Good day and welcome to the Farmer Mac Fourth Quarter 2019 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 over to Brad Nordholm, CEO. Please go ahead.

Thank you, operator, and good afternoon everyone. I’m Brad Nordholm and I’m very pleased to welcome you to our 2019 fourth quarter and year end investor conference call. We have a number of positive developments to discuss today. But before I began, I need to ask Steve Mullery our General Counsel to comment on some of the forward-looking statements that management may make today as well as Farmer Mac’s use of non-GAAP financial measures.

Thanks Brad. Some of the statements made on this conference call may be forward-looking statements under the securities laws. We make these statements based on our current expectations and assumptions about future events and business performance and we may not be obligated to update these statements after this call.We caution you that forward-looking statements are subject to 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 2019 annual report on Form 10-K filed with the SEC this afternoon.In analyzing its information Farmer Mac sometimes uses measures of financial performance that are not presented in accordance with generally accepted accounting principles in the United States also known as non-GAAP measures. Disclosures and reconciliations of Farmer Mac’s non-GAAP measures can be found in the most recent Form 10-K and earnings release posted on Farmer Mac’s website farmermac.com under the Financial Information portion of the Investors section. A recording of this call will be available on our website for two weeks starting later today.

Thanks Steve and good afternoon to everyone. Thanks very much for joining us. Today I’m going to provide a high level overview of our 2019 results. Then I’m going to turn the call over to Zack Carpenter our Chief Business Officer who will discuss customer and market developments then to Jackson our Chief Economist, who will give you an update on current agricultural environment and related credit conditions.Finally I’ll turn the call to Aparna, who joined us our Chief Financial Officer in early January of this year. She’ll spend some time introducing herself, share her initial observations about Farmer Mac and review our financial results. Well it’s a pretty lousy day in the markets today. But I’m happy to report that Farmer Mac had an excellent year in 2019 on all fronts. Our outstanding business volume grew $1.4 billion during the year to a record $21.1 billion while current earnings increased 12% from 2018 to a record of $93.7 million.Our growth and strong financial performance in 2019 can be largely attributable to closely aligning our business development efforts with our multi-year strategic plans that we worked on throughout the back half of 2019. If you saw in our press release earlier this afternoon, we announced $0.10 per share increase in our quarterly common stock dividend to $0.80 per share. This reflects our board’s decision to maintain our common dividend payout target as a percentage of our annual core earnings at approximately 35%. And deciding to increase Farmer Mac’s common stock dividend and maintain our payout target the board comprehensively considered our strong capital position and the consistency of and outlook for earnings. Along with the size of our balance sheet and the need for capital to fund significant growth objectives identified in our strategic plan.We also want to make sure…

Thanks Brad. As Brad mentioned 2019 was a significant year as we focused on enhancing our foundation so that we be in a better position to achieve our strategic vision and deliver a competitive financing solution to the broader agriculture and rural credit markets. In our Rural Utilities line of business outstanding business volume nearly double in 2019 compared to 2018 and primarily due to the purchase of a portfolio of participation is from CoBank, a seasoned Rural Utility allowance in the amount of $546 million. This purchase not only represented an enhanced relationship with CoBank the largest institution in farm credit system but also elevated our ability to provide capital to a mature financial market.Our Rural Utilities team did an outstanding job of enhancing our foundation and infrastructure to become a meaningful player on this market which can be seen by additional flow purchases of approximately $230 million following the initial CoBank transaction. On top of $80 million of loan purchases from our key partners the National Rural Utilities Cooperative Financial Corporation in 2019.In our foundational Farm & Ranch and on purchases in USDA Guarantees line of business, net volume growth increased 44% or approximately $800 million in 2019 it’s driven by a record year in loan purchases in our core Farm & Ranch line of the business where we have net loan volume increase of 77% from 2018. As a mission driven organization it is important that in an ever changing agriculture and economic environment, we remain adaptive and flexible to meet our customers’ needs by providing competitive financing solutions.With this philosophy in mind, during the second half of 2019 we created a more dynamic and responsive business model that has transformed the way we deliver upon our mission and resulted in improvement in customer satisfaction, volume retention…

Great, well thanks Zack. Before I turn to Jackson, I’d like to thank Curt Covington, Curt was formally our Chief Credit Officer. I’d like to thank him for his hard work and dedication over the last five years. We wish Curt the very best. As you saw in a recent 8-K filing Curt resigned to work on some family issues effective February 14. We have engaged a search firm and launched a nationwide search for new Chief Credit Officer and we’ll certainly update you when we have more details.And now Jackson. Jackson’s been with us for 15 years in various role including most recently as our Chief Economist. We understand just about every area of our organization and he’ll be giving you an update on our current agricultural environment.

