13

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		Voting Common Stock								Non-Voting Common Stock1,2,3
		Class A or Class B				Percent of Class				Class C				Percent of Class
Timothy L. Buzby			—				—				142,260				1.65	%
Michael A. Gerber			—				—				23,688				*
Jerome G. Oslick			—				—				113,343				1.32	%
Tom D. Stenson			—				—				273,347				3.17	%
Julia Bartling			—				—				22,432				*
Dennis L. Brack			—				—				28,121				*
Grace T. Daniel			—				—				26,665				*
Richard H. Davidson			—				—				—				*
Paul A. DeBriyn+			—				—				30,927				*
James R. Engebretsen			—				—				9,967				*
Dennis A. Everson			—				—				21,764				*
Ernest M. Hodges			—				—				—				*
Brian P. Jackson			—				—				—				*
Mitchell A. Johnson			—				—				29,144				*
Lowell L. Junkins			—				—				26,432				*
Glen O. Klippenstein			—				—				29,204				*
Clark B. Maxwell			—				—				8,432				*
Brian J. O’Keane			—				—				8,432
John Dan Raines			—				—				19,941				*
All directors, nominees and current executive officers as a group (19 persons)			—				—				814,078				9.45	%

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Director Independence

The Board of Directors has adopted a formal set of standards to form the basis for determinations of director independence required by NYSE rules.  To be considered “independent” for purposes of these standards, the Board must affirmatively determine that a director does not have a material relationship with Farmer Mac other than as a director of Farmer Mac.  The Board broadly considers all relevant facts and circumstances in making an independence determination, including the following criteria, among others, in determining whether a director lacks a material relationship and therefore is “independent”:

 

(a)

the director is not and has not been employed by the Corporation within the past three years;

(b)

the director has not received more than $120,000 per year in direct compensation from the Corporation, other than director and committee fees, within the past three years;

(c)

the director is not and has not been for the past three years a significant advisor or consultant to the Corporation, and is not affiliated with a company or a firm that is (revenue of the greater of 2% of the other company’s consolidated gross revenues or $1 million is considered significant);

(d)

the director is not and has not been for the past three years a significant customer or supplier of the Corporation nor affiliated with a company or firm that is (revenue of the greater of 2% of the other company’s consolidated gross revenues or $1 million is considered significant);

(e)

the director is not and has not been for the past three years employed by or affiliated with an internal or external auditor of the company that provided services to the Corporation within the past three years;

(f)

the director is not and has not been for the past three years employed by another company where any of the Corporation’s present executives serve on that company’s compensation committee;

(g)

the director is not a spouse, parent, sibling, child, mother- or father-in-law, son- or daughter-in-law or brother- or sister-in-law or any person (other than household employees) who shares a residence with any person described by (a) through (f);

(h)

the director is not and has not been for the past three years affiliated with a tax-exempt entity that received significant contributions from the Corporation (revenue of the greater of 2% of the entity’s consolidated gross revenues or $1 million is considered significant); and

(i)

the director does not have any other relationships with the Corporation or the members of management of the Corporation that the Board has determined to be material not described in (a) through (h).

 

The criteria, which are included in Farmer Mac’s Corporate Governance Guidelines available on the Corporation’s website, www.farmermac.com, in the “Corporate Governance” portion of the “Investors” section, meet all requirements for director independence contained in SEC and NYSE rules.

 

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In April 2010, the Board considered all direct and indirect transactions and relationships between each director (either directly or as a partner, stockholder, officer or director of an entity that has a business relationship with Farmer Mac) and the Corporation and its management to determine whether any such transactions or relationships were inconsistent with a determination that the director is independent.  As a result of its review, the Board affirmatively determined that each of the following current directors meets the criteria for director independence set forth above and, therefore, is independent:  Julia Bartling, Dennis L. Brack, Grace T. Daniel, James R. Engebretsen, Dennis A. Everson, Ernest M. Hodges, Brian P. Jackson, Mitchell A. Johnson, Lowell L. Junkins, Glen O. Klippenstein, Clark B. Maxwell, Brian J. O’Keane and John Dan Raines.  During the same review, the Board determined that current director Paul A. DeBriyn, who is not a nominee for election as a director at the 2010 Annual Meeting of Stockholders, was not independent of Farmer Mac for the reasons described in more detail below.  The Board has also determined that Richard H. Davidson, the only Nominee who is not a current member of the Board, meets the criteria for director independence.

In applying the criteria for director independence set forth above, Mr. DeBriyn was determined to have a material relationship with Farmer Mac, and therefore not to be independent, by virtue of Farmer Mac’s payment of approximately $53.2 million to AgStar Financial Services, ACA, (“AgStar”) for the purchase of five participation interests in defaulted loans secured by ethanol facilities under the long-term standby purchase commitment (“LTSPC”) between AgStar and Farmer Mac in 2008.  In addition, during 2009, Farmer Mac paid to AgStar approximately $1.6 million in fees for servicing loans owned by Farmer Mac and purchased from AgStar $11.9 million related to two defaulted loans pursuant to the terms of the LTSPC.  Mr. DeBriyn is the President and CEO of AgStar.  The total amount paid to AgStar by Farmer Mac in 2008 (approximately $55.4 million) was approximately 15.7% of AgStar’s consolidated gross revenues for 2008 (approximately $353.1 million), which exceeded the 2% threshold used to determine whether an entity affiliated with a director is a significant customer of the Corporation.

In determining that Mr. Davidson and each of the current directors other than Mr. DeBriyn is independent of Farmer Mac, the Board considered that because financial institutions are required to own Voting Common Stock to participate in Farmer Mac’s programs, transactions often occur in the ordinary course of business between the Corporation and companies or other entities at which some of Farmer Mac’s directors are or have been officers or directors.  In particular, with respect to each of the most recent three completed fiscal years, the Board evaluated for each of Messrs. Brack, Everson, Hodges, Jackson, O’Keane and Raines all transactions between Farmer Mac and the company where he serves as an executive officer or director.  Those transactions included sales of qualified loans and USDA-guaranteed portions and guarantee and LTSPC transactions as well as the annual amount of guarantee and commitment fees paid to Farmer Mac by that company and any servicing or other fees received by that company from Farmer Mac.  In each case, the transactions had terms and conditions comparable to those applicable to entities unaffiliated with Farmer Mac, and the amount paid to or received from each of these companies in each of the last three years did not exceed the 2% of total revenue threshold in the director independence criteria used to determine whether an entity affiliated with a director is a significant customer of the Corporation.  The Board determined that none of these relationships it considered impaired the independence of the named individuals.  For additional information about transactions between Farmer Mac and entities affiliated with directors, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations ─ Results of Operations ─ Related Party Transactions” and Note 3 in Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2009.

On February 4, 2010, the Board amended Farmer Mac’s Corporate Governance Guidelines, effective as of June 3, 2010, to include the following criteria to determine the independence status of a director:

(a)

the director is not a candidate for federal political office;

(b)

the director is not an employee of an entity that does any business with Farmer Mac; and

(c)

the director is not an employee of an entity that holds more than 5% of any class of Farmer Mac voting common stock.

 

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When the amended independence standards become effective, Messrs. Hodges and Everson will no longer be deemed to be “independent directors” because they are employed by entities that do business with Farmer Mac and Messrs. Jackson and O’Keane will no longer be deemed to be “independent directors” because they are each employed by an entity that holds more than 5% of Farmer Mac’s Class B Voting Common Stock.

Report of the Audit Committee

The following report of the Audit Committee shall not be deemed to be “soliciting material,” or to be “filed” with the SEC, and will not be deemed to be incorporated by reference into any filing by the Corporation under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that the Corporation specifically requests that such information be treated as soliciting material or specifically incorporates the report by reference into a document.

