2021 Q2 Shareholder Report

REPORT TO SHAREHOLDERS

2ND QUARTER

2021

NOTICE TO STOCKHOLDERS The shareholders’ investment in Farm Credit of Southern Colorado, ACA is materially affected by the financial condition and results of operations of CoBank, ACB (CoBank).

The 2020 CoBank Annual Report to Shareholders, and the CoBank quarterly shareholders’ reports are available free of charge by accessing CoBank’s website, www.cobank.com, or may be obtained at no charge by contacting us at:

Farm Credit of Southern Colorado, ACA 5110 Edison Avenue, PO Box 75640 Colorado Springs, Colorado 80970-5640 Phone Number: 800-815-8559

1

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) The following discussion summarizes the financial position and results of operations of Farm Credit of Southern Colorado, ACA (the Association) for the six months ended June 30, 2021, with comparisons to prior periods. The following discussion and analysis should be read in conjunction with the accompanying quarterly financial statements and related notes and our 2020 Annual Report to Shareholders. The accompanying financial statements were prepared under the oversight of our Audit Committee.

Economic and industry factors influencing agriculture and our territory during the first half of 2021 include continued stronger commodity prices, significantly improved drought conditions on the eastern plains and strong demand for rural property in our territory.

Our lending territory spans over a very diverse region of south and eastern Colorado through the southern front range and into the San Luis Valley. The various commodities include cattle, corn, wheat, and hay crops, which represent the top four commodity concentrations in our association. Cattle is our largest commodity made up primarily of cow/calf, fed cattle and stockers. Prices for various classes of beef cattle have improved over the last quarter. Spot market live cattle are up approximately $5 from $115 to $120/cwt at the end of June. Feeder cattle futures prices were also up about $3/cwt over the same period. Improved live cattle and feeder cattle futures prices translate into stronger prices for calves at the ranch. In the second quarter, cash corn prices for delivery rallied strongly on tight supplies and strong basis in our territory. Corn futures markets for harvest delivery also rallied in the second quarter with December 2021 corn up over $1.00 to $5.82/bu. Limited supplies continue to cause strong basis bids in our territory as compared to historical averages. Wheat markets continued to be volatile during the second quarter with prices up $1.59 to $7.40/bu in early May and down $1.13 to $6.27/bu by the end of June. Overall, cash wheat prices are nearly $2.00/bu. higher than this same period in 2020. Producers have had opportunities to price all grains at profitable levels during the first half of 2021. Hay prices decreased in the second quarter and in early July were in the $180 to $190/ton range. Overall, futures prices for commodities grown in our territory have provided profitable marketing opportunities during the second quarter. Stronger commodity prices will support net farm income in 2021.

Drought conditions throughout the majority of our territory improved significantly during the second quarter of 2021. All of the counties on the eastern plains have received better than average moisture and currently there are no United States Department of Agriculture (USDA) drought designations in this area. The counties along the continental divide in our western and southwestern territory continue to show USDA drought designations of Abnormally Dry (D0) to Extreme Drought (D3) with the most severe conditions in the farthest west and southern areas in our territory.

Spring storms over the past quarter have provided favorable growing conditions for the winter wheat crop as well as nearly all of the spring crops planted in our eastern plains counties. In early July, the USDA reported the winter wheat in Colorado was 52% mature and 8% harvested with 60% of the crop in good to excellent condition. Producers have started to harvest in our southeastern and eastern counties. Preliminary reports on yields are mixed, however the general sentiment is that yields will exceed historical averages.

The livestock producers in our territory were in good shape at the end of the second quarter. Drought designations have improved in all areas, especially the counties in the eastern plains. Storms in the second quarter helped to rebuild standing forage stockpiles. Generally, all classes of cattle are in good condition at this point with adequate forage availability.

Alfalfa is primarily grown in the San Luis Valley, which is in the southwest region of our territory as well as in counties along the Arkansas River throughout southeastern Colorado. Moisture during the second quarter has caused some challenges with harvesting hay in the Arkansas valley. In early July, USDA National Agricultural Statistics Service (NASS) showed 64% of the alfalfa crop was in good to excellent condition, which is in line with historical averages.

