Equity

12 Months Ended

Dec. 31, 2022

Equity [Abstract]

Equity

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% 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 2022, 2021, and 2020, Farmer Mac paid a quarterly dividend of $0.95, $0.88, and $0.80 per share on all classes of its common stock. Farmer Mac's ability to declare and pay dividends on its common stock could be restricted if it fails to comply with applicable capital requirements.

Farmer Mac's board of directors approved a share repurchase program during third quarter 2015 authorizing Farmer Mac to repurchase up to $25.0 million of its outstanding Class C non-voting common stock. The share repurchase program, last modified on March 14, 2019, authorized Farmer Mac to repurchase up to $10.0 million of Farmer Mac's outstanding Class C non-voting common stock. During

first quarter 2020, Farmer Mac repurchased approximately 4,000 shares of Class C non-voting common stock at a cost of approximately $0.2 million. Shortly after these repurchases were completed, Farmer Mac indefinitely suspended its share repurchase program in an effort to preserve capital and liquidity in view of market volatility and uncertainty caused by the COVID-19 pandemic. In March 2021, Farmer Mac's board of directors reinstated the share repurchase program on its previous terms (with a remaining authorization of up to $9.8 million in stock repurchases) and extended the expiration date of the program to March 2023. Farmer Mac did not repurchase any shares of its Class C non-voting common stock during 2022. As of December 31, 2022, Farmer Mac had repurchased approximately 673,000 shares of Class C non-voting common stock at a cost of approximately $19.8 million under the share repurchase program since 2015.

Preferred Stock

The following table presents the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock, and the Series G Preferred Stock (collectively referred to as the "Outstanding Preferred Stock") as of December 31, 2022:

Table 9.1

Name	Issuance Date	Issuance Cost		Shares Issued	Annual Dividend Rate(3)		Liquidation Value		Redemption Date(4)
Series C(1)	June 20, 2014	$	1,618,583	3,000,000	6.000	%	$	25.00	July 18, 2024
Series D(2)	May 13, 2019	$	3,340,456	4,000,000	5.700	%	$	25.00	July 17, 2024
Series E	May 20, 2020	$	2,496,750	3,180,000	5.750	%	$	25.00	July 17, 2025
Series F	August 20, 2020	$	3,839,902	4,800,000	5.250	%	$	25.00	October 17, 2025
Series G	May 27, 2021	$	3,661,677	5,000,000	4.875	%	$	25.00	July 17, 2026

(1)The Series C Preferred Stock pays an annual dividend rate of 6.00% 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%.

(2)Farmer Mac has the option to redeem the preferred stock on any quarterly dividend payment date on and after July 17, 2024.

(3)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.

(4)Farmer Mac has the right but not the obligation to redeem.

The following tables present the quarterly dividends paid by Farmer Mac on its outstanding preferred during 2022, 2021, and 2020:

Table 9.2

	2022
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C	$	0.3750	$	0.3750	$	0.3750	$	0.3750
5.700% Non-Cumulative Preferred Stock, Series D	0.3563		0.3563		0.3563		0.3563
5.750% Non-Cumulative Preferred Stock, Series E	0.3594		0.3594		0.3594		0.3594
5.250% Non-Cumulative Preferred Stock, Series F	0.3281		0.3281		0.3281		0.3281
4.875% Non-Cumulative Preferred Stock, Series G	0.3047		0.3047		0.3047		0.3047

	2021
	1st Quarter		2nd Quarter(1)		3rd Quarter		4th Quarter
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C	$	0.3750	$	0.3750	$	0.3750	$	0.3750
5.700% Non-Cumulative Preferred Stock, Series D	0.3563		0.3563		0.3563		0.3563
5.750% Non-Cumulative Preferred Stock, Series E	0.3594		0.3594		0.3594		0.3594
5.250% Non-Cumulative Preferred Stock, Series F	0.3281		0.3281		0.3281		0.3281
4.875% Non-Cumulative Preferred Stock, Series G	—		0.1693		0.3047		0.3047

(1)For second quarter 2021, dividend payment includes $0.1693 per share on the Series G Preferred Stock for the period from but not including May 27, 2021 (issuance date) to and including July 17, 2021.