The Audit Committee reviewed and recommended reaffirmation of the Audit Committee Charter, which reaffirmation was approved by the full Board on February 4, 2010.  The complete text of the charter, which reflects standards set forth in SEC regulations and NYSE listing standards, is available on the Corporation’s website, www.farmermac.com, in the “Corporate Governance” portion of the “Investors” section.  A print copy of the Audit Committee Charter is available free of charge upon written request to Jerome G. Oslick, Corporate Secretary, Federal Agricultural Mortgage Corporation, 1133 Twenty-First Street, N.W., Suite 600, Washington, D.C. 20036.  The Audit Committee and the Board reviews and approves changes to the Audit Committee Charter annually.  The Board of Directors has determined that:  (1) all the directors who serve on the Audit Committee are “independent,” as defined in Farmer Mac’s Corporate Governance Guidelines, SEC rules and NYSE listing standards; and (2) each of Clark Maxwell, a member of the Audit Committee since June 6, 2008, and Brian Jackson, a member of the Audit Committee since June 4, 2009, is an “audit committee financial expert,” as defined in SEC rules.  However, Messrs. Maxwell and Jackson are not auditors or accountants for Farmer Mac, do not perform field work and are not employees of Farmer Mac.  In accordance with the SEC’s safe harbor relating to audit committee financial experts, a person designated or identified as an audit committee financial expert will not be deemed to be an “expert” for purposes of the federal securities laws.  In addition, such designation or identification does not impose on such person any duties, obligations or liabilities that are greater than those imposed on such person as a member of the Audit Committee and Board of Directors in the absence of such designation or identification, and does not affect the duties, obligations or liabilities of any other member of the Audit Committee or Board of Directors.

 

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Audit Committee Report for the Year Ended December 31, 2009

To Our Stockholders:

Management is primarily responsible for establishing and maintaining the financial public reporting process, including the system of internal accounting controls, and for the preparation of Farmer Mac’s consolidated financial statements in accordance with accounting principles generally accepted in the United States.  The Audit Committee, on behalf of the Board, monitors Farmer Mac’s financial reporting processes and systems of internal accounting control, the independence and performance of the independent auditors and the performance of the internal audit function.  The Corporation’s independent auditors are responsible for auditing those consolidated financial statements and expressing an opinion as to their conformity with generally accepted accounting principles and on management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting.  In addition, the independent auditors will express their own opinion on the effectiveness of Farmer Mac’s internal control over financial reporting.

Management has represented to the Audit Committee that Farmer Mac’s audited consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States.  The Audit Committee reviewed and discussed Farmer Mac’s audited consolidated financial statements with both management and the Corporation’s independent auditors prior to their issuance.  The Audit Committee has discussed with the independent auditors their evaluation of the accounting principles, practices and judgments applied by management, and the Audit Committee has discussed any items required to be communicated to it by the independent auditors pursuant to rules and regulations promulgated by the Securities and Exchange Commission and the Public Company Accounting Oversight Board and the standards established by the American Institute of Certified Public Accountants, including matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication With Audit Committees).

With respect to the Corporation’s independent auditors, the Audit Committee, among other things, received from Deloitte & Touche LLP the written disclosures as required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed with them their independence from the Corporation and its management.  The Audit Committee has reviewed and pre-approved the audit fees of the independent auditors.  It also has approved non-audit services and reviewed fees for such services to assure compliance with applicable provisions of the Securities Exchange Act of 1934, as amended, and applicable rules and regulations to assure compliance with the auditor independence requirements that prohibit independent auditors from performing specified services that might impair their independence as well as compliance with Farmer Mac’s and the Audit Committee’s policies.

The Audit Committee discussed with Farmer Mac’s independent auditors the overall scope of and plans for its audit.  Finally, the Audit Committee continued to monitor the scope and adequacy of the Corporation’s internal auditing program, including proposals for adequate staffing and to strengthen internal procedures and controls where appropriate.

 

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In reliance upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the Board approve the inclusion of the Corporation’s audited consolidated financial statements in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the Securities and Exchange Commission, as filed on March 16, 2010.

	Audit Committee
	John Dan Raines, Chairman
Julia Bartling		James R. Engebretsen
Brian P. Jackson		Clark B. Maxwell

Executive Officers

The following table sets forth the names and ages of the current executive officers of Farmer Mac, the principal positions held with the Corporation by such executive officers, and the officers’ experience prior to joining the Corporation.

Name		Age		Capacity in which Served and Five-Year History
Michael A. Gerber		51		President and Chief Executive Officer of the Corporation since March 1, 2009.  Mr. Gerber served as a member of the Board of Directors of the Corporation from June 7, 2007 through February 28, 2009 and served as a member of the Finance Committee and the Marketing Committee.  He served as President and Chief Executive Officer of Farm Credit of Western New York, ACA, located in Batavia, New York, from 1998 through February 2009, with a leave of absence to serve as Farmer Mac’s Acting President and CEO from October 1, 2008 through February 28, 2009.  Mr. Gerber was Executive Vice President of Farm Credit of Western New York from 1994 to 1998 and served as Credit Supervisor and Director of Financial Services for the former Farm Credit System Southern New England Association from 1992 to 1994.  Mr. Gerber also served as a director and chairman of the audit committee of Financial Partners, Inc., a service company owned by Farm Credit System associations.  Mr. Gerber also was a member of the Farm Credit System’s Presidents’ Planning Committee and is a director of the Genesee County Economic Development Council.
Tom D. Stenson		59		Executive Vice President and Chief Operating Officer since June 7, 2007.  Prior to that time, Mr. Stenson was Vice President – Agricultural Finance of the Corporation from August 7, 1997 until June 7, 2007 and Director – Agricultural Finance of the Corporation from November 1996 until August 7, 1997.

Timothy L. Buzby		41		Vice President – Chief Financial Officer since April 2, 2009 and Treasurer since October 8, 2009.  Prior to April 2009, Mr. Buzby was Vice President – Controller of the Corporation from June 5, 2003 through April 1, 2009 and Acting Treasurer from October 1, 2008 through April 1, 2009.  Mr. Buzby previously served as Chief Financial Officer for George Mason Mortgage Corporation, a regional residential mortgage lender, from March 2000 to December 2000 at which time he joined Farmer Mac as Controller.  From July 1997 to February 2000, he was the Chief Financial Officer for Mortgage Edge Corporation, a national mortgage lender.  Prior to July 1997, Mr. Buzby was a Manager on the Mortgage Consulting Staff of KPMG Peat Marwick, LLP.  Mr. Buzby has been a certified public accountant since 1992.
Jerome G. Oslick		63		Vice President – General Counsel and Corporate Secretary since February 1, 2000.  From 1987 until he joined Farmer Mac as Assistant General Counsel in February 1994, Mr. Oslick was an associate in the Washington, D.C. office of the New York-based law firm of Brown & Wood.  From 1970 to 1987, he was an attorney and branch chief in the Office of General Counsel, United States Department of Agriculture.

 

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Executive Compensation Governance

The Compensation Committee determines, subject to ratification by the Board of Directors in the case of the chief executive officer and directors, the salaries, incentive plans and other compensation of directors and officers of the Corporation.  The current members of the Compensation Committee are Messrs. Hodges, Johnson, Junkins, Klippenstein, Raines and Brack (chairman).  No member of Farmer Mac’s Compensation Committee is or has been an officer or employee of the Corporation.  As described in more detail in “Director Independence,” the Board has determined that all members of the Compensation Committee are “independent,” as defined in Farmer Mac’s Corporate Governance Guidelines and NYSE listing standards.

The Compensation Committee reviewed and recommended amendment and reaffirmation of the Compensation Committee Charter, which amendment and reaffirmation was approved by the full Board on April 1, 2010.  The complete text of the charter as amended, which reflects standards set forth in SEC and NYSE rules, is available on the Corporation’s website, www.farmermac.com, in the “Corporate Governance” portion of the “Investors” section.  A print copy of the Compensation Committee Charter is available free of charge upon written request to Jerome G. Oslick, Corporate Secretary, Federal Agricultural Mortgage Corporation, 1133 Twenty-First Street, N.W., Suite 600, Washington, D.C. 20036.

The Compensation Committee makes recommendations to the Board of Directors as to the actual levels of compensation to be awarded to the chief executive officer and the directors.  The compensation of all other named executive officers (as defined on the following page) is determined by the Committee after consultation with the chief executive officer and is based upon an evaluation of current market compensation levels for comparable positions and an assessment of the officer’s performance during the business plan year based on discussions with the chief executive officer.  Neither the chief executive officer nor any other named executive officer is present during deliberations on his or her compensation by the Committee or the Board.  The Compensation Committee does not delegate any of its authority to other persons.

 

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During 2009, the Committee engaged Mercer (US) Inc. and Executive Compensation Services Surveys (“Mercer”) as its independent compensation consultant. Mercer was accountable to and reported directly to the Committee. The Committee asked Mercer to provide (1) market data on executive and director compensation and (2) information regarding compensation trends.  The Committee met with Mercer during the year, both in general committee session and in executive session without management present.  For 2010, the Committee has engaged Mercer as its independent compensation consultant and, in addition to requesting updates of the items requested for 2009, asked Mercer to provide tally sheets for the chief executive officer and chief financial officer positions.

— Compensation Discussion and Analysis

General Compensation Goals and Pay Elements

Farmer Mac strives to operate a compensation program that will attract and retain talented and dedicated employees and motivate them to act in our best interests and those of our stockholders.  To accomplish those goals, the compensation program is designed to reward the execution of strategies that:

 

·

accomplish our Congressional mission as measured by increases in business volume and net income (adjusted for non-economic accounting conventions);

·

maintain and enhance effective internal controls;

·

align compensation with overall risk tolerance of Farmer Mac; and

·

enhance stockholder value.

To further the attainment of those goals, at the time that compensation was established for 2009, the compensation program for the named executive officers was designed to:

 

·

attract, retain and motivate highly qualified executives;

·

pay for performance by linking a significant proportion of an executive’s compensation to his or her overall individual contribution to Farmer Mac’s growth and to the achievement of pre-established performance goals; and

·

align the interests of executives with the interests of stockholders.

 

This Compensation Discussion and Analysis provides an overview of our executive compensation program, including:

 

·

the general compensation principles and objectives of our executive compensation program;

·

the material elements of our executive compensation program and the process we use for making executive compensation decisions; and

·

information about the 2009 compensation earned by the following officers (the “named executive officers”):

 

o

Michael A. Gerber, President and Chief Executive Officer (effective March 1, 2009 and Acting President and CEO prior to that date);

o

Tom D. Stenson, Executive Vice President and Chief Operating Officer;

o

Timothy L. Buzby, Vice President – Chief Financial Officer (effective April 2, 2009 and Vice President – Controller and Acting Treasurer prior to that date);

o

Jerome G. Oslick, Vice President – General Counsel;

o

Mary K. Waters, Vice President – Corporate Relations; and

o

William T. Sandalls, Jr., Acting CFO through March 31, 2009.

 

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In 2009, executive compensation at Farmer Mac was designed so that compensation levels are consistent with levels required to attract and retain the talent needed to execute Farmer Mac’s mission.  The Committee strives to balance a moderate base salary with the opportunity for the executives to realize value in the form of annual and long-term incentives.  The Committee is keenly aware of the need to discourage excessive risk taking by its executives while rewarding growth in stockholder value and believes that the Corporation’s current programs strike an appropriate balance.

For each named executive officer other than the president and chief executive officer, the Committee considered recommendations of the chief executive officer in addition to the above-described factors.

The total compensation package for officers consists of the following elements, provided with a view to offering a balanced compensation package:

 

·

base salary;

·

annual cash incentive pay;

·

long-term non-cash incentive pay; and

·

retirement and other benefits, most of which are similarly provided to all other full-time employees.

On September 30, 2008, the Board appointed Mr. Gerber as Acting President and Chief Executive Officer, during which time Mr. Gerber continued to serve as Chief Executive Officer of Farm Credit of Western New York (“FCWNY”), an Association in the Farm Credit System.  On October 1, 2008, the Board appointed Mr. Buzby as Acting Treasurer.  On October 20, 2008, Farmer Mac entered into a consulting agreement with Mr. Sandalls under which he agreed to serve as Acting Chief Financial Officer through March 31, 2009.  On April 2, 2009, the Board appointed Mr. Buzby as Vice President – Chief Financial Officer.

Farmer Mac entered into a Secondment Agreement with FCWNY to reimburse FCWNY for the full costs (other than long-term incentive compensation), including salary, short-term incentive compensation, medical, disability and life insurance and automobile allowance, of Mr. Gerber’s employment during the time he served as Farmer Mac’s Acting President and Chief Executive Officer.  Under Mr. Sandalls’ contract, Farmer Mac paid Mr. Sandalls an annual amount equal to the base salary of the previous Chief Financial Officer.  Farmer Mac also paid for temporary housing costs in the District of Columbia for both Mr. Gerber and Mr. Sandalls and reimbursed the acting executive officers for living and travel expenses.

Benchmarking, Peer Groups, Market Posture and Compensation Philosophy

Farmer Mac was created by Congress to establish a secondary market for agricultural and rural housing mortgages and rural utilities loans that would increase the availability of credit for agricultural producers and rural utilities, provide greater liquidity and lending capacity for agricultural and rural lenders and facilitate intermediate- and long-term agricultural and rural funding.

From the outset, Farmer Mac’s Board of Directors and its Compensation Committee recognized that the accomplishment of Farmer Mac’s mission would require that it attract, retain and motivate highly qualified personnel capable of addressing the tasks necessary to develop and operate a secondary market for agricultural mortgage and rural utilities loans where none had previously existed, and to persevere in their efforts through what would include difficult and uncertain years.  The Board believes this approach continues to be sound, as Farmer Mac must compete in the general market for the services of individuals with the education, experience and prior achievements necessary to enhance the financial results and safety and soundness of Farmer Mac’s expanding and increasingly complex operations.

 

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Accordingly, the Board and the Committee undertook to compensate Farmer Mac’s named executive officers in a manner consistent with compensation for executives in other comparable businesses that involve similar duties and responsibilities.  The compensation program is designed to enable Farmer Mac to attract and retain this caliber of talent.

Given Famer Mac’s unique situation as a government-sponsored enterprise that is regulated by the Farm Credit Administration, yet is also a publicly traded financial services institution, it is difficult to find truly comparable employees.  The Committee worked with Mercer to identify a blend of comparably sized publicly-traded financial service institutions and mission-focused cooperative financial institutions.  The Committee and Mercer looked for organizations that were one-half to twice the size of Farmer Mac and that had comparable business models or missions. The result is a peer group that includes regional banks, Farm Credit System institutions, and other financially oriented cooperatives.  The peer group used for determining the competitive market is:

·

U.S. AgBank, FCB

·

Peoples’ United Financial, Inc.

·

Webster Financial Corporation

·

National Rural Utilities Cooperative Finance Corporation

·

Farm Credit Bank of Texas

·

Flagstar Bancorp, Inc.

·

MGIC Investment Corporation

·

Radian Group Inc.

·

United Bankshares, Inc.

·

Provident Financial Services, Inc.

·

Investors Bancorp, Inc.

·

Iberiabank Corporation

·

PMI Group, Inc.

In addition to the above peers, the Committee reviewed compensation at organizations that it deemed to be illustrative of potential sources for talent in the future.  These organizations may not have met the criteria to be considered peers and were not used to determine the competitive market for Farmer Mac executives.  Instead, these organizations were studied to enable the Committee to understand the competitive position of the Farmer Mac compensation programs relative to the illustrative organizations.  The organizations that were included in this analysis were:

·

AgriBank, FCB

·

CoBank, ACB

·

AgFirst Farm Credit Bank

·

Federal Home Loan Banks of:

o

Atlanta

o

Boston

o

Chicago

o

Cincinnati

o

Dallas

o

Des Moines

o

Indianapolis

o

New York

o

Pittsburgh

o

San Francisco

 

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o

Seattle

o

Topeka

·

Federal Home Loan Bank Office of Finance, Washington, D.C.