Dry conditions on the western slope and in other parts of the country are expected to support hay prices for producers this fall.

Producers continue to show relatively strong liquidity on their balance sheets as compared to the same period in previous years. This is largely the result of various agricultural program payments in 2020 and the first quarter of 2021 related to the Coronavirus Food Assistance Programs. Strong prices and yields for crops on the eastern plains will likely support this trend through the remainder of the year.

Real estate values in our territory remain stable to increasing. We continue to compete with cash for recreational mountain ranch properties, and continue to see strong demand for all types of rural property. Dry crop, pasture and irrigated land throughout our territory continue to trade at stable to increasing values.

2

The United States continues the economic recovery of the COVID-19 pandemic, with a surge in economic activity due to the combination of federal stimulus spending, increasing vaccination rates in households across the country, improving employment levels and the warm weather seasons. The economic recovery fueled by the Federal stimulus could translate into a significant increase in consumer spending and demand for goods and services that have been constrained during the pandemic. This economic recovery has been hampered by demand for goods and services running ahead of the recovery in supply as the labor-force participation is behind and the supply chains experience disruptions related to transportation and production of critical components. As growing demand has encountered supply constraints, inflation measures have risen sharply over the second quarter. In general, counties in our lending territory have returned to normal operations following the COVID-19 pandemic.

The U.S. government has continued to institute various programs in support of the COVID-19 recovery. In March 2021, Congress passed the $1.9 trillion American Rescue Plan Act designed to provide near-term help to those hurt by the pandemic. In December 2020, Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, which, among other provisions, allocated additional funding for Paycheck Protection Program (PPP) loans and allows certain existing PPP borrowers to apply for additional loans or draws on existing loans. The Association obtained approval to participate as a lender in the PPP and successfully processed PPP loans for customers before the initial round of funding for the program was depleted. As of June 30, 2021, we have worked with our customers to complete the forgiveness process for all but one of the PPP loans obtained through the initial round of funding for the program. In our continued effort to support producers through this challenging time, the association engaged World Trade Finance as a third party provider of PPP loans. World Trade Finance will fully serve our customers directly, underwriting and booking round two PPP loans along with helping customers navigate the forgiveness process.

In March 2021, the current presidential administration also proposed the $2.3 trillion American Jobs Plan intended to create jobs and rebuild the country’s infrastructure.

LOAN PORTFOLIO Loans outstanding at June 30, 2021, totaled $1.26 billion, an increase of $81.1 million, or 6.9%, from loans of $1.18 billion at December 31, 2020. The increase was due to growth in our core portfolio, primarily driven by an increase in real estate mortgage loans. This increase is partially offset by decreases in our capital markets portfolio.

RESULTS OF OPERATIONS Net income for the six months ended June 30, 2021, was $9.2 million, an increase of $1.7 million, or 22.0%, from the same period ended one year ago. The increase is primarily due to credit loss reversals coupled with an increase in net interest income and patronage from Farm Credit institutions.

For the six months ended June 30, 2021, net interest income was $15.2 million, an increase of $759 thousand, or 5.3%, compared with the six months ended June 30, 2020. Net interest income increased as a result of an increase in average accrual loan volume, partially offset by a decrease in the return on our loanable funds due to lower interest rates.

The credit loss reversal for the six months ended June 30, 2021, was $412 thousand, a decrease of $617 thousand from the provision for credit losses for the same period ended one year ago. The credit loss reversal is primarily due to improved drought conditions and an improved economic environment related to the pandemic. The provision for credit losses in the first half of 2020 was due to loan downgrades and an increase in specific reserve as a result of a capital markets loan requiring additional specific reserve.

Noninterest income increased $476 thousand during the first six months of 2021 compared with the first six months in 2020 primarily due to an increase in patronage, partially offset by the absence of a 2021 Farm Credit Insurance Fund distribution and decrease in loan fee income. Patronage distribution from Farm Credit institutions increased in the first six months ended June 30, 2021, compared with the first six months in 2020 primarily due to an increase in our average net note payable to CoBank along with an increase in CoBank’s target for patronage related to our direct note. CoBank’s target for patronage increased from 36 basis points in 2020 to 45 basis points in 2021. As an offset to these increases, in 2020, we received a refund of $227 thousand from Farm Credit System Insurance Corporation (FCSIC), no such refund was received in 2021. The refunds are our portion of excess funds above the secure base amount in the FCSIC Allocated Insurance Reserve Accounts. Refer to the 2020 Annual Report to Shareholders for additional information. The decrease in fee income is due to the decrease in non-deferrable fees earned on both our core portfolio and participation purchased loans.

3

We received mineral income of $306 thousand during the first six months of 2021, which is distributed to us quarterly

by CoBank. The decrease for the six months ended June 30, 2021, compared with first six months of 2020 is primarily the result of the rapid oil demand destruction caused by the pandemic, significant drop in crude oil prices, low natural gas prices, drop in drilling activity and production at the beginning of the year. However, mineral income increased in the second quarter of 2021 compared with the first quarter of 2021, reflective of the post-pandemic demand recovery, steady increase in crude oil prices and the dramatic spike in natural gas prices in February 2021 for which revenues were received in the second quarter.

During the first six months of 2021, noninterest expense increased $194 thousand to $9.4 million, primarily due to increases in FCSIC premium of $411 thousand and purchased services from AgVantis of $123 thousand. The increase in FCSIC premium is due to an increase in our average net note payable to CoBank and an increase in the premium rate. These increases were partially offset by a decrease in other noninterest expense of $359 thousand primarily due to a decrease in other purchased services and director related consulting and attorney fees.

CAPITAL RESOURCES Our shareholders’ equity at June 30, 2021, was $274.9 million, an increase from $265.7 million at December 31, 2020. This increase is due to net income and net stock issuances.

OTHER MATTERS On March 5, 2021, the United Kingdom’s Financial Conduct Authority (UKFCA), formally announced that all LIBOR tenors will either be discontinued or no longer be representative immediately after December 31, 2021. As a result, the UKFCA has closely worked with market participants and regulatory authorities around the world to ensure that alternatives to LIBOR are available and that existing contracts can be transitioned onto these alternatives to safeguard financial stability and market integrity.

We continue to analyze potential risks associated with the LIBOR transition, including financial, operational, legal, tax, reputational and compliance risks. At this time, despite the announcements from UKFCA, we are unable to predict when LIBOR will cease to be available or if Secured Overnight Financing Rate (SOFR) or any other alternative reference rate will become the benchmark to replace LIBOR. Because we engage in transactions involving financial instruments that reference LIBOR, these developments could have a material impact on the Association and our borrowers. Management has documented and are working through a LIBOR transition plan with our funding bank and service provider to address the phase out of LIBOR rates in the future, including any updates to processes and loan servicing technology.

The undersigned certify they have reviewed this report, this report has been prepared in accordance with all applicable statutory or regulatory requirements and the information contained herein is true, accurate, and complete to the best of his or her knowledge and belief.

//signed// __________________________________ Mark Peterson Chairman of the Board August 9, 2021

//signed// __________________________________ Jeremy M Anderson CEO August 9, 2021

//signed// ____________________________________ Shawna R Neppl CFO August 9, 2021

4

Farm Credit Southern Colorado, ACA

Consolidated Statement of Condition (Dollars in Thousands)

ASSETS Loans Less allowance for loan losses Net loans Cash Accrued interest receivable Investment in CoBank, ACB Investment in AgDirect Premises and equipment, net Prepaid benefit expense Other assets Total assets LIABILITIES Note payable to CoBank, ACB Advance conditional payments Accrued interest payable Patronage distributions payable Accrued benefits liability Reserve for unfunded commitments Other liabilities

