 2014 redemption of high-yielding preferred stock. The growth in dollar terms was due to the growth and outstanding business volumes that we have mentioned previously.

Net effective spread for fourth quarter 2015 was $29.9 million or 85 basis points, compared to $30.4 million or 88 basis points in the third quarter 2015 and $28.4 million or 91 basis points in the year ago quarter.

The decrease in net effective spread in fourth quarter 2015 and compared to third quarter 2015 was due primarily to a decline in cash interest received or non-accrual loans and changes in premium amortization.

The decrease in percentage terms in fourth quarter 2015 compared to the year ago quarter was due primarily to higher average balance in Farmer Mac's low-yielding cash and liquidity investments portfolio.

The increase in dollar terms in fourth quarter 2015 compared to the year ago quarter was due, again growth - to growth in outstanding business volumes. Turning now to our four lines of business.

Net effective spreads for fourth quarter and third quarter 2015 respectively were as follows; $9.4 million or 172 basis points for Farm & Ranch compared to $9.6 million or 180 basis points in third quarter. $4.5 million or 96 basis points for USDA Guarantees compared to $4.69 or 99 basis points.

$2.8 million or 114 basis points for Rural Utilities compared to $2.9 million or 118 basis points and $10.9 million or 80 basis points for Institutional Credit compared to $11.3 million or 81 basis points.

From a credit perspective, portfolio quality remained favorable during the fourth quarter 2015 as substandard assets percentage decreased to 1.8% from 2.2% in the third quarter 2015. This decrease was driven by a large substandard exposure that was upgraded to acceptable in fourth quarter 2015 after three years of improved performance.

As of December 31, 2015, the total allowance for losses was $6.6 million or 11 basis points of the $5.7 billion Farm & Ranch portfolio compared to $10.3 million or 19 basis points of the Farm & Ranch portfolio as of September 30, 2015.

The decrease in fourth quarter 2015 was primarily due to a charge-off of $3.7 million, as Farmer Mac received $9.8 million in January 2016 to pay off two canola facility lines that have been in work out.

As Tim mentioned in the Farm & Ranch portfolio 90 day delinquencies were $32.1 million or 56 basis points as of December 31, 2015 compared to $36.7 million or 67 basis points as of September 30, 2015 and $18.9 million or 35 basis points in the year ago quarter.

As with substandard assets and our total allowances 90 day delinquencies remain stable and toward the favorable end of our historical averages. Farmer Mac’s other lines of business; there are currently no delinquent AgVantage Securities, or Rural Utility loans held or underlying standby purchase commitments.

And the USDA securities are backed by the full faith and credit of the 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 was just 0.2% of total volume as of December 31, 2015 compared to 0.23% as of September 30, 2015 and 0.13% in the year ago quarter.

Turning to business volumes, we added more than $564 million in new business in fourth quarter 2015.

Looking at the specifics for the quarter we added the following new business volumes, $245 million of Farm & Ranch loan purchases, $186 million Farm & Ranch long-term standby purchase commitments $72 million of USDA securities, $46 million of Rural Utility loans purchases and $14 million of AgVantage securities purchased backed by Farm & Ranch loans.

After repayments our net outstanding business volume increased $271 million this quarter. Turning now to capital, Farmer Mac's $564 million of core capital as of December 31, 2015 exceeded the statutory minimum capital requirement of $462 million, by a $102 million or 22%.

This compares to core capital of $776 million or $345 million of capital above the minimum as of December 31, 2014. The decrease in core capital from year-end 2014 resulted from the redemption of all $250 million of outstanding Farmer Mac II Preferred Stock on March 30, 2015.

In terms of liquidity Farmer Mac had a 166 days of liquidity as of the end of fourth quarter 2015 compared to the minimum regulatory requirement of 90 days. More complete information about Farmer Mac’s performance for full-year and fourth quarter 2015 is set forth in the 10-K we filed with the SEC today. And with that Tim, I'll turn it back to you..

Thanks Dale. Our management team is proud of the results achieved during 2015. Outstanding business volume is at an all-time high, our financial performance is strong and our credit quality remains very favorable.

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 for Farmer Mac's products could increase as credit becomes somewhat tighter and we believe this is beginning to occur.

We have also taken decisive action for the benefit of stockholders with the implementation of our $25 million share repurchase program and the change to our dividend policy going forward. Farmer Mac’s capital base is strong and our earnings support these higher common stock dividends.

Even with the higher dividend payout amount, we still expect to retain enough earnings each year to fund our growth and build equity capital over the longer-term. 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 our Farmer Mac equity AgVantage financing from existing and potential new counterparties.