Additionally, Mercer conducted a market pricing analysis by collecting survey market data for each executive using published survey data.  In collecting the data, Mercer considered Farmer Mac’s asset size, targeting organizations with assets one-half to twice those of Farmer Mac. The survey analysis was supplemental to the peer group analysis and provided a broader industry perspective on compensation. Data was collected from:

·

Mercer: 2008 US Global Premium Executive Remuneration Suite

·

Watson Wyatt Data Services: 2008/2009 Industry Report on Top Management Compensation

The Committee’s compensation philosophy is to position pay consistent with the individual’s experience, tenure and performance.  The target market position for base salary is the market median of peers.  However, this may vary by individual named executive officer given the person’s experience, tenure and performance.  Similarly, the objective is to set compensation aligned with the 50th percentile of peer compensation through a combination of annual and long-term performance incentives, while providing the executives with the opportunity to achieve higher compensation levels, if merited.  The targets under the annual incentive plan are established each year and seek to balance asset and earnings growth and risk management.

For 2009, the Committee established four targets to quantify these measures.  They included:

·

Amount of Core Earnings

·

New Total Mission Volume

·

Delinquency Rate and

·

Net Charge-offs

For 2010, the Committee established four targets to quantify these measures.  They include:

·

Net Program Volume Growth over prior year

·

Increase in Core Earnings over prior year

·

Adversely Classified Assets as a Percentage of Risk Funds

·

Net Charge-offs

Each of these goals is measured at business plan year-end.  Through June 2009, Farmer Mac’s business plan year ended on June 30.  In a transition to a calendar year business plan year in 2009, Farmer Mac had a “transition” business plan year from July 1 through December 31, 2009.  Therefore, the named executive officers were eligible to receive two annual incentive compensation payments with respect to 2009, one for the July 1, 2008 through June 30, 2009 business plan year and another for the transition business plan year, which amounts were pro-rated.  Each goal is given a weighting based on the expectations of the Committee and thresholds are established within each goal to determine the actual levels of attainment necessary for payout.  While it is always a challenge to narrow down the results to a small number of measures, these measures were chosen because they most closely represent the business goals established by the Board and management for each year and balancing the need for mission growth, earnings and disciplined underwriting.

 

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For the long-term incentives, grants are awarded in the form of both stock appreciation rights (“SARs”) and performance-vested restricted stock, with the value of each being approximately equal.  The Committee firmly believes that the grants of SARs link the executives’ long-term incentive compensation to the interests of investors in Farmer Mac.  SARs only have realizable value to the extent that the stockholders have received an increase in value over the period that the SARs vest.  The SARs vest ratably in installments over three years.  The restricted stock grants have been linked to Farmer Mac’s performance so that they only vest at the end of approximately three years if certain long-term performance targets are achieved.  The performance targets were developed with an eye toward balancing the need for growth with the need to manage risk.  Said another way, the performance vesting targets were established to reward responsible growth.  The vesting targets established for the 2009 grants of restricted stock are:

 

·

With respect to 50% of the restricted stock grant, an annual compounded growth rate of 5% in outstanding guarantees, loans and commitments from the period starting on April 30, 2009 until December 31, 2011, measured at those two dates; and

·

With respect to 50% of the restricted stock grant:

o

An annual rate of net charge offs to the average balance of outstanding guarantees, loans and commitments equal to or less than 20 basis points for the period from June 1, 2009 to December 31, 2011, measured at those two dates; and

o

The average percentage of total non-performing assets (exclusive of delinquencies of not more than 90 days) to guarantees, loans and commitments of not greater than 2.5% from June 1, 2009 to December 31, 2011.

Compensation Elements

The purpose of each element of the pay program is discussed in more detail below.

Base Salary.  Base salary was paid to provide current and prospective executives with a predictable core amount of compensation, regardless of our financial results, so long as they perform their duties in a competent, professional manner.  This pay element was set at a level that, by itself, would provide executives with a level of financial security commensurate with the competitive market, but not at a level expected to be adequate alone to retain executives or motivate outstanding performance.

Base salary is reviewed annually by the Committee each February, at the end of the calendar business plan year, as well as at the time of executive promotions or other changes in responsibilities.  Increases in salary normally take effect on January 1, and did so in 2010 (there were no salary increases in 2009 that were not tied to the assumption of a new position).

The Committee recommended to the Board the 2009 base salary for the chief executive officer and determined the 2009 base salaries for the other named executive officers based on an evaluation of each executive’s performance, experience, level of responsibilities, level of base salary and peer group market data provided by the Committee’s consultant (Mercer).

Annual Cash Incentive Pay.  Annual cash incentive pay was provided as a means of motivating and rewarding outstanding performance by an executive against his or her short-term goals, i.e., those slated for accomplishment in the current year of the business plan.

 

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Prior to 2010, Farmer Mac awarded annual incentive compensation based on performance during the July 1 through June 30 business planning year.  In 2009, Farmer Mac transitioned from that business planning year to a calendar year business planning year, with the second half of calendar 2009 being a “stub” or transition planning year.  For the July 2008 through June 2009 planning year, each individual whose individual performance was rated 60% or higher earned varying percentages of his or her annual cash incentive pay targeted bonus, determined formulaically pursuant to the table at the top of the next page.  Farmer Mac reached or exceeded the target set forth in the “Threshold” column for “New total mission volume” and did not reach the targets set forth in the “Threshold” column for “Core earnings” or “Delinquency rate and net charge-offs” with respect to corporate performance measures during the 2008-09 planning year.  Accordingly, annual cash incentive pay for the named executive officers employed as of June 30, 2008 was awarded based on the 85.55% target level with respect to the 28% weight (23.95%) related to the achievement of the “New total mission volume” corporate performance measure.  For the second half of the 2009 planning year, Farmer Mac reached or exceeded the targets set forth in the target column for “Core earnings,” the threshold column for “Program asset volume,” and the maximum column for “net charge-offs.”  The threshold level was not met for “Delinquency rate” in the second half of 2009.  When combined, the level of incentive achieved for the second half of 2009 before taking into account personal performance was 62.9%.  Each of those calculations was then multiplied by each officer’s Committee established personal annual incentive compensation percentage to arrive at the final annual incentive compensation payment for each named executive officer.  Annual incentive compensation payments with respect to the 2008-09 business plan year were paid in July 2009; the annual incentive payments for the second half of 2009 were paid in April 2010.

In measuring performance against defined levels based upon business plan objectives and results, the Committee made comparisons to performance criteria established by the Board and management in the business plan.  In addition, individual performance (total 30% weight) was assessed in three categories:

 

·

Accountabilities – How well the incumbent performed the principal day-to-day accountabilities of the position.  All officers are responsible for maintaining appropriate internal controls in their areas.

 

·

Problem Handling – How well the incumbent handled or responded to problems and unplanned or changed assignments, projects, conditions and other similar situations.

 

·

Managerial Skills – An assessment of managerial skills, including forecasting, budgeting, establishing and implementing appropriate policies and procedures, interaction, teamwork and communication.