June 30 2021

December 31 2020

UNAUDITED

AUDITED

$

1,258,825 3,327 1,255,498 2,848 15,583 35,248 1,105 12,734 4,750 3,634

$

1,177,690 3,826 1,173,864 4,615 15,925 35,213 963 12,934 4,491 5,303

$

1,331,400

$

1,253,308

$

1,031,642 19,667 1,292 150 563 3,166

$

958,757 15,047 1,216 7,500 153 476 4,503

Total liabilities

1,056,480

987,652

SHAREHOLDERS' EQUITY Preferred stock Capital stock Unallocated retained earnings

901 1,715 272,304

953 1,635 263,068

Total shareholders' equity

274,920

265,656

Commitments and Contingencies

Total liabilities and shareholders' equity

$

1,331,400

$

1,253,308

The accompanying notes are an integral part of these consolidated financial statements.

5

Farm Credit Southern Colorado, ACA

Consolidated Statement of Comprehensive Income (Dollars in Thousands)

UNAUDITED

For the three months ended June 30 2021 2020

INTEREST INCOME Loans

$ 11,821

$ 11,728

$ 23,181

$ 24,500

11,821

11,728

23,181

24,500

4,105 3

4,602 6

7,988 6

10,038 34

Total interest expense Net interest income (Credit loss reversal)/Provision for credit losses

4,108 7,713 (553)

4,608 7,120 76

7,994 15,187 (412)

10,072 14,428 205

Net interest income after credit loss reversal/provision for credit losses

8,266

7,044

15,599

14,223

23 122 1,323 187 74

22 184 763 153 11

64 216 2,314 306 119

40 293 1,509 227 343 131

1,729

1,133

3,019

2,543

2,509 308 632 364 84 758

2,680 274 571 159 98 894

5,014 656 1,265 724 187 1,532

5,005 618 1,142 313 215 1,891

4,655 5,340 -

4,676 3,501 1

9,378 9,240 4

9,184 7,582 9

5,340

3,500

9,236

7,573

Total interest income INTEREST EXPENSE Note payable to CoBank, ACB Other

NONINTEREST INCOME Financially related services income Loan fees Patronage distribution from Farm Credit institutions Farm Credit Insurance Fund distribution Mineral income Other noninterest income Total noninterest income NONINTEREST EXPENSE Salaries and employee benefits Occupancy and equipment Purchased services from AgVantis, Inc. Farm Credit Insurance Fund premium Supervisory and examination costs Other noninterest expense Total noninterest expense Income before income taxes Provision for income taxes Net income COMPREHENSIVE INCOME Amortization of retirement costs

-

Total comprehensive income

$

5,340

For the six months ended June 30 2021 2020

71 $

3,571

$

9,236

The accompanying notes are an integral part of these consolidated financial statements.

6

142 $

7,715

Farm Credit Southern Colorado, ACA

Consolidated Statement of Changes in Shareholders' Equity (Dollars in Thousands)

Preferred Stock

Capital Stock

Balance at December 31, 2019 Comprehensive income Stock issued Stock retired Preferred stock dividends Balance at June 30, 2020

$ 2,557

$ 1,487

20 (673) 17 $ 1,921

$ 1,536

Balance at December 31, 2020 Comprehensive income Stock issued Stock retired Balance at June 30, 2021

$

953

$ 1,635

$

(52) 901

179 (99) $ 1,715

UNAUDITED

Unallocated Retained Earnings $ 257,254 7,573

Accumulated Other Total Comprehensive Shareholders' Income/(Loss) Equity $

(290) 142

$

(148)

127 (78) (9) $ 264,818

$ 263,068 9,236

$

-

$ 272,304

$

-

The accompanying notes are an integral part of these consolidated financial statements.

7

$ 261,008 7,715 147 (751) 8 $ 268,127

$ 265,656 9,236 179 (151) $ 274,920

NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES A description of the organization and operations of Farm Credit of Southern Colorado, ACA (the Association), the significant accounting policies followed, and the financial condition and results of operations as of and for the year ended December 31, 2020, are contained in the 2020 Annual Report to Shareholders. These unaudited second quarter 2021 financial statements should be read in conjunction with the 2020 Annual Report to Shareholders.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information. Accordingly, they do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2020, as contained in the 2020 Annual Report to Shareholders.

In the opinion of management, the unaudited financial information is complete and reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of results for the interim periods. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2021. Descriptions of the significant accounting policies are included in the 2020 Annual Report to Shareholders. In the opinion of management, these policies and the presentation of the interim financial condition and results of operations conform with GAAP and prevailing practices within the banking industry.

Recently Adopted or Issued Accounting Pronouncements In March 2020, the Financial Accounting Standards Board (FASB) issued guidance entitled “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying GAAP to contracts and other transactions affected by reference rate reform. The guidance simplifies the accounting evaluation of contract modifications that replace a reference rate affected by reference rate reform and contemporaneous modifications of other contracts related to the replacement of the reference rate. The optional amendments are effective as of March 12, 2020, through December 31, 2022. The Association applied the optional expedients as it relates to loans in the first quarter of 2021. The impact of the adoption was not material to the Association’s financial condition or its results of operations.

In June 2016, the FASB issued guidance entitled “Measurement of Credit Losses on Financial Instruments.” The guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Credit losses relating to available-for-sale securities would also be recorded through an allowance for credit losses. For public business entities that are not U.S. Securities and Exchange Commission filers this guidance was to become effective for interim and annual periods beginning after December 15, 2020, with early application permitted. In November 2019, the FASB issued an update that amends the mandatory effective date for this guidance for certain institutions. The change resulted from a change in the effective date philosophy that extends and simplifies the adoption by staggering the dates between large public entities and other entities. As a result of the change, the new credit loss standard, for those institutions qualifying for the delay, becomes effective for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Association qualifies for the delay in the adoption date. The Association continues to evaluate the impact of adoption on the Association’s financial condition and its results of operations.

8

NOTE 2 - LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loans follows.

June 30, 2021

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Rural residential real estate Mission-related Total loans

$

805,231 199,056 169,469 67,451 16,825 25 768

$

1,258,825

December 31, 2020 $

717,970 204,402 171,557 72,769 10,140 27 825

$ 1,170,690

The Association purchases and sells participation interests with other parties in order to diversify risk, manage loan volume and comply with Farm Credit Administration regulations. The following table presents information regarding the balances of participations purchased and sold at June 30, 2021:

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Total

Other Farm Credit Institutions Purchased Sold $ 33,047 $ 55,953 30,990 163,309 67,451 16,825 $ 311,622 $ 55,953

Non-Farm Credit Institutions Purchased Sold $ 875 $ $ 875 $ -

Total Purchased Sold $ 33,922 $ 55,953 30,990 163,309 67,451 16,825 $ 312,497 $ 55,953

One credit quality indicator utilized by the Association is the Farm Credit Administration Uniform Loan Classification System that categorizes loans into five categories. The categories are defined as follows:     

Acceptable – assets are expected to be fully collectible and represent the highest quality.

Other assets especially mentioned (OAEM) – assets are currently collectible but exhibit some potential weakness.

Substandard – assets exhibit some serious weakness in repayment capacity, equity and/or collateral pledged on the loan.

Doubtful – assets exhibit similar weaknesses to substandard assets; however, doubtful assets have additional weaknesses in existing factors, conditions and values that make collection in full highly questionable.

Loss – assets are considered uncollectible.

9

The following table shows loans and related accrued interest classified under the Farm Credit Administration Uniform Loan Classification System as a percentage of total loans and related accrued interest receivable by loan type as of: June 30, 2021 Real estate mortgage Acceptable OAEM Substandard Doubtful Total Production and intermediate-term Acceptable OAEM Substandard Total Agribusiness Acceptable OAEM Substandard Total Rural infrastructure Acceptable OAEM Total Agricultural export finance Acceptable Total Rural residential real estate Acceptable Total Mission-related Substandard Total Total Loans Acceptable OAEM Substandard Doubtful Total