We are also working hard to expand the rest of our institutional credit line of business to new agricultural lenders including large insurance companies. 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..

Thank you. [Operator Instructions] The first question is from Chas Tyson with KBW..

Hey, Thanks guys. Good morning. Actually, I wanted to pick up with one of the points that Tim just made around the demand for credit and credit availability. We had heard that in 4Q, the demand for credit picked up. This is from income is down, and people obviously need to maintain their operations.

Have you guys seen the demand for credit increase incrementally and how have your lending partners responded to that and how should we think about volume in 2016 as compared to 2015? Should we be expecting it to be up considering what's going on in the farm economy?.

Thanks. We certainly see opportunities in 2016 for volumes to exceed 2015 as commodity prices are low and cash flows for farmers are down. They are seeking additional funds to put their crops in and fund their operation going forward.

That tends to come in often times with the restructuring of the mortgage debt that they may have or levering other land that they may have that is not currently encumbered.

So yes, we do see that happening, we hear a number of our business partners talking about things as they are moving forward through tax season and talking with their customers about what they are going to do for financing needs going forward. So we certainly do see opportunities..

Okay, and then also I wanted to ask about what you guys are seeing in terms of loans you've made on - related to livestock. We've seen the prices in that market on cattle and whatnot fall a fair amount from the peak set in 2015.

So I'm curious if you guys are seeing any stress in that market or seeing any increased opportunities?.

There is some stress in those commodities. It has been a rough period of time over the past several months maybe even up to a year for both dairy and ranching. We have not seen any degradation in our portfolio, so that is fortunate. We are cautious with all the commodities that we lend to.

We’re well diversified so even if anyone commodity or two commodities are under any particular stress or pressure, we had the remainder of the portfolio that is not. So we don’t have any particular concerns at this point, but we do pay close attention to all of the commodities in our portfolio..

Okay and then last one for me.

In terms of buybacks that you did in 2016, can you say on what the amount of repurchase was in 2016? And if so, is that weighted more towards the beginning of the year, in early January or has it been throughout the quarter so far?.

I won’t say whether it’s been - where it’s been waited or what prices we’ve done. We did indicate that we have continued to make purchases in 2016 and we file our 10-Q in May upcoming we’ll disclose the amount that was purchased during the first quarter..

Okay. Thank you very much..

Thanks..

The next question is from Adam Grossbard with Sidoti & Company..

Hi, good afternoon.

I was hoping you could provide a little color into what drove the quarter-over-quarter decline in net effective spread yields by line of business specifically for the Farm & Ranch business segment?.

Yes, what we had said Adam was basically there - any quarter you are going to have some anomalies up and down on things that are not really related to the core spreads.

And what happened this quarter was we simply received a couple hundred thousand dollars in less interest income from we call it cash interest income, when a loan is put on non-accrual and yet they pay us, that’s booked on a cash basis when received and that can be volatile up and down quarter-to-quarter.

So what we saw on the fourth quarter compared to third in Farm & Ranch was solely related to that as well as some true-ups on premium amortizations in certain loans. In the absence of those two items, net effective spread would have shown sort of that Steady Eddy performance that you have seem trend over the last three quarters..

Okay. Thank you. That’s very helpful.

One last additional question is could you give us an update on any progress you’ve had in the institutional credit segment and your efforts to bring in new customers?.

That’s a continuing ongoing effort that we have, what we’ve seen over the course of the past several years actually as many institutions where we’re seeking to provide the institutional credit product to them, if they have substantial liquidity and don't need to borrow money doesn't really go anywhere.

Oftentimes with banks as well the financing needs that they have are at the holding company level which is not where the assets to think the pledge is collateral reside.

So as things change and as credit becomes - the credit environment changes and liquidity gets pulled out of the system a little bit, we do think there are opportunities there, we continue to stay and touch with these institutions, again in times when we think they may need credit and in times when they don't.

It’s a relationship business, we continue to keep in close to them and hopefully the conditions in 2016 will be such that it will be successful in expanding that line of business..

Great. Thanks very much..

The next question is from Jesus Bueno at Compass Point..

Hi, thank you very much for taking my questions. Just very quickly, following up on the question about volume. In terms of the drop in the AgVantage volume, for - on the institutional credit side, it was obviously a large drop quarter over quarter and seems to be well below where you've been running on average.

Was there anything, in particular, driving that? I know you said seasonally that - originations can fluctuate, but I guess why was that a managed drop or what exactly drove that?.