 

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For the 2008-09 business plan year, each individual whose individual performance was rated 60% or higher earned varying percentages of his or her annual cash incentive pay targeted bonus, determined formulaically pursuant to the following table:

 

Measure

Weight

Threshold (Pays 50%)

Target (Pays 100%)

Maximum (Pays 200%)

Result

Core earnings

28

%

75% of Business Plan

100% of Business Plan

20% payout above 100% of Business Plan up to additional 100% of bonus

Did not reach Threshold

New total mission volume

28

%

$2.3 billion

$3.1 billion

$6.0 billion

$2.8 billion Paid 23.95%

Delinquency rate and net charge-offs

14

%

<0.75% 90-day delinquencies Net charge-offs .02% of average unpaid principal balance

<0.4% 90-day delinquencies Net charge-offs .01% of average unpaid principal balance

<0.15% 90-day delinquencies Net charge-offs = 0

Did not reach Threshold

Individual rating

30

%

Rating of 60%

Rating of 80%

Rating of 100%

Total

100

%

 

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For the second half 2009 transition business plan year, each individual whose individual performance was rated 60% or higher earned varying percentages of his or her targeted bonus, determined formulaically pursuant to the following table:

Measure

Weight

Threshold (Pays 50%)

Target (Pays 100%)

Maximum (Pays 200%)

Result

Core earnings

28

%

$5.0 million

$10.0 million

$15 million

$10.8 million Paid 30.2%

Program asset volume

28

%

$10.6 billion

$10.9 billion

$11.1 billion

$10.7 billion Paid 18.7%

Delinquency rate and net charge-offs

7

%

<0.75% 90-day delinquencies;

<0.4% 90-day delinquencies;

<0.15% 90-day delinquencies;

Did not reach Threshold

7

%

Net charge-offs <= 0.03% of average unpaid principal balance ($3.2 million)

Net charge-offs <= 0.02% of average unpaid principal balance ($2.2 million)

Net charge-offs <= 0.01% ($1.1 million)

$530,000 Paid 14.0%

Individual rating

30

%

Rating of 60%

Rating of 80%

Rating of 100%

Total

100

%

For the second half of 2009, no annual incentive compensation would have been paid if the following conditions had not all been met:

·

Farmer Mac was in compliance with its capital requirements at each measurement;

·

Earnings after dividends was sufficient to pay the incentive compensation; and

·

Farmer Mac was not under any regulatory enforcement action.

In both the 2008-09 and transition second half of 2009 business plan years, performance between any two of the target points was interpolated on a straight-line basis.  The Board retains discretion to award no annual cash incentive pay in appropriate circumstances regardless of the achievement of corporate performance targets.

 

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For the calendar 2010 business plan year, each individual will earn varying percentages of his or her targeted bonus, determined formulaically pursuant to the following table:

Measure		Weight				Threshold (Pays 50%)				Target (Pays 100%)				Maximum (Pays 200%)
Core earnings			30	%		5% increase over 2009				10% increase over 2009				15% increase over 2009
Program asset volume			30	%		5% increase				10% increase				15% increase
Adversely Classified Assets/Risk Funds (permanent capital plus allowance for loss)			20	%			100	%			60	%			40	%
Net charge-offs as a percentage of total on and off balance sheet assets			20	%			0.12	%			0.08	%			0.05	%
Total			100	%

For 2010, no annual incentive compensation will be paid unless all three of the following criteria are met:

·

Farmer Mac has positive core earnings of at least $5.0 million after the allowance for losses and preferred stock dividends;

·

Farmer Mac is in compliance with the risk-based capital standards and has an excess of at least $90 million above the statutory minimum capital requirement; and

·

There is no regulatory enforcement action taken against Farmer Mac.

Long-Term Incentive Pay.  Long-term incentive pay, in the form of at-the-market SARs and performance-based restricted stock grants in 2009, was meant as a means of paying for performance and aligning the interests of executive officers with the interests of stockholders.  Market-level grants also serve to retain executives in our employ over the longer term.

In 2009, SARs awards to officers were made at the Board meeting held in conjunction with the Annual Meeting of Stockholders, and the exercise price is the closing price on the date of award.  The restricted stock grants to officers were also made at the Board meeting held in conjunction with the Annual Meeting of Stockholders.  In setting the 2009 stock awards, the Committee acknowledged that the stock price had significantly dropped in value.  However, the Committee did not feel that grants for the year should be calculated based on value thereby giving management larger numbers of SARs to achieve the same economic value.  In determining the equity awards, the Committee determined a reasonable number of shares that was less than in prior years and then tested the economic value of the awards against the market to confirm reasonableness.  The restricted stock granted to officers in 2009 vests on March 31, 2012, subject to Farmer Mac’s successful attainment of the performance targets identified on page 25.

 

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Retirement Plans.  Farmer Mac provides retirement benefits for all employees through a Money Purchase Plan, pursuant to which the Corporation annually contributes 13.2% of each employee’s base compensation up to the Social Security wage base (which in 2009 was $106,800), and 18.9% of each employee’s base compensation above the Social Security wage base, up to the compensation limit set by the Internal Revenue Service, which in 2009 was $245,000.  Farmer Mac also offers a 401(k) plan to which employees may make retirement contributions, but to which the Corporation makes no contributions.  Farmer Mac does not maintain any supplemental retirement plan for executives.

Other Benefits.  The Corporation contractually provides a term life insurance policy with a face amount approximately equal to one year’s base compensation for each of the named executive officers who currently serve as officers of Farmer Mac, as well as long-term disability insurance.  Those named permanent executive officers also participate in Farmer Mac’s other benefit plans on the same terms as other employees.  These plans include medical and dental insurance and a $50,000 group term life insurance policy.

Payments in Connection with a Change-in-Control

Farmer Mac’s statutory charter is written in a way that substantially precludes any change-in-control through voting rights associated with its Class A and B voting common stock.  Accordingly, no provision is made for payments to named executive officers in connection with any change-in-control.

Post-Employment Compensation

Messrs. Gerber, Buzby and Stenson have employment agreements that provide for severance payments in the event the contracts are terminated by Farmer Mac other than for cause.  These termination provisions are described in “Compensation of Executive Officers — Potential Payments upon Termination (Employment Agreements with Officers)” and are included in the contracts because they are typically included in similar agreements among peers and are beneficial retention provisions.

Impact of Accounting and Tax Treatment on Compensation Awards

Section 162(m) of the Internal Revenue Code of 1986, as amended, places a limit of $1 million on the amount of compensation that the Corporation may deduct in any one year with respect to each of its five most highly paid executive officers.  There is an exception to the limitation for “performance-based compensation” meeting certain requirements.  There was no Section 162(m) impact on payments to any named executive officer made in respect of the 2009 tax year.

Farmer Mac has not historically taken into consideration the impact of the accounting treatment of compensation to named executive officers in determining their compensation.  Farmer Mac’s compensation program does, however, discount the impact of SFAS 133 and SFAS 123(R) in the determination of income for compensation purposes.

Farmer Mac’s Policies Regarding Stock Ownership and Trading

Farmer Mac has no policies that require a particular level of stock ownership by named executive officers.  Farmer Mac has a policy on insider trading by all directors and employees, including named executive officers, that requires compliance with securities laws and Farmer Mac policies on insider trading (including “windows” for sale of stock and the adoption of Rule 10b5-1 plans) and prohibits trading in options on Farmer Mac securities.

 

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Compensation Consultant Fees

Compensation Committee.

Mercer billed Farmer Mac an aggregate $204,912 for 2009 for professional services rendered for the Compensation Committee.

Other Work.

In 2009, Mercer billed Farmer Mac $985 for evaluations of two non-officer positions, work that was not pre-approved by the Compensation Committee.

Compensation Committee Pre-Approval Policies

Commencing in 2010, the Compensation Committee considers and pre-approves, as appropriate, all permissible non-Committee contracted-for services provided by the Committee’s compensation consultant prior to the Corporation’s engagement of the compensation consultant with respect to such services.

— Compensation Committee Report

Notwithstanding anything to the contrary set forth in any of Farmer Mac’s documents with respect to the offer or sale of securities (“Offering Circulars”) or any previous corporate filings under the Securities Act or the Exchange Act, the Compensation Committee Report on Executive Compensation will not be deemed to be incorporated by reference into any Offering Circular or any filing under the Securities Act or the Exchange Act, except to the extent Farmer Mac specifically incorporates such information by reference, and will not otherwise be deemed to have been or to be filed under such Acts.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained herein with management, and, based on that review and discussion, has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Annual Report.