December 31, 2020

93.28% 3.49% 3.16% 0.07% 100.00%

89.55% 7.18% 3.19% .08% 100.00%

93.55% 2.29% 4.16% 100.00%

94.13% 3.47% 2.40% 100.00%

94.69% 4.60% 0.71% 100.00%

95.67% 3.63% 0.70% 100.00%

99.23% 0.77% 100.00%

99.27% 0.73% 100.00%

100.00% 100.00%

100.00% 100.00%

100.00% 100.00%

100.00% 100.00%

100.00% 100.00%

100.00% 100.00%

93.86% 3.26% 2.84% 0.04% 100.00%

91.85% 5.56% 2.54% 0.05% 100.00%

High risk assets consist of impaired loans and other property owned. These nonperforming assets (including related accrued interest) are as follows: June 30, 2021

(dollars in thousands) Nonaccrual loans Real estate mortgage Production and intermediate-term Mission-related Total nonaccrual loans Accruing restructured loans Real estate mortgage Production and intermediate-term Total accruing restructured loans Total impaired loans

December 31, 2020

$

6,248 768

$ 6,741 2 825

$

7,016

$ 7,568

$

401 482

$

403 50

$

883

$

453

$

7,899

$ 8,021

The Association had no accruing loans 90 days past due and no other property owned for the periods presented.

10

Additional impaired loan information is as follows:

(dollars in thousands) Impaired loans with a related allowance for loan losses: Real estate mortgage Mission-related Total Impaired loans with no related allowance for loan losses: Real estate mortgage Production and intermediate-term Agribusiness Total Total impaired loans: Real estate mortgage Production and intermediate-term Agribusiness Mission-related Total

June 30, 2021 Unpaid Recorded Principal Related Investment Balance Allowance

$

768 768

$

$ $

$ 6,649 482 $ 7,131

$

$ 6,649 482 768 $ 7,899

$

$

900 900

$ $

600 600

8,723 478 118 9,319

December 31, 2020 Unpaid Recorded Principal Related Investment Balance Allowance

$ $

$

$

8,723 478 118 900 $ 10,219

$

$

600 600

$

$

555 825 1,380

$

6,589 52 6,641

$

7,144 52 825 8,021

$

$

$

$

620 931 1,551

$ $

1 600 601

8,241 49 119 8,409 8,861 49 119 931 9,960

$

$

1 600 601

Note: The recorded investment in the loan receivable is the face amount increased or decreased by applicable accrued interest and unamortized premium, discount, finance charges, or acquisition costs and may also reflect a previous direct write-down of the loan receivable.

(dollars in thousands) Impaired loans with a related allowance for loan losses: Real estate mortgage Mission-related Total Impaired loans with no related allowance for loan losses: Real estate mortgage Production and intermediate-term Total Total impaired loans: Real estate mortgage Production and intermediate-term Mission-related Total

For the Three Months Ended June 30, 2021 Average Interest Income Impaired Loans Recognized

For the Three Months Ended June 30, 2020 Average Interest Income Impaired Loans Recognized

$

549 784

$

-

$

606 898

$

-

$

1,333

$

-

$

1,504

$

-

$

6,281 209

$

5 3

$

7,984 348

$

10 12

$

6,490

$

8

$

8,332

$

22

$

6,830 209 784

$

5 3 -

$

8,590 348 898

$

10 12 -

$

7,823

$

8

$

9,836

$

22

11

(dollars in thousands) Impaired loans with a related allowance for credit losses: Real estate mortgage Mission-related Total Impaired loans with no related allowance for credit losses: Real estate mortgage Production and intermediate-term Total Total impaired loans: Real estate mortgage Production and intermediate-term Mission-related Total

For the Six Months Ended June 30, 2021 Average Interest Income Impaired Loans Recognized

For the Six Months Ended June 30, 2020 Average Interest Income Impaired Loans Recognized

$

552 798

$

-

$

606 908

$

-

$

1,350

$

-

$

1,514

$

-

$

6,422 166

$

10 4

$

8,447 566

$

36 22

$

6,588

$

14

$

9,013

$

58

$

6,974 166 798

$

10 4 -

$

9,053 566 908

$

36 22 -

$

7,938

$

14

$

10,527

$

58

The following tables provide an age analysis of past due loans (including accrued interest).

June 30, 2021

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Rural residential real estate Mission-related Total

30-89 Days Past Due $ 2,843 4,401 $ 7,244

90 Days or More Past Due $ 41 $

41

Total Past Due $ 2,884 4,401 -

Not Past Due or less than 30 Days Past Due $ 814,353 197,532 169,973 67,628 16,844 25 768

Recorded Investment in Loans Outstanding $ 817,237 201,933 169,973 67,628 16,844 25 768

$ 7,285

$1,267,123

$1,274,408

Recorded Investment Accruing Loans 90 Days or More Past Due $ $

-

December 31, 2020

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Rural residential real estate Mission-related Total

30-89 Days Past Due $ 1,732 596 150 $ 2,478

90 Days or More Past Due $ 39 $

39

12

Total Past Due $ 1,771 596 150 -

Not Past Due or less than 30 Days Past Due $ 728,471 206,770 171,925 72,927 10,153 27 825

Recorded Investment in Loans Outstanding $ 730,242 207,366 172,075 72,927 10,153 27 825

$ 2,517

$ 1,191,098

$1,193,615

Recorded Investment Accruing Loans 90 Days or More Past Due $ $

-

A summary of changes in the allowance for loan losses is as follows:

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Mission-related Total

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Mission-related Total

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Mission-related Total

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Mission-related Total

Balance at March 31, 2021

Charge-offs

Recoveries

Provision for Loan Losses/ (Loan Loss Reversals)

Balance at June 30, 2021

$ 1,016 949 1,046 263 11 600

$

-

$

-

$

(156) (111) (224) (66) (1) -

$

$ 3,885

$

-

$

-

$

(558)

$ 3,327

Balance at December 31, 2020

Charge-offs

Recoveries

Provision for Loan Losses/ (Loan Loss Reversals)

860 838 822 197 10 600

Balance at June 30, 2021

$ 1,074 857 1,021 265 9 600

$

-

$

-

$

(214) (19) (199) (68) 1 -

$

$ 3,826

$

-

$

-

$

(499)

$ 3,327

Balance at March 31, 2020 $

Charge-offs

Recoveries

Provision for Loan Losses/ (Loan Loss Reversals)

876 648 1,015 480 7 600

$

-

$

9 -

$

(42) 49 (84) 89 -

$ 3.626

$

-

$

9

$

12

Balance at December 31, 2019 $

Charge-offs

Recoveries

Provision for Loan Losses/ (Loan Loss Reversals)

860 838 822 197 10 600

Balance at June 30, 2020 $

834 697 940 569 7 600

$ 3,647

Balance at June 30, 2020

861 629 912 481 7 550

$

-

$

29 -

$

(27) 68 (1) 88 50

$

$ 3,440

$

-

$

29

$

178

$ 3,647

13

834 697 940 569 7 600

The Association maintains a separate reserve for unfunded commitments, which is included in Liabilities on the Association’s Consolidated Statement of Condition. The related provision for the reserve for unfunded commitments is included as part of the provision for credit losses on the Consolidated Statement of Comprehensive Income, along with the provision for loan losses. A summary of changes in the reserve for unfunded commitments follows: For the Three Months Ended June 30 2021 2020

(dollars in thousands) Balance at beginning of period Provision for reserves for unfunded commitments Total

$

558

$

400

5 $

For the Six Months Ended June 30 2021 2020 $

476

$

464

437

87

64

563

$

$

563

27 $

464

Additional information on the allowance for loan losses follows:

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Rural residential real estate Mission-related Total

(dollars in thousands) Real estate mortgage Production and intermediate-term Agribusiness Rural infrastructure Agricultural export finance Rural residential real estate Mission-related Total

Allowance for Loan Losses Ending Balance at June 30, 2021 Individually Collectively evaluated for evaluated for impairment impairment

Recorded Investments in Loans Outstanding Ending Balance at