Thank you, Brad. An average rate for our nation’s network of farmers and ranchers brings myriad risks and uncertainties that effect different sector in different ways. In many respects 2019 fits that description due to adverse weather conditions, market price volatility and supply chain disruptions.A less common market condition experienced by the Ag sector in the last few years is global trade headwinds relation to China, Canada and Mexico the top three Ag export destinations in 2017. We’re all strained by tariffs and counter tariffs throughout 2018 and 2019. The presence of counter tariff on farm related trade combined with the strong US dollar caused a downward pressure in the value of agricultural exports in 2019. However the passage of the United States Mexico, Canada agreement into loss [ph] and the trade negotiators from the US and China signed a Phase I trade agreement in January 2020. Although there it still exists some cloudiness along the true potential for trade with China in 2020, these negotiations represent a fine that could translate to increased demand for US agriculture in the coming years.Looking ahead the overall farm income picture remains flat in 2020. The USDA estimates cash from income was elevated in 2019 largely result of the $14 billion and cash installment payments to farmers through the Market Facilitation Program or MFP. This program was designed to offset the economic drag on farmers from trade negotiations. After five years of off peak farm incomes many indicators of farm financial stress are increasing to more historical average levels. Composite cash from income is down from 2014 peaks, but near 20-year historical inflation adjusted averages. Absolute farm debt levels are new highs, but the average sector debt to asset leverage ratio is near the 20-year and sector debt coverage ratios remain better than…

Great, thanks very much Jackson. Well Farmer Mac remains committed to our historically high standards of credit quality as we look for ways to further execute on our mission to provide credit to America. There may be circumstances in which we will look at ways to expand our credit envelope and take some additional risk flexing to market conditions when we can be paid, when we can be compensated for taking that risk.Now I’d like to turn to Aparna, our new CFO. She joins us with over two decades of financial expertise. Mostly recently with the Federal Reserve Bank of Boston, where she served as Senior Vice President and Chief Financial Officer. We’re excited to have her on board in support of our efforts to grow our business and execute on our strategic plan. With that I’ll turn the call to Aparna so can introduce herself to you and discuss our financial results in more detail.

Thank you, Brad. I’d like to begin by expressing how happy I’m to be here and to be a key contributor to this mission driven organization. Most of my career has been with organizations that have strong sense of mission and my belief is that finance can be a force for good. Given my values and experiences I was really drawn to Farmer Mac. I’ve spent the last several weeks I started here on January 6 and I’ve immersed myself in getting to know the team as well as understanding the key business issue. I’m truly impressed by the high caliber of talent across the organization. Very excited about Brad’s vision for Farmer Mac and the many opportunities present for us to serve our customers, deliver on our mission and create long-term value for our shareholders.I’d like to touch upon some quick highlights from a strong fourth quarter of 2019. As you heard from Zack in his business update, we saw sequential net business volume growth of about $185.6 million and it was primarily driven by our Farm & Ranch line of business. Our net effective spread increased 18% year-over-year to $46 million. Our core earnings grew 20% year-over-year to $24.5 million or $2.27 per diluted share.Turning to our full year results for 2019. Our results were notably strong across the board and in keeping with our historical averages. We had robust new business volumes, stable spreads and growing profitability. Specifically our outstanding business volume for the year increased by net $1.4 billion to leave us at a record $21.1 billion as of December 31, 2019 and this encompasses also lines the business that contributed to the growth. Farmer Mac’s net effective spread for 2019 was $168.6 million, a 12% increase from $151.2 million in 2018 and this was primarily…

Thank you, Aparna. Our board and our management team are very proud of our 2019 financial results. We believe our performance provides a strong foundation for visibility and growth in the future as we continue to execute on some of our more ambitious objectives. Our experience and diverse leadership team as well as our dedicated and talented group of employees are fully committed to our long-term strategy and have the capability and desire to make it succeed.We continue to focus on our mission to increase availability and affordability of credit to rural America through an increased focus on customer service retention, efficient product delivery and our inherent cost of funding competitive advantage. Our mission provides focus and our focus enabled specialization and expertise in agricultural credit allowing us to significantly expand our market share, grow our top line or our bottom line that allows us to deliver long-term value to our shareholders.Put another way, I’m sometimes asked well just because you’re so focused on agriculture doesn’t that limit your opportunity and I feel that is exact the opposite that focus results in specialization and deliver strong financial results. Put yet another way, we’re very good at what we do. And so now operator I’d like to see if we have any questions from anyone who’s on the line today.

[Operator Instructions] the first question we have is from Henry Coffey from Wedbush. Please go ahead.

Good afternoon and congratulations on the dividend increase. Your spreads have been remarkably stable over the last three years. Given the current volatility we’re seeing in the interest rate market as of late with the 10-year down etc., is that going to challenge your capacity to keep spreads within the two or three basis points change that we’ve seen or is that kind of more like business as usual and we continue to expect the same thing?

I think the fact they’re 91 basis points for both the years is really remarkable. I think generally when we’re speaking to investors, we talk about 90 basis points plus or minus five as a reasonable range of expectations for you. But when you consider how we fund our business and really the issuance of our liabilities and our interest rate swaps to match specific asset that we’re putting on the books really on a co-terminus [ph] basis it’s not surprising because we’re essentially pricing to our cost of funds and since we understand the risk profile, we have a very, very good idea of how we’re going to land close to that 90 basis points on a risk adjusted basis.

Great, thank you very much.

The next question comes from Greg Pendy from Sidoti. Please go ahead.

I guess I just wanted to jump into the expenses. I know you mentioned you came in around 4% below your initial target in 7% to 8% range. Can you just give us a little bit color on how to think about 2020, are there some IT initiatives or hiring that is being pushed out from 2019 into 2020 and kind of just a rough way to think about the year-over-year increase that we should be looking for in 2020 and expenses?

Yes, I know we’ve been telling you Greg for a couple quarters now that our operating expenses would be trending up and as Aparna mentioned it really is a timing issue for us. We have significant IT initiatives underway some of the actual payments for those initiatives have been hitting a little slower than we expected even though we’re remarkably on schedule relative to our plan for those upgrades. We thought that, where we at the end of the first quarter of 2020, we might be somewhere in the neighborhood of 110 to 112 employees. I think we’re about 105 right, with 10 unfilled positions that are posted approximately 10 unfilled positions that are posted. So I think maybe in that metric alone it’s probably the best illustration of why some of this expense pick up has been a bit slower to hit then maybe we have led you to believe. But we are committed to moving ahead with these initiatives. We do have growth objectives. We’re filing this end positions and probably additional positions as well, as we get further into 2020 and so saying expense growth in that 8% to 105, even 12% range would not be evolved unexpected.

Okay, great. That’s helpful. And then I guess just one final one, just on the 90-day delinquencies. I know you had a sequential decline I think in 3Q you mentioned some idiosyncratic type loans. Can you just give us a little bit color just from a year-over-year perspective like seasonality it should some down from 3Q to 4Q if I’m not mistaken, but it is a bump from where you were at last year? So just kind of what’s driving it maybe from a year-over-year perspective.

Yes, it is and if you look at 90-day delinquencies. They’re up from a year ago end of 2018. They’re pretty close to where we were at the end of 2017 and so there’s some quarterly as well annual seasonality that’s come into play here. And it does seem to be core I’d use the term “idiosyncratic” which I know we’ve used before situations and in fact the special reserve that we took during the fourth quarter was one of those situations that was one loan to a processor that had a unique product, unique feed and unique processing process and does not reflect for example a wholesale deterioration and credit quality in any particular region upper Midwest for example across any particular crops for example.As we’ve said before we’re keeping a very close eye on this situation. Jackson mentioned that income and liquidity are both down from 2014. Offsetting that on the other hand while debt levels maybe up a bit across the sector, our average loan to values have been remarkably stable and we have actually seen the debt service coverage ratio that building off our customers to our cash flow, their debt has actually improved a bit because of these variable interest rates. So it continues to be hard to make generalizations about what you might classify systematic or sector wide deterioration in credit and we do continue to point to those for idiosyncratic situations. Jackson, do you have anything to add?

I think exactly how we think about it, yes.

Well that’s very helpful. Thanks a lot.

There are no more questions in the queue. This concludes your question-and-answer session. I would like to turn the conference back over to Brad Nordholm for any closing remarks.

I’d like to conclude by thanking everyone for listening and participating in this call. We will be having our next regularly scheduled call in May to report on our first quarter results. Look forward to sharing additional information with you at that time. As is always the case, if you have any questions don’t hesitate to get in touch with Jalpa. We know that the timing of this call late in day [indiscernible] okay it was a little bit different then sometimes - as you have had an opportunity to maybe digest full 10-K and reflect on this call today. But do give us a call. We’d love to talk. So with that operator, thank you very much.

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