Compensation Committee

Dennis L. Brack, Chairman	Ernest M. Hodges
Mitchell A. Johnson	Lowell L. Junkins
Glen O. Klippenstein	John Dan Raines

 

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— Compensation Committee Interlocks and Insider Participation

Directors Brack, Hodges, Johnson, Junkins, Klippenstein and Raines comprise Farmer Mac’s Compensation Committee.  None of these directors is, or has been, a Farmer Mac officer or employee, and none had any relationship requiring disclosure by Farmer Mac as a “related person transaction” under SEC rules.  None of Farmer Mac’s executive officers serves, or has served, as a member of the Board or the Compensation Committee or as a director of another SEC-reporting entity, except for Michael Gerber.  Mr. Gerber, who was member of the Board from June 7, 2007 through February 28, 2009, was Acting President and Chief Executive Officer of the Corporation from September 30, 2008 through February 28, 2009 and since then has been President and Chief Executive Officer.

—Compensation of Executive Officers

Summary Compensation Table

The following table sets forth certain information with respect to the compensation awarded to, earned by, or paid to Farmer Mac’s chief executive officer, chief financial officer and each of Farmer Mac’s five other most highly compensated executive officers (the “named executive officers”) for the fiscal year ended December 31, 2009.

 

 

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36

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The following table sets forth certain information relating to restricted stock previously granted to the named executive officers as of December 31, 2009.

Name		Number of Unvested Shares of Restricted Stock Unexercisable				Market Value of Unvested Shares of Restricted Stock				Vesting Date1
Michael A. Gerber			25,000			$	175,250			March 31, 2012
William T. Sandalls, Jr.			—				—				—
Tom D. Stenson			20,000				140,200			March 31, 2012
Timothy L. Buzby			20,000				140,200			March 31, 2012
Jerome G. Oslick			10,000				70,100			March 31, 2012
Mary K. Waters			7,500				53,250				N/A	2

__________________________

1 With respect to 50% of the restricted stock grant, an annual compounded growth rate of 5% in outstanding guarantees, loans and commitments from the period starting on May 1, 2009 until December 31, 2011, measured at those two dates; and

With respect to 50% of the restricted stock grant:

•

An annual rate of net charge offs to the average balance of outstanding guarantees, loans and commitments equal to or less than 20 basis points for the period from May 1, 2009 to December 31, 2011, measured at those two dates; and

•

The average percentage of total non-performing assets (exclusive of delinquencies of not more than 90 days) to guarantees, loans and commitments of not greater than 2.5% from May 1, 2009 to December 31, 2011.

2 Ms. Waters resigned her position as an executive officer prior to her restricted stock vesting.

Option and SAR Exercises

None of the named executive officers exercised any stock options or SARs in 2009.

 

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Equity Compensation Plans

The following table sets forth certain information relating to compensation plans under which equity securities are authorized to be issued as of December 31, 2009.

Plan category		Number of securities to be issued upon exercise of outstanding options, SARs or restricted stock				Weighted average exercise price of outstanding options (per share)				Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans not approved by stockholders			1,404,861			$	25.68				-0-
Equity compensation plans approved by stockholders			595,152			$	7.94				1,400,928

2008 Plan.  In 2008, the Board adopted, and the voting stockholders approved, the 2008 Omnibus Incentive Plan (the “2008 Plan”), a broad-based incentive compensation plan for directors, officers and non-officer employees.  Subject to adjustment, the total number of shares of common stock reserved and available for delivery pursuant to awards under the Plan will be: (1) 1,500,000 shares of common stock; plus (2) any shares subject to outstanding awards under the 1997 Plan that cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares) up to an aggregate maximum of 1,000,000 shares.  Under the 2008 Plan, no participant may be granted stock option awards relating to more than 300,000 shares of common stock during any calendar year, and may be granted no more than 150,000 shares each of restricted stock, performance shares, performance units or other stock-based awards.  The maximum aggregate amount awarded or credited with respect to cash-based awards to any one participant in any one plan year may not exceed the value of $2,000,000 determined as of the date of vesting or payout, as applicable.

The terms of the 2008 Plan are intended to, among other things, permit the Compensation Committee to impose performance goals with respect to any award, thereby requiring forfeiture of all or part of any award if such performance goals are not met, or linking the time or amount of exercisability, vesting, payment or settlement of an award to the achievement of performance goals.  The 2008 Plan provides that the performance goals will be based on certain specified business criteria which are intended to encompass a wide range of financial and operational activities of the Corporation on a consolidated basis and/or for specified subsidiaries or business units of the Corporation.  For example, the business criteria used by the Committee in establishing the performance goals for such awards includes, but is not limited to:

(a)

Net earnings or net income (before or after taxes, the impact of changes in the fair value of derivatives, stock plan expenses, yield maintenance and/or loan losses) or any other measure that uses all or part of such components;

 

(b)

Earnings per share;

 

(c)

Revenues or mission volume or growth therein;

 

(d)

Net operating profit;

 

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(e)

Return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue);

 

(f)

Cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment);

 

(g)

Earnings before or after taxes, interest, depreciation, and/or amortization;

 

(h)

Gross or operating margins;

 

(i)

Productivity ratios;

 

(j)

Share price (including, but not limited to, growth measures and total shareholder return);

 

(k)

Expense targets;

 

(l)

Margins;

 

(m)

Operating efficiency;

 

(n)

Market share;

 

(o)

Customer satisfaction;

 

(p)

Working capital targets;

 

(q)

Delinquency rate;

 

(r)

Net charge-offs; and

 

(s)

Economic value added or EVA (net operating profit after tax minus the sum of capital multiplied by the cost of capital).

Any performance measure(s) may be used to measure the performance of the Corporation as a whole or any business unit of the Corporation, or any combination thereof, as the Compensation Committee may deem appropriate, or any of the above performance measures as compared to the performance of a group of comparator companies, or published or special index that the Compensation Committee, in its sole discretion, deems appropriate, or the Corporation may select performance measure (j) above as compared to various stock market indices. The Compensation Committee also has the authority to provide for accelerated vesting of any award based on the achievement of performance goals pursuant to the performance measures.

Performance goals may differ for awards to different participants.  The Compensation Committee will specify the weighting to be given to each business criterion for purposes of determining the final amount payable with respect to an award.  All determinations by the Compensation Committee as to the attainment of performance goals will be in writing.  The Compensation Committee may not delegate any responsibility with respect to an award that is intended to qualify as “performance-based compensation” under Internal Revenue Code section 162(m).

As of December 31, 2009, SARs covering 394,604 shares (net of cancellations) and 200,548 shares of restricted stock had been granted under the 2008 Plan and 496,080 options granted under the 1997 Plan were cancelled and added to shares available under the 2008 Plan in 2009, leaving 1,400,928 shares of Class C Non-Voting Common Stock available for future issuance of grants under the 2008 Plan as of that date.  SARs granted under the 2008 Plan during 2009 have exercise prices ranging from $5.93 to $7.78 per share.

 

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1997 Plan.  In 1997, the Board adopted the 1997 Incentive Plan (the “1997 Plan”), a broad-based option plan for directors, officers and non-officer employees.  The 1997 Plan, as amended, provides for the issuance of a maximum of 3,750,000 nonqualified stock options on Class C Non-Voting Common Stock at an option price determined as of the grant date, with a term of not more than 10 years from such date.  The 1997 Plan provides for the automatic annual grant to directors of five-year options to purchase 6,000 (split-adjusted) shares of Class C Non-Voting Common Stock, with each grant to occur on the day of the Annual Meeting of Stockholders, with the option price to be determined as of such day.  Through 2003, options granted under the 1997 Plan vested one-third on the date of grant, one-third the following year and one-third the second following year.  Beginning in 2004, options granted under the 1997 Plan generally vest one-third in each of the first three years following the date of option grant.  The Board and management have determined that granting options to qualified non-officer employees would promote a sense of corporate ownership in the best interest of the Corporation.  Accordingly, the 1997 Plan permits the grant of options to all employees (not just officers) based on their annual evaluations and to newly-hired employees.

If an option holder’s employment with Farmer Mac terminates for any reason, including by reason of retirement, the option holder’s rights to exercise any option under the 1997 Plan terminate on the earlier of the option expiration date or 90 days after termination (one year in the case of death or disability).  Upon a termination for “cause,” the options expire immediately.  Following the termination of a director’s service, vested options will remain exercisable until the earlier of the option expiration date or two years following termination.  The 1997 Plan also provides for accelerated vesting of unvested options in the event of an option holder’s death or disability.

As of December 31, 2009, options covering 3,748,997 shares (net of cancellations) were granted under the 1997 Plan, of which 1,404,861 remain outstanding.  As of December 31, 2009, no shares of Class C Non-Voting Common Stock remained available for future issuance of option grants under the 1997 Plan.

Potential Payments upon Termination (Employment Agreements with Officers)

The Corporation has entered into employment agreements (each an “Agreement,” collectively, the “Agreements”) with members of senior management (for purposes of this section, the “officers”), including the named executive officers who currently serve as officers of Farmer Mac other than Mr. Oslick, in order to provide them with a reasonable level of job security, while limiting the Corporation’s ultimate financial exposure.  Significant terms of the Agreements address each officer’s scope of authority and employment, base salary and incentive compensation, benefits, conditions of employment, termination of employment and the term of employment.  Although the Agreements generally expire on dates approximately three to four years from their execution, the Corporation’s exposure to severance pay and other costs of termination are capped on the basis of the lesser of two years (eighteen months in the case of dissolution) or the remaining term of each Agreement.  The Agreements with Messrs. Buzby and Stenson expire on July 1, 2012; the Agreement with Mr. Gerber expires on July 1, 2011.

Under the Agreements, the officers are entitled to a base salary and discretionary incentive compensation.  Base compensation for all officers is paid bi-weekly over the course of each year.  The current base salaries for the four named executive officers who currently serve as officers of Farmer Mac are: Mr. Gerber, $550,000; Mr. Buzby, $340,000; Mr. Oslick, $295,619; and Mr. Stenson, $384,402.  Awards of incentive compensation are considered annually at the end of the calendar year and are determined and payable under the circumstances discussed above in “Compensation Discussion and Analysis.”

 

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The Agreements provide that each officer is entitled to certain benefits, such as disability insurance, health insurance, dental insurance and life insurance which, with respect to disability and life insurance, are above the levels provided to employees generally.  Mr. Oslick receives benefits comparable to those provided for in the Agreements.  See the Summary Compensation Table for information on other benefits extended to the named executive officers.

Mr. Gerber’s Agreement also provides that if his employment is terminated other than “for cause” he will be paid severance in the amount of twice his base salary.  The Agreements of the other officers provide that an officer’s employment may be terminated “without cause” upon payment of severance pay consisting of all base salary scheduled to be paid over the lesser of the remaining term of the Agreement or two years.  If the Board of Directors adopts a resolution authorizing a dissolution of the Corporation, the Agreements also may be terminated upon payment of severance pay consisting of all base salary scheduled to be paid until the later of the final date of dissolution or one and one-half years following the effective date of the dissolution.  Upon termination of employment due to an officer’s death or disability, the officer will generally be entitled to benefits on the same basis as “without cause”; however, the Corporation’s obligations in such instances are substantially covered by insurance.  The Agreements may be terminated by Farmer Mac for cause, in which event the officer will be paid only accrued compensation to the date of termination.

The following table shows the total that would be payable to the current named executive officers who currently are officers of Farmer Mac in the event of a termination without cause.

Name		Termination Payment
Michael A. Gerber		$	1,100,000
Tom D. Stenson			768,804
Timothy L. Buzby			680,000
Jerome G. Oslick			N/A

 

— Certain Relationships and Related Person Transactions

Review of Related Person Transactions

The Board of Directors has adopted a written Related Person Transactions Approval Policy that is administered by the Corporate Governance Committee.  This policy applies to any transaction or series of transactions in which Farmer Mac is a participant, the amount involved exceeds $120,000 and a “related person” has a direct or indirect material interest.  The policy requires each director or executive officer involved in such a transaction to notify the General Counsel of each such transaction.  Farmer Mac reviews all relationships and transactions in which the Corporation and its directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest.  The Corporation’s legal staff is primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions.  Under the policy, the General Counsel will determine whether a transaction meets the requirements of a “related person transaction” requiring review by the Corporate Governance Committee.  Transactions that fall within this definition will be referred to the Committee for approval, ratification or other action.  Based on its consideration of all of the relevant facts and circumstances, the Corporate Governance Committee will decide whether or not to approve the transaction and will approve only those transactions that are in the best interests of the Corporation.  If the Corporation becomes aware of an existing related persons transaction that has not been approved under this policy, the matter will be referred to the Corporate Governance Committee, which will then evaluate all options available, including ratification, revision or termination of the transaction.  A related person transaction entered into without the Committee’s pre-approval will not violate this policy, or be invalid or unenforceable, so long as the transaction is brought to the Committee as promptly as reasonably practical after it is entered into or after it becomes reasonably apparent that the transaction is covered by this policy.  Transactions that are determined to be directly or indirectly material to Farmer Mac or a related person are disclosed in the Corporation’s Proxy Statement as required under SEC rules.

 

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Transactions with Related Persons in 2009

From time to time, Farmer Mac purchases or commits to purchase qualified loans, USDA-guaranteed portions or AgVantage® securities from, or enters into other business relationships with, institutions that own 5% or more of a class of Farmer Mac’s Voting Common Stock or that have an officer or director who is also a member of Farmer Mac’s Board of Directors.  These transactions are conducted in the ordinary course of business, with terms and conditions comparable to those applicable to entities unaffiliated with Farmer Mac.  To the extent such transactions involve indebtedness issued by the related person, those transactions were made on substantially the same terms as those prevailing at the time for comparable loans with persons not related to Farmer Mac and did not involve more than the normal risk of collectability or present other unfavorable features.  Although Farmer Mac entered into transactions with related persons in 2009, it was determined that none of those transactions resulted in a related person having a direct or indirect material interest that would require disclosure as a “related person transaction” under SEC rules.  For additional information about transactions between Farmer Mac and related persons, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations ─ Results of Operations ─ Related Party Transactions” and Note 3 in Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item No. 2:  Selection of Independent Auditors

The By-Laws of the Corporation provide that the Audit Committee shall select the Corporation’s independent auditors “annually in advance of the Annual Meeting of Stockholders and [that selection] shall be submitted for ratification or rejection at such meeting.”  In addition, the Audit Committee reviews the scope and results of the audits, the accounting principles being applied and the effectiveness of internal controls.  The Audit Committee also ensures that management fulfills its responsibilities in the preparation of the Corporation’s financial statements.  During the fiscal year ended December 31, 2009, the Audit Committee, which is composed of Messrs. Raines (Chairman), Engebretsen, Jackson and Maxwell and Ms. Bartling, met ten times.

In accordance with the By-Laws, the Audit Committee has unanimously selected and recommended to the stockholders PricewaterhouseCoopers LLP as the Corporation’s independent auditors for the fiscal year ending December 31, 2010.  This proposal is put before the stockholders as provided in the By-Laws and in conformity with the current practice of seeking stockholder approval of the selection of independent auditors.  The ratification of the appointment of PricewaterhouseCoopers LLP as the Corporation’s independent public accountants requires the affirmative vote of a majority of the shares represented in person or by proxy at the Meeting and entitled to be voted.  Representatives of PricewaterhouseCoopers LLP are expected to attend the Meeting.  They will have the opportunity to make a statement if they desire to do so and will be available to answer appropriate questions from stockholders present at the Meeting.

 

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PricewaterhouseCoopers LLP was selected to replace Deloitte & Touche LLP as the Corporation’s independent auditors on March 30, 2010.  Deloitte & Touche LLP had acted as the Corporation’s independent auditors in connection with the Corporation’s audited financial statements for the fiscal years ended December 31, 2002 through 2009.  The decision to retain PricewaterhouseCoopers LLP and not to rehire Deloitte & Touche LLP was recommended by the Audit Committee based upon proposals received from four major accounting firms, including Deloitte & Touche LLP, and was not based upon any disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope of procedure and there have been no such disagreements with Deloitte & Touche LLP.  Deloitte & Touche LLP’s reports on Farmer Mac’s financial statements for the previous two years contained no adverse opinion or disclaimer of an opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except to make reference to Farmer Mac’s adoption of the following accounting standards:  Accounting for Uncertainty in Income Taxes, as of January 1, 2007; and Fair Value Measurements and The Fair Value Option for Financial Assets and Financial Liabilities, on January 1, 2008.  No representative of Deloitte & Touche LLP is expected to attend the Meeting.

The Board of Directors recommends a vote FOR the proposal to ratify the selection of PricewaterhouseCoopers LLP as independent auditors for the Federal Agricultural Mortgage Corporation for 2010.  Proxies solicited by the Board of Directors will be so voted unless holders of the Corporation’s Voting Common Stock specify to the contrary on their proxies, or unless authority to vote is withheld.

Audit Fees

Deloitte & Touche LLP billed Farmer Mac an aggregate $1,493,500 and $1,575,448 for 2009 and 2008, respectively, for professional services rendered for the audit of Farmer Mac’s annual financial statements, the audit of management’s assessment of the effectiveness of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and the reviews of the financial statements included in Farmer Mac’s quarterly reports on Form 10-Q.

Audit-Related Fees

Deloitte & Touche LLP billed Farmer Mac an aggregate $536,753 and $222,772 for 2009 and 2008, respectively, for the issuance of comfort letters, various accounting consultations and other technical issues for assurance and related services that were reasonably related to the performance of the audit of Farmer Mac’s annual financial statements and the reviews of the financial statements included in Farmer Mac’s quarterly reports on Form 10-Q and not reported in “Audit Fees” above.

Tax Fees

Deloitte & Touche LLP billed Farmer Mac an aggregate $40,056 and $59,612 for 2009 and 2008, respectively, for professional services rendered for tax compliance, tax advice and tax planning.

All Other Fees

Deloitte & Touche LLP billed Farmer Mac an aggregate $3,701 for 2008 for fees other than the audit and review fees, audit-related fees and tax fees referred to above.  There were no fees billed for these items for 2009.

 

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Audit Committee Pre-Approval Policies

Pursuant to the Audit Committee Charter and consistent with SEC policies regarding auditor independence, the Audit Committee considers and pre-approves, as appropriate, all auditing and permissible non-auditing services provided by Farmer Mac’s independent auditor prior to the engagement of the independent auditors with respect to such services.  One hundred percent of the services provided by Deloitte & Touche LLP in 2008 and 2009 were pre-approved by the Audit Committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Farmer Mac’s officers and directors, and persons who beneficially own more than 10% of a registered class of Farmer Mac’s equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.  Officers, directors and owners of more than 10% of Farmer Mac stock are required by SEC regulation to furnish Farmer Mac with copies of all Forms 3, 4 and 5 filed.

Based solely on Farmer Mac’s review of its corporate records, which include copies of forms it has received, and written representations from certain reporting persons that they were not required to file a Form 5 for specified fiscal years, Farmer Mac believes that all of its officers, directors and beneficial owners of greater than 10% of any class of equity securities complied with all Section 16(a) filing requirements and timely filed all reports applicable to them for transactions during 2009.

 

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Principal Holders of Voting Common Stock

To Farmer Mac’s knowledge, as of the date of this Proxy Statement, the following institutions are the beneficial owners of either (i) 5% or more of the outstanding shares of Farmer Mac’s Class A Voting Common Stock or Class B Voting Common Stock, or (ii) 5% or more of the total number of outstanding shares of Farmer Mac’s Voting Common Stock (both Class A and Class B).

Name and Address		Number of Shares Beneficially Owned		Percent of Total Voting Shares Outstanding				Percent of Total Shares Held By Class
AgFirst Farm Credit Bank Columbia, SC  29202		84,024 shares of Class B Voting Common Stock			5.49	%			16.79	%
AgriBank, FCB1 St. Paul, MN  55101		201,621 shares of Class B Voting Common Stock			13.17	%			40.30	%
CoBank, ACB2 Greenwood Village, CO  80111		62,980 shares of Class B Voting Common Stock			4.11	%			12.59	%
Farm Credit Bank of Texas Austin, TX  78761		38,503 shares of Class B Voting Common Stock			2.52	%			7.70	%
National Rural Utilities Cooperative Finance Corporation Herndon, VA 20171-30025		79,000 shares of Class A Voting Common Stock			5.16	%			7.66	%
U.S. AgBank, FCB Wichita, KS  67201		100,273 shares of Class B Voting Common Stock			6.55	%			20.04	%
The Vanguard Group, Inc. Valley Forge, PA  19482		56,295 shares of Class A Voting Common Stock			3.68	%			5.46	%
Zions First National Bank Salt Lake City, UT  84111		322,100 shares of Class A Voting Common Stock			21.04	%			31.25	%

1 Brian J. O’Keane, currently a member of the Board of Directors and a Class B Nominee, is the Senior Vice President and Chief Financial Officer of AgriBank, FCB.

 

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Solicitation of Proxies

 

The Corporation will pay the cost of the Meeting and the costs of soliciting proxies, including the cost of mailing the proxy material.  The Corporation has retained Georgeson Inc. to act as the Corporation’s proxy solicitation firm for a fee of approximately $5,500.  In addition to solicitation by mail, employees of Georgeson Inc. may solicit proxies by telephone, electronic mail or personal interview.  Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward solicitation material to the beneficial owners of shares of Voting Common Stock held of record by them and will be reimbursed for their reasonable expenses by the Corporation.

Other Matters

 

In addition to the scheduled items of business set forth in this Proxy Statement, the enclosed proxy confers on the Proxy Committee discretionary authority to vote the shares represented thereby in accordance with its members’ best judgment with respect to all matters that may be brought before the Meeting or any adjournment or postponement thereof and matters incident to the Meeting.  The Board of Directors does not know of any other matter that may properly be presented for action at the Meeting.  If any other matters should properly come before the Meeting or any adjournment or postponement thereof, the Proxy Committee named in the accompanying proxy intends to vote such proxy in accordance with its members’ best judgment.

Upon written request, Farmer Mac will furnish, without charge, to each person whose proxy is being solicited a copy of its Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the SEC, including financial statements thereto.  Written requests should be directed to Jerome G. Oslick, Corporate Secretary, Federal Agricultural Mortgage Corporation, 1133 Twenty-First Street, N.W., Suite 600, Washington, D.C. 20036.  A copy of Farmer Mac’s most recent Form 10-K is also available on the Corporation’s website, www.farmermac.com, in the “SEC Filings” portion of the “Investors—Equity” section of the website.  Please note that all references to www.farmermac.com in this Proxy Statement are inactive textual references only and that the information contained on Farmer Mac’s website is not incorporated by reference into this Proxy Statement.

_____________________________

 

The giving of your proxy will not affect your right to vote your shares personally if you do attend the Meeting.  In any event, it is important that you complete, sign and return the enclosed proxy card promptly to ensure that your shares are voted.

	By order of the
	Board of Directors,
	Jerome G. Oslick
	Corporate Secretary

April 28, 2010

Washington, D.C.

 

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