	2020
	1st Quarter		2nd Quarter(1)		3rd Quarter(2)(3)		4th Quarter
5.875% Non-Cumulative Preferred Stock, Series A	$	0.3672	$	0.3672	$	0.2530	$	—
6.000% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series C	0.3750		0.3750		0.3750		0.3750
5.700% Non-Cumulative Preferred Stock, Series D	0.3563		0.3563		0.3563		0.3563
5.750% Non-Cumulative Preferred Stock, Series E	—		0.2276		0.3594		0.3594
5.250% Non-Cumulative Preferred Stock, Series F	—		—		0.2078		0.3281

(1)For second quarter 2020, dividend payment includes $0.2276 per share on the Series E Preferred Stock for the period from but not including May 20, 2020 (issuance date) to and including July 17, 2020.

(2)For third quarter 2020 dividend payment includes $0.2530 per share on the Series A Preferred Stock for the period from but not including July 17, 2020 to and including the September 19, 2020 redemption date.

(3)For third quarter 2020, dividend payment includes $0.2078 per share on the Series F Preferred Stock for the period from but not including August 20, 2020 (issuance date) to and including October 17, 2020.

Equity-Based Incentive Compensation Plans

Farmer Mac's Amended and Restated 2008 Omnibus Incentive Compensation Plan authorizes the grant of restricted stock and SARs, among other alternative forms of equity-based compensation, to Farmer Mac's directors, officers, and 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 cancelled earlier due to the termination of employment, SARs granted to officers or employees expire after 10 years from the grant date. For all SARs granted, the exercise price is equal to the closing price of Farmer Mac's Class C non-voting common stock on the date of grant. SARs granted during 2022 have an exercise price of $120.38 per share, SARs granted during 2021 have an exercise price of $88.68 per share, and SARs granted during 2020 have an exercise price ranging from $72.26 to $75.16 per share. During 2022, 2021, and 2020, restricted stock awards were granted to employees, officers, and directors with vesting periods of one to three years.

The following tables summarize SARs and non-vested restricted stock activity for the years ended December 31, 2022, 2021, and 2020:

Table 9.3

	For the Years Ended December 31,
	2022			2021			2020
	SARs	Weighted- Average Exercise Price		SARs	Weighted- Average Exercise Price		SARs	Weighted- Average Exercise Price
Outstanding, beginning of year	130,409	$	66.10	116,417	$	57.16	98,836	$	46.47
Granted	18,432	120.38		28,575	88.68		34,881	74.80
Exercised	(16,678)	49.04		(14,583)	38.99		(15,912)	26.93
Canceled	—	—		—	—		(1,388)	86.15
Outstanding, end of year	132,163	75.82		130,409	66.10		116,417	57.16
Exercisable at end of year	83,054	63.12		72,106	52.85		66,602	42.08
	For the Years Ended December 31,
	2022			2021			2020
	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	103,891	$	78.55	83,956	$	71.76	62,597	$	75.81
Granted	38,668	120.14		53,358	88.92		53,471	66.02
Canceled	(2,711)	97.44		(1,184)	79.82		(4,042)	69.66
Vested and issued	(39,823)	84.25		(32,239)	77.98		(28,070)	70.13
Outstanding, end of year	100,025	91.84		103,891	78.55		83,956	71.76

The cancellations of SARs and non-vested restricted stock during 2022, 2021, and 2020 were due to unvested awards terminating in accordance with the provisions of the applicable equity compensation plans or award agreements upon directors' or employees' departures from Farmer Mac.  

Cash is not received from exercises of SARs or the vesting and issuance of restricted stock. During 2022, 2021, and 2020, the reduction of income taxes payable as a result of the deduction for the exercise of SARs and the vesting or accelerated tax elections of restricted stock was $1.2 million, $0.9 million, and $0.5 million, respectively.

During 2022, 2021, and 2020, Farmer Mac recorded a net decrease to additional paid-in capital of $1.9 million, $1.3 million, and $0.6 million, respectively, related to stock-based compensation awards.

As of December 31, 2022, Farmer Mac had no stock options outstanding. The following tables summarize information regarding SARs and non-vested restricted stock outstanding as of December 31, 2022:

Table 9.4

SARs:
	Outstanding		Exercisable		Vested or Expected to Vest
Range of Exercise Prices	SARs	Weighted- Average Remaining Contractual Life	SARs	Weighted- Average Remaining Contractual Life	SARs	Weighted- Average Remaining Contractual Life
$25.00 - 39.99	30,492	2.0 years	30,492	2.0 years	30,492	2.0 years
40.00 - 54.99	—	0.0 years	—	0.0 years	—	0.0 years
55.00 - 69.99	3,381	4.3 years	3,381	4.3 years	3,381	4.3 years
70.00 - 84.99	46,739	6.8 years	35,112	6.7 years	46,739	6.8 years
85.00 - 99.99	33,119	7.6 years	14,069	6.9 years	33,119	7.6 years
100.00 - 114.99	—	0.0 years	—	0.0 years	—	0.0 years
115.00 - 129.99	18,432	9.2 years	—	0.0 years	18,432	9.2 years
	132,163		83,054		132,163
Non-vested Restricted Stock:
	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
$50.00 - $64.99	18,100	0.3 years	18,100	0.3 years
65.00 - 79.99	10,744	0.2 years	10,744	0.2 years
80.00 - 94.99	35,101	1.3 years	35,101	1.3 years
95.00 - 109.99	915	0.8 years	915	0.8 years
110.00 - 124.99	35,165	1.9 years	35,165	1.9 years
	100,025		100,025

As of December 31, 2022 and 2021, the intrinsic value of SARs, and non-vested restricted stock outstanding, exercisable, and vested or expected to vest was $16.3 million and $20.4 million, respectively. During 2022, 2021, and 2020, the total intrinsic value of SARs exercised was $1.1 million, $0.9 million, and $0.7 million, respectively. As of December 31, 2022, there was $3.7 million of total unrecognized compensation cost related to non-vested 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 SARs and restricted stock awards granted in 2022, 2021, and 2020 were $91.94, $65.48, and $45.91 per share, respectively. Under the fair value-based method of accounting for stock-based compensation cost, Farmer Mac recognized compensation expense of $4.6 million, $4.3 million, and $4.1 million during 2022, 2021, and 2020, respectively.  

The fair value of SARs was estimated using the Black-Scholes option pricing model based on the following assumptions:

Table 9.5

	For the Year Ended December 31,
	2022	2021	2020
Risk-free interest rate	1.9%	0.9%	0.9%
Expected years until exercise	6 years	6 years	6 years
Expected stock volatility	37.4%	39.1%	34.3%
Dividend yield	3.2%	4.0%	4.2%

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 non-voting common stock. The dividend yields were based on the expected dividends as a percentage of the value of Farmer Mac's Class C non-voting 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 2022, 2021, and 2020 was $120.14, $88.92, and $66.02 per share, respectively, which is based on the closing price of the stock on the date granted.

Capital Requirements

Farmer Mac is required to comply with the higher of the minimum capital requirement and the risk-based capital requirement. As of both December 31, 2022 and 2021, the minimum capital requirement was greater than the risk-based capital requirement. Farmer Mac's ability to declare and pay dividends could be restricted if it fails to comply with applicable capital requirements.

As of December 31, 2022, Farmer Mac's minimum capital requirement was $805.9 million and its core capital level was $1.3 billion, which was $516.9 million above the minimum capital requirement as of that date. As of December 31, 2021, Farmer Mac's minimum capital requirement was $713.1 million and its core capital level was $1.2 billion, which was $496.8 million above the minimum capital requirement as of that date.

In accordance with the Farm Credit Administration's rule on Farmer Mac's capital planning, 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, and qualifying preferred stock) and imposing restrictions on Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds.