Good day and welcome to the Federal Agricultural Mortgage Corporation Second Quarter 2016 Investor Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Timothy Buzby, President and CEO. 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 second quarter 2016 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 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 2015 annual report on Form 10-K, our subsequent quarterly reports on Form 10-Q and our other filings with the SEC. In the analysis of its financial information, Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with Generally Accepted Accounting Principles in the United States, which we refer to as non-GAAP measures. The three non-GAAP measures that Farmer Mac uses are core earnings, core earnings per share, and net effective spread. Farmer Mac uses these non-GAAP financial measures to measure corporate economic performance and develop financial plans. Because in management's view they 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 these non-GAAP measures 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. Disclosures and reconciliations of these non-GAAP measures can be found in the Form 10-Q and the Earnings Release posted on Farmer Mac's website www.FarmerMac.com under the Financial Information portion of the Investor section. A recording of this call will be available on our website for two weeks starting later today.

Thank you, Steve. Farmer Mac had an excellent second quarter across the board. From new business to improving spreads, stable credit quality, and ultimately strong profitability, things came together very well. As you know, our new business can come in large amounts from time to time. And these amounts can vary quarter to quarter. Second quarter 2016 was a particularly good quarter for us in terms of new business volume and net growth. This growth was generated by healthy contributions across a number of products and lines of business. Farmer Mac ended second quarter 2016 with outstanding business volume of $17.1 billion. We added nearly $1.3 billion of new business this quarter, resulting in net growth of $901 million after maturities and repayments. The drivers of this increase were balanced across our Institutional Credit, Farm & Ranch, and Rural Utilities lines of business. In terms of absolute dollars of growth, our Rural Utilities line of business lead the way this quarter, growing nearly $424 million, driven by a new standby credit protection pool of $421 million. Keep in mind, the fees we earn for credit protection on these high-quality utility loans are relatively small. Our Institutional Credit line of business grew a net $330 million, which came from the Agricultural sector and was balanced across multiple customers. We completed $200 million of AgVantage funding for Rabo Agrifinance, which included a $50 million refinancing for a deal that matured in second quarter and a $50 million early refinance of a deal that matured in July. We also completed a new $150 million shorter maturity AgVantage funding for MetLife this quarter. $25 million of our net growth in Institutional Credit this quarter was attributable to the Farm Equity AgVantage product, primarily driven by a $27 million deal with a new customer we…

Thanks, Tim. As reflected in our second quarter 2016 results, Farmer Mac is executing well on the opportunities within its markets. We believe that the relative value that Farmer Mac offers its customers is greater when credit conditions are somewhat tighter, which we think can lead to greater volume opportunities for us. Fourth quarter 2015 and the first six months of this year seemed to reflect this trend, and we believe the outlook for us is positive. Even as the agricultural economy adjusts to lower commodity prices and drought conditions in some part of the West, as Tim mentioned, we grew to a record outstanding business volume of $17.1 billion as of June 30, 2016. As Tim mentioned, this growth was driven from a broad-based contribution from across our lines of business and products. Spreads on new assets are stable to increasing. And our funding costs on LIBOR-based assets have improved due to changes in our funding strategy and from general improvements in the market. Also, our credit quality remains good. Turning to our financials, Farmer Mac's second quarter 2016 core earnings were $13.0 million or $1.23 per diluted common share. Compared to $12.4 million, or $1.12 per share, for first quarter 2016; and $11.6 million, or $1.02 per share, in the year ago quarter. The $0.6 million increase compared to first quarter 2016 was primarily due to higher total revenues, which included a $0.7 million after-tax increase in net effective spread and a $0.1 million after-tax increase in guarantee and commitment fees. The increase was offset in part by an increase in credit-related expenses of $0.2 million after-tax. Operating expenses were relatively flat sequentially, as higher general and administrative expenses related to continued technology and business infrastructure investments, and expenses associated with business development efforts, were offset by lower…

Thanks, Dale. Outstanding business volume is at an all-time high. We're seeing growth across most of our lines of business and products. Our financial performance is strong, and our credit quality remains good. While the agricultural economy continues to adjust to lower commodity prices and the persistence of drought conditions in some portions of the West, 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 evidenced by our new business volumes in the past several quarters' results. 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 Farm Equity AgVantage financing from existing and potential new counter-parties. In 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] Our first question comes from Chas Tyson of KBW. Please go ahead.

Hi guys, good morning. Just wanted to ask on the reserve for the provision this quarter, a few delinquencies look pretty good coming down from 1Q but the provision was up a little bit, I think I saw in the Q there was due to long-term standby purchase commitments and some of the underlying loans there. Could you give us more color on what you saw and how that portfolio is performing?

Dale, you want to touch on that?

Sure. I think what we alluded to in the call here is earlier that was there was a large loan that was downgraded and several smaller loans that were downgraded. Those were within our long-term standby purchase commitment pool. And again, those are loans that are held on other entities balance sheet in this case typically it's going to be a farm credit system association balance sheet. As part of their credit reviews they will review their own loan portfolio and make adjustments from time to time. In this case they downgraded a number of these loans and we typically follow their lead on that, we're not going to typically challenge what their view on those loans are. So again, I think part of the normal cycle that we've been talking about for some period of time that we expect over time our delinquency rate to revert more to our historical norms. We have really yet to see that on our on balance sheet business in any significant fashion, but again on substandard assets you saw a modest change, I think it was a 20 basis point uptick from Q1 to Q2. And it was really driven by downgrade of farm credit system loans that are understand by purchase commitment with Farmer Mac.

Got it, do you typically see people downgrade the farm credit administration, downgrade associations credit downgrade loans like that, or do they immediately put back to you in most cases?

Sure. Keep in mind that this is just a downgrade -- in many cases, these loans are performing loans. They are probably not delinquent in many cases, they just got downgraded for say farmers have delivered their updated tax returns or what not and as they get updated financials they will typically do a review and an update on their loans just like we do every quarter. So again, not atypical at all these loans are -- I mean there's loans getting downgraded and upgraded in significant form pretty much every quarter. The net change here was 20 basis point uptick in our sub-standards, but again that's pretty typical.

Sure makes sense. And last question is just on, you've got a couple quarters with the Rural Utilities long term standby purchase commitments portfolio under your belt now, how does that -- I know there's not any delinquencies at this point, but how does that look like it's shaping up? How are the credit characteristics a little different from the more typical Farm & Ranch that you've done in the past, and is there a big difference in the commitment fees that are earned from the Rural Utilities program as opposed to the Farm & Ranch program?

I would keep in mind that the rural utility program and the loans that are in it perform very, very well. We've actually never had a delinquent loan in that portfolio and as a result that's the reason that the credit protection that we provide comes at a cheaper cost to the counterparty. So the fees that we collect on those loans as I mentioned earlier are much less than what we would earn on a similar agricultural portfolio, just because the risk profile is very different. Still good business for us, we still obviously receive additional dollars in revenues as a result, but it would not be any significant revenue increase like it would be if we did a portfolio that size of agricultural loans.

Makes sense, thanks guys.

Our next question from of Jesus Bueno of Compass Point. Please go ahead.

Thanks for taking my questions. It was certainly positive to see such solid asset growth program, asset growth in the quarter, it looked like paydowns were actually still pretty elevated Down from first quarter, but still elevated historically. I guess as we look into the third quarter, how should we I guess think about that line in terms of paydowns? Have you seen an increase I guess in demand given the move in rates and just how do you think about that going forward?

Yes go ahead. No, you go ahead.

The paydowns that you are seeing were scheduled maturities on AgVantage securities, Jesus, they weren't loans. Our loan paydown volume was relatively insignificant in second quarter, our gross purchases were roughly $240 million-some and our net growth was $166 million. So in terms of our loan business that's about as good as it gets in terms of net growth. So CPRs are remaining very low, our prepayment activity has really kind of been running at a very stable level for a couple of years now, the volume that you are seeing on prepayments was scheduled maturities. We had a $500 million AgVantage bond with MetLife come due on July 25 or 27 that got refinanced and that really is elevating the volume. And then we had I think $50 million or $100 million maturities come due with Rabo Agrifinance this quarter too. So that's just scheduled maturities. And those got all refinanced entirely, so we didn't actually lose any of that existing business but yet did have net growth due to some incremental business we did with MetLife, incremental business we did with Rabo and then some growth with our farm equity AgVantage product as well.

I appreciate the color. Just in terms of, you mentioned that there was some impact from rate movements during the quarter and I know that just for the third quarter we start -- we've seen some movements for example on three month LIBOR, I guess does that have any impact on your hedging results? And as we've kind of proceeded through the first month of the quarter, will that have any impact on your spreads, or your net effective spread going forward?

No, I mean there's a lot of parts to that question. The absolute move of rate when we lock in a new piece of business, we hedge our funding costs and so if rates move after that and prior to us executing the permanent funding our hedge is going to be either in the money or out of the money. From a core perspective we take that gain or loss, we reverse it out of income and then amortize it over the expected life of the asset. So when we fund that asset with our liability portfolio we've kind of locked in the spread at that point we are agnostic as to what happens to rates going forward. Generically there has been some distortions in the swap curve that began in mid-last year and it continued, and that's sort of the dynamic we mentioned on last call and this call we are talking about our funding cost on assets indexed to LIBOR. And we had some reasonable friction we experienced in the fourth quarter and the first quarter. In the second quarter we were able to adjust our strategies enough that I think we've kind of dampened that affect pretty significantly, in fact, in second quarter I think we pretty much neutralized it. There's a lot of activity in terms of LIBOR right now, LIBOR has gone higher due to some of the changes in the money market reform, if you will has caused LIBOR to widen. Our funding cost relative to LIBOR have actually improved significantly and we're funding three months at LIBOR more than 40 basis points currently, I would say a more normal historical range would be LIBOR less 15 to 20. What happens when you turn out the funding for those assets it becomes more expensive rather quickly, but our funding levels relative to LIBOR inside of six months right now are pretty favorable.

Got it. Appreciate that. And very quickly, just jumping to share repurchases. Obviously you have it looks like about $5 million remaining on your authorization. I guess should we expect that you should deploy that kind of opportunistically or how should we think about the buyback going forward?

I think in general we were buying shares back when the price was significantly lower than where it is today. We think that the reaction in the market has had both through the increase in our dividend policy, the share buybacks itself and the overall view of our business is better reflective in the share price today. If we were to for some reason either related to Farmer Mac's performance or the stock market in general, see the price of our stock drop down significantly we would likely reinstitute at some point. But at this point where we are I think going forward as long as we continue to see favorable share price movements we won't be buying back shares at this level.

Fair enough. Thank you for taking my questions.

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

Thanks, I'd like to thank you all for listening and participating this morning, we look forward to our next call to report our third quarter 2016 results in November. Thank you.

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