Yes, Jesus, those typically comps when you see a volume change like that particularly to the downside it’s going to correspond with the maturity that wasn't refinanced, it wasn't refinanced entirely and in this case it related to we had a MetLife bond I believe that was $250 million on a bond that was $300 I believe $300 million which is partially refinanced, the reason that was only partially refinanced was due to sort of collateral issues.

Certain lenders at certain points in time are growing their portfolio and other lenders certain points in time are seeing repayments, prepayments that portfolio may shrink a bit.

What you generally find with us is they have matched out the collateral that they can pledge and that we can fund against and if the collateral base contracts in many cases they are not able to fully refinance that. So that’s basically what you saw this quarter was the decline in the institutional credit was related to that.

It was in the Farm & Ranch segment that was related to Farm & Ranch business or agriculture business I should say. I think it was related to those two issuers. So that was a bit of an anomaly..

Okay.

That’s helpful, but I guess it's essentially could we just more often expect the same going forward?.

I mean it’s a lumpy business, I hate to use that word, but you might get a partial refinance on one bond and next bond you might get a full refinance. We do disclose the upcoming maturity as well so you can take a look into our filings to see when those are coming due.

That kind of situation works both ways, we may see us issue a lot of new bonds in one particular quarter, but that maybe because of large amount matured and if we were successful in the refinance..

I think generically what Tim said is operative though, when you look at the loans, the credit segment in the agriculture sector, on balance you’ll probably going to see the outlook for credit to grow a little bit faster.

So the demand is certainly going to be higher this year given the degradation in farm income and some of the restructuring on operating lines and the use of land collateral as a way to that maybe lowly levered or unlevered to help provide the capital to cleanup some of those operating lines.

So I think the outlook for that, we put this in our disclosure document that we filed this morning as somewhat a beaten volume perspective. So that should help everybody that should help these large customers of RMIT, and MIT and ABA and others..

And just - in related to your comments on the expectation for increase credit demand. Is that - I noticed that runoffs have especially for the on balance sheet assets the run off is really been at low level.

I guess going forward into 2016 do you expect that to continue or do you expect that to normalize a bit more as we progress through 2016?.

I would expect prepayments and maturities to be low or slow. The reality is a lot of the refinance and new origination activity is taken place in the last couple of years have been a very low interest rates.

So our expectation would be that borrowers would be less inclined to pay down those loans particularly in an environment where their operations maybe a bit under stress from a cash standpoint. They are going to hold their cash rather than pay down a low-interest loan.

So yes, I would expect to see prepayments slow as they have been over the course of the past year..

Thank you very much.

And also if you could remind me on the Farm & Ranch portfolio, do you have the - what the average LTV was as of - end of the fourth quarter?.

Probably right around 50% or so and again keep in mind that’s the original loan the value of the loans, so that doesn’t take - that calculation doesn’t take into consideration the fact that the loan that may have been done seven years ago has paid down and perhaps the land value has also increased over that time period.

So it’s 50% original LTV is probably about the average..

And I know you tend to manage your balance sheet to be somewhat interest rate neutral, but if you could just remind us was there any impact at all on your business from the December rate hike?.

Just a quick, it was about 47%..

Back on the LTV 47%..

So just under the 50% that Tim mentioned. I'm sorry what was - I was so focused on that.

I forgot your second question?.

So, not a 47% increase in NII from the rate increase..

Yes, that’s good question. When you get a chance to read the K, what you will see in there is there some more commentary around basis and basis risk. We have seen some disruptions in the swap curve relative to the treasury curve and the rate hike in December did have a part to play in that and it did increase some of the volatility there.

It has impacted our cost of funds on certain assets that we fund particularly floating-rate assets and so in some cases we managed at a number of different ways, we certainly looked at pricing and we have taken pricing a bit higher on certain assets to reflect our greater costs of funding those assets.

So on balance it hasn't really had a material effect on our financials positive or negative, what we've done has been a bit defensive to offset the negative impacts that we’ve seen so far and then we are going to continue to manage that and keep a close eye on it..

And last question, just regarding the - I guess the charge-offs, and also I guess, just the paydown that was disclosed in the K.

The $9.8 million paydown that you received in January, was that balance actually included in your delinquent number that you stated from end of 4Q4 2015?.

Yes, it was..

Okay, it looks okay. Great. Well, thank you very much for taking my questions..

Thanks..

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Buzby for closing remarks..

With no more questions, I’d like to thank you for listening and participate in this morning. I look forward to our next call to report our first quarter 2016 results in May. Thank you..

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