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.

On September 8, 2015, Farmer Mac's board of directors approved a share repurchase program authorizing Farmer Mac to repurchase up to $25 million of its outstanding Class C non-voting common stock over the next two years. As of December 31, 2015, Farmer Mac had repurchased approximately 362,000 shares of Class C non-voting common stock at a cost of approximately $10.5 million pursuant to the share repurchase program.

During 2015, 2014, and 2013, Farmer Mac paid a quarterly dividend of $0.16, $0.14, and $0.12, 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 from 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, 2015, 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," represented 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 had a liquidation preference of $1,000 per share. On May 14, 2014, Farmer Mac purchased $6.0 million of FALConS from certain holders. On March 30, 2015, Farmer Mac II LLC redeemed all of the outstanding shares of Farmer Mac II LLC Preferred Stock which, in turn, triggered the redemption of all of the outstanding FALConS on that same day. Farmer Mac recognized an expense of $8.1 million in deferred issuance costs upon the retirement of the 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 2015 have exercise prices ranging from $28.17 to $32.39 per share, SARs granted during 2014 have exercise prices ranging from $29.37 to $35.60 per share, and SARs granted during 2013 have exercise prices ranging from $30.20 to $37.17 per share. During 2015, 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.

The following tables summarize stock options, SARs, and non-vested restricted stock activity for the years ended December 31, 2015, 2014, and 2013:

Table 9.1



	For the Year Ended December 31,
	2015				2014				2013
	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	718,143		$	25.12	664,245		$	23.78	788,748		$	20.89
Granted	119,110		32.25		87,600		34.92		94,017		31.24
Exercised	(86,680	)	21.32		(23,035	)	20.83		(208,877	)	16.24
Canceled	(3,000	)	30.05		(10,667	)	31.16		(9,643	)	23.02
Outstanding, end of year	747,573		26.68		718,143		25.12		664,245		23.78
Exercisable at end of year	543,698		24.34		548,180		23.12		483,216		22.83

	For the Year Ended December 31,
	2015				2014				2013
	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	103,772		$	31.24	98,285		$	27.66	91,311		$	18.75
Granted	76,616		32.14		57,590		33.88		73,985		30.27
Canceled	—		—		(8,360	)	21.72		(1,000	)	31.42
Vested and issued	(47,737	)	30.25		(43,743	)	28.48		(66,011	)	18.21
Outstanding, end of year	132,651		32.12		103,772		31.24		98,285		27.66

The cancellations of stock options, SARs, and non-vested restricted stock during 2015, 2014, and 2013 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 $1.7 million from the exercise of stock options during 2015, $0.2 million during 2014, and $1.9 million during 2013. During 2015, 2014, and 2013, 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 $0.8 million, $0.6 million, and $2.1 million, respectively.

During 2015, Farmer Mac recorded a net increase to additional paid-in capital of $1.0 million related to stock-based compensation awards. During 2014, Farmer Mac recorded a net decrease to additional paid-in capital of $41,000 related to stock-based compensation awards. During 2013, Farmer Mac recorded a net increase to additional paid-in capital of $1.1 million 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 2015, Farmer Mac issued 491 shares of Class C non-voting common stock with a fair value of $14,000 to the 4 directors who made that election. 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.

The following tables summarize information regarding stock options, SARs, and non-vested restricted stock outstanding as of December 31, 2015:

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	18,666	3.3 years	18,666	3.3 years	18,666	3.3 years
10.00 - 14.99	66,665	4.4 years	66,665	4.4 years	66,665	4.4 years
15.00 - 19.99	62,000	5.4 years	62,000	5.4 years	62,000	5.4 years
20.00 - 24.99	100,500	5.1 years	100,500	5.1 years	100,500	5.1 years
25.00 - 29.99	191,009	1.9 years	187,009	1.7 years	190,809	1.9 years
30.00 - 34.99	250,733	7.8 years	90,864	6.1 years	241,931	7.8 years
35.00 - 39.99	58,000	8.2 years	17,994	8.3 years	56,280	8.2 years
	747,573		543,698		736,851

	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
$25.00 - $29.99	6,778	2.1 years	6,439	2.1 years
30.00 - 34.99	124,324	1.2 years	117,990	1.2 years
35.00 - 39.99	1,549	1.2 years	1,487	1.2 years
	132,651		125,916

The weighted average exercise price of the 736,851 options and SARs vested or expected to vest as of December 31, 2015 was $26.59.

As of December 31, 2015 and 2014, the intrinsic value of options, SARs, and non-vested restricted stock outstanding, exercisable, and vested or expected to vest was $8.1 million and $7.2 million, respectively. During 2015, 2014, and 2013, the total intrinsic value of options and SARs exercised was $0.9 million, $0.3 million, and $3.8 million, respectively. As of December 31, 2015, there was $3.2 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 2015, 2014, and 2013 were $17.97, $21.11, and $23.12 per share, respectively. Under the fair value-based method of accounting for stock-based compensation cost, Farmer Mac recognized compensation expense of $3.3 million, $2.9 million, and $3.0 million during 2015, 2014, and 2013, 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,
	2015	2014	2013
Risk-free interest rate	1.2%	1.5%	0.6%
Expected years until exercise	4 years	4 years	4 years
Expected stock volatility	38.0%	49.7%	83.4%
Dividend yield	2.0%	1.6%	1.5%

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 2015, 2014, and 2013 was $32.14, $33.88, and $30.27 per share, respectively, which is based on 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) 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, 2015 and 2014, 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, 2015, Farmer Mac's minimum capital requirement was $462.1 million and its actual core capital level was $564.5 million, which was $102.4 million above the minimum capital requirement as of that date. As of December 31, 2014, Farmer Mac's minimum capital requirement was $421.3 million and its actual core capital level was $766.3 million, which was $345.0 million above the minimum capital requirement as of that date.

In accordance with FCA'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, 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 Tier 1-eligible dividends and any discretionary bonus payments in the event that this capital falls below specified thresholds.