EQUITY

Common Stock

Farmer Mac has three classes of common stock outstanding:


•	Class A voting common stock, which may be held only by banks, insurance companies, and other financial institutions or similar entities that are not institutions of the Farm Credit System. By federal statute, no holder of Class A voting common stock may directly or indirectly be a beneficial owner of more than 33 percent of the outstanding shares of Class A voting common stock.


•	Class B voting common stock, which may be held only by institutions of the Farm Credit System. There are no restrictions on the maximum holdings of Class B voting common stock.


•	Class C non-voting common stock, which has no ownership restrictions.

During 2014, 2013, and 2012, Farmer Mac paid a quarterly dividend of $0.14, $0.12, and $0.10, respectively, per share on all classes of its common stock. Farmer Mac's ability to declare and pay a dividend could be restricted if it fails to comply with applicable capital requirements.

Preferred Stock

On June 20, 2014, Farmer Mac issued 3.0 million shares of 6.000 percent Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C (the "Series C Preferred Stock"). On March 25, 2014, Farmer Mac issued 3.0 million shares of 6.875 percent Non-Cumulative Preferred Stock, Series B (the "Series B Preferred Stock"). On January 17, 2013, Farmer Mac issued 2.4 million shares of 5.875 percent Non-Cumulative Preferred Stock, Series A (the "Series A Preferred Stock"). The Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock (collectively referred to as the "Outstanding Preferred Stock") each has a par value of $25.00 per share and a liquidation preference of $25.00 per share. The Series A Preferred Stock and the Series B Preferred Stock pay an annual dividend rate of 5.875 percent and 6.875 percent, respectively, for the life of the securities. The Series C Preferred Stock pays an annual dividend rate of 6.000 percent from the date of issuance to and including the quarterly payment date occurring on July 17, 2024, and thereafter, at a floating rate equal to three-month LIBOR plus 3.26 percent. Farmer Mac has the right, but not the obligation, to redeem the Series A Preferred Stock at any time on and after January 17, 2018, the Series B Preferred Stock at any time on and after April 17, 2019, and the Series C Preferred Stock at any time on and after July 18, 2024, all at a price equal to the then-applicable liquidation preference. Dividends on all series of Outstanding Preferred Stock are non-cumulative, which means that if Farmer Mac's Board of Directors has not declared a dividend before the applicable dividend payment date for any dividend period, such dividend will not be paid or cumulate, and Farmer Mac will have no obligation to pay dividends for such dividend period, whether or not dividends on any series of Outstanding Preferred Stock are declared for any future dividend period. Farmer Mac incurred direct costs of $1.7 million related to the issuance of the Series A Preferred Stock, direct costs of $1.9 million related to the issuance of the Series B Preferred Stock, and direct costs of $1.6 million related to the issuance of the Series C Preferred Stock. Farmer Mac used the proceeds from the sale of the Series A Preferred Stock to redeem and retire on January 17, 2013 its then-outstanding shares of Series C Non-Voting Cumulative Preferred Stock, which is different than the Series C Preferred Stock that is currently outstanding and which had a par value and liquidation preference of $1,000 per share and had been issued in 2008 and 2009. As of December 31, 2014, Farmer Mac had 2.4 million shares of Series A Preferred Stock outstanding, 3.0 million shares of Series B Preferred Stock outstanding, and 3.0 million of Series C Preferred Stock outstanding.

Farmer Mac's ability to declare and pay dividends on its preferred stock could be restricted if it fails to comply with applicable capital requirements. Farmer Mac's preferred stock is included as a component of core capital for regulatory and statutory capital compliance measurements.

Non-Controlling Interest in Farmer Mac II LLC

On January 25, 2010, Farmer Mac completed a private offering of $250.0 million of securities issued by a newly formed Delaware statutory trust. The trust securities, called Farm Asset-Linked Capital Securities or "FALConS," represent undivided beneficial ownership interests in 250,000 shares of non-cumulative perpetual preferred stock (the "Farmer Mac II LLC Preferred Stock") of Farmer Mac's subsidiary, Farmer Mac II LLC, a Delaware limited liability company. The Farmer Mac II LLC Preferred Stock has a liquidation preference of $1,000 per share. On May 14, 2014, Farmer Mac purchased $6.0 million of FALConS from certain holders.

Dividends on the Farmer Mac II LLC Preferred Stock will be payable if, when, and as declared by Farmer Mac II LLC's board of directors, quarterly, on a non-cumulative basis, on March 30, June 30, September 30, and December 30 of each year. From the date of issuance to but excluding the quarterly payment date occurring on March 30, 2015, the annual dividend rate on the Farmer Mac II LLC Preferred Stock will be 8.875 percent. From March 30, 2015 to but excluding the quarterly payment date occurring on March 30, 2020, the annual dividend rate on the Farmer Mac II LLC Preferred Stock will be 10.875 percent. Beginning on March 30, 2020, the dividend rate on the Farmer Mac II LLC Preferred Stock will be an annual rate equal to three-month LIBOR plus 8.211 percent. Dividends on the Farmer Mac II LLC Preferred Stock are non-cumulative, so dividends that are not declared for any payment date will not accrue. Farmer Mac II LLC Preferred Stock is presented as "Non-controlling interest – preferred stock" within equity on the consolidated balance sheets of Farmer Mac. The accrual of declared dividends is presented as "Net income attributable to non-controlling interest – preferred stock dividends" on the consolidated statements of operations on a pre-tax basis. The consolidated tax benefit is included in income tax expense. Farmer Mac II LLC has provided notice of its intent to redeem the Farmer Mac II LLC Preferred Stock on March 30, 2015, which will in turn trigger the redemption of all the outstanding FALConS securities on that same day. See Note 16 for more information on the announcement to redeem Farmer Mac II LLC Preferred Stock.

Equity-based Incentive Compensation Plans

Farmer Mac's 2008 Omnibus Incentive Compensation Plan authorizes the grants of restricted stock, stock options, and SARs, among other alternative forms of equity-based compensation, to directors, officers and other employees. SARs awarded to officers and employees vest annually in thirds. Farmer Mac has not granted SARs to directors since 2008. If not exercised or terminated earlier due to the termination of employment or service on the Board, SARs granted to officers or employees expire after 10 years. For all SARs granted, the exercise price is equal to the closing price of the Class C non-voting common stock on the date of grant. SARs granted during 2014 have exercise prices ranging from $29.37 to $35.60 per share, SARs granted during 2013 have exercise prices ranging from $30.20 to $37.17 per share, and SARS granted during 2012 have exercise prices ranging from $21.69 to $32.85 per share. During 2014 and 2013, restricted stock awards were granted to directors with a vesting period of one year, to officers vesting in three years provided certain performance targets are met, and to officers and employees vesting annually in thirds. During 2012, restricted stock awards were granted to directors with a vesting period of one year, and restricted stock awards were granted to officers vesting in three years provided certain performance targets are met.

The following tables summarize stock options, SARs, and non-vested restricted stock activity for the years ended December 31, 2014, 2013, and 2012:

Table 9.1



	For the Year Ended December 31,
	2014				2013				2012
	Stock Options and SARs		Weighted- Average Exercise Price		Stock Options and SARs		Weighted- Average Exercise Price		Stock Options and SARs		Weighted- Average Exercise Price
Outstanding, beginning of year	664,245		$	23.78	788,748		$	20.89	1,327,066		$	18.72
Granted	87,600		34.92		94,017		31.24		157,983		22.32
Exercised	(23,035	)	20.83		(208,877	)	16.24		(427,348	)	13.18
Canceled	(10,667	)	31.16		(9,643	)	23.02		(268,953	)	23.29
Outstanding, end of year	718,143		25.12		664,245		23.78		788,748		20.89
Exercisable at end of year	548,180		23.12		483,216		22.83		574,439		21.76

	For the Year Ended December 31,
	2014				2013				2012
	Non-vested Restricted Stock		Weighted- Average Grant Date Fair Value		Non-vested Restricted Stock		Weighted- Average Grant Date Fair Value		Non-vested Restricted Stock		Weighted- Average Grant Date Fair Value
Outstanding, beginning of year	98,285		$	27.66	91,311		$	18.75	196,076		$	12.15
Granted	57,590		33.88		73,985		30.27		72,637		21.92
Canceled	(8,360	)	21.72		(1,000	)	31.42		(59,624	)	16.98
Vested and issued	(43,743	)	28.48		(66,011	)	18.21		(117,778	)	10.62
Outstanding, end of year	103,772		31.24		98,285		27.66		91,311		18.75

The cancellations of stock options, SARs, and non-vested restricted stock during 2014, 2013, and 2012 were due either to unvested awards terminating in accordance with the provisions of the applicable stock option plans upon directors' or employees' departures from Farmer Mac or failure to meet specified performance goals, or vested awards terminating unexercised on their expiration date.

Farmer Mac receives cash when stock options are exercised. Cash is not received from exercises of SARs or the vesting and issuance of restricted stock. Farmer Mac received $0.2 million from the exercise of stock options during 2014, $1.9 million during 2013, and $2.9 million during 2012. During 2014, 2013, and 2012, the reduction of income taxes payable as a result of the deduction for the exercise of stock options and SARs and the vesting or accelerated tax elections of restricted stock was $0.6 million, $2.1 million, and $3.4 million, respectively.

During 2014, Farmer Mac recorded a net reduction to additional paid-in capital of $41,000 related to stock-based compensation awards. During 2013 and 2012, Farmer Mac recorded a net increase to additional paid-in capital of $1.1 million and $1.4 million, respectively, related to stock-based compensation awards.

Farmer Mac has a policy that permits directors of Farmer Mac to elect to receive shares of Class C non-voting common stock in lieu of cash retainers. During 2014, Farmer Mac issued 604 shares of Class C non-voting common stock with a fair value of $20,000 to the 5 directors who made that election. During 2013, Farmer Mac issued 842 shares of Class C non-voting common stock with a fair value of $26,000 to the 7 directors who made that election. During 2012, Farmer Mac issued 649 shares of Class C non-voting common stock with a fair value of $15,000 to the 4 directors who made that election. Fair values are determined based on the closing price of the Class C non-voting common stock as of the last business day of each quarter.

The following tables summarize information regarding stock options, SARs, and non-vested restricted stock outstanding as of December 31, 2014:

Table 9.2



	Outstanding		Exercisable		Vested or Expected to Vest
Range of Exercise Prices	Stock Options and SARs	Weighted- Average Remaining Contractual Life	Stock Options and SARs	Weighted- Average Remaining Contractual Life	Stock Options and SARs	Weighted- Average Remaining Contractual Life
$5.00 - $ 9.99	32,000	4.4 years	32,000	4.4 years	32,000	4.4 years
10.00 - 14.99	66,665	5.4 years	66,665	5.4 years	66,665	5.4 years
15.00 - 19.99	67,000	6.4 years	67,000	6.4 years	67,000	6.4 years
20.00 - 24.99	127,703	4.9 years	101,036	4.3 years	125,295	4.9 years
25.00 - 29.99	230,152	2.6 years	228,152	2.5 years	230,072	2.6 years
30.00 - 34.99	136,623	7.6 years	53,327	6.2 years	132,349	7.6 years
35.00 - 39.99	58,000	9.2 years	—	—	55,560	9.2 years
	718,143		548,180		708,941

	Outstanding		Expected to Vest
Weighted- Average Grant-Date Fair Value	Non-vested Restricted Stock	Weighted-Average Remaining Contractual Life	Non-vested Restricted Stock	Weighted-Average Remaining Contractual Life
20.00 - 24.99	12,000	0.2 years	11,160	0.2 years
25.00 - 29.99	—	—	—	—
30.00 - 34.99	90,223	1.7 years	85,012	1.7 years
35.00 - 39.99	1,549	2.8 years	1,487	2.8 years
	103,772		97,659

The weighted average exercise price of the 708,941 options and SARs vested or expected to vest as of December 31, 2014 was $25.06.

As of December 31, 2014 and 2013, the intrinsic value of options, SARs, and non-vested restricted stock outstanding, exercisable, and vested or expected to vest was $7.2 million and $10.0 million, respectively. During 2014, 2013, and 2012, the total intrinsic value of options and SARs exercised was $0.3 million, $3.8 million, and $7.4 million, respectively. As of December 31, 2014, there was $3.0 million of total unrecognized compensation cost related to non-vested stock options, SARs, and restricted stock awards. This cost is expected to be recognized over a weighted-average period of 1.7 years.

The weighted-average grant date fair values of options, SARs, and restricted stock awards granted in 2014, 2013, and 2012 were $21.11, $23.12, and $16.73 per share, respectively. Under the fair value-based method of accounting for stock-based compensation cost, Farmer Mac recognized compensation expense of $2.9 million, $3.0 million, and $2.5 million during 2014, 2013, and 2012, respectively.

The fair values of stock options and SARs were estimated using the Black-Scholes option pricing model based on the following assumptions:

Table 9.3



	For the Year Ended December 31,
	2014	2013	2012
Risk-free interest rate	1.5%	0.6%	1.1%
Expected years until exercise	4 years	4 years	5 years
Expected stock volatility	49.7%	83.4%	94.6%
Dividend yield	1.6%	1.5%	1.8%

The risk-free interest rates used in the model were based on the U.S. Treasury yield curve in effect at the grant date. Farmer Mac used historical data to estimate the timing of option exercises and stock option cancellation rates used in the model. Expected volatilities were based on historical volatility of Farmer Mac's Class C common stock. The dividend yields were based on the expected dividends as a percentage of the value of Farmer Mac's Class C common stock on the grant date.

Because restricted stock awards will be issued upon vesting regardless of the stock price, expected stock volatility is not considered in determining grant date fair value. Restricted stock awards also accrue dividends which are paid at vesting. The weighted-average grant date fair value of the restricted stock awarded in 2014, 2013, and 2012 was $33.88, $30.27, and $21.92 per share, respectively, which was the closing price of the stock on the date granted.

Capital Requirements

Farmer Mac is subject to the following capital requirements:

•

Statutory minimum capital requirement – Farmer Mac's statutory minimum capital level is an amount of core capital (stockholders' equity less accumulated other comprehensive income plus non-controlling interest – preferred stock) equal to the sum of 2.75 percent of Farmer Mac's aggregate on-balance sheet assets, as calculated for regulatory purposes, plus 0.75 percent of the aggregate off-balance sheet obligations of Farmer Mac, specifically including:


◦	the unpaid principal balance of outstanding Farmer Mac Guaranteed Securities;


◦	instruments issued or guaranteed by Farmer Mac that are substantially equivalent to Farmer Mac Guaranteed Securities, including LTSPCs; and


◦	other off-balance sheet obligations of Farmer Mac.


•	Statutory critical capital requirement – Farmer Mac's critical capital level is an amount of core capital equal to 50 percent of the total minimum capital requirement at that time.


•	Risk-based capital requirement – Farmer Mac's charter directs FCA to establish a risk-based capital stress test for Farmer Mac, using specified stress-test parameters.

Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement.

As of December 31, 2014, Farmer Mac's minimum and critical capital requirements were $421.3 million and $210.7 million, respectively, and its actual core capital level was $766.3 million, which was $345.0 million above the minimum capital requirement and $555.6 million above the critical capital requirement as of that date. As of December 31, 2013, Farmer Mac's minimum and critical capital requirements were $398.5 million and $199.3 million, respectively, and its actual core capital level was $590.7 million, which was $192.2 million above the minimum capital requirement and $391.4 million above the critical capital requirement as of that date.

Based on the risk-based capital stress test, Farmer Mac's risk-based capital requirement as of December 31, 2014 was $121.6 million, and Farmer Mac's regulatory capital (core capital plus the allowance for losses) of $776.4 million exceeded that amount by approximately $654.8 million. As of December 31, 2013, Farmer Mac's risk-based capital requirement was $90.8 million, and Farmer Mac's regulatory capital of $604.0 million exceeded that amount by approximately $513.2 million.

In accordance with FCA's rule on Farmer Mac's capital planning that became effective on January 3, 2014, and as part of Farmer Mac's capital plan, Farmer Mac has adopted a policy for maintaining a sufficient level of Tier 1 capital (consisting of retained earnings, paid-in-capital, common stock, qualifying preferred stock, and accumulated other comprehensive income allocable to investments not included in one of the four operating lines of business) and imposing restrictions on common stock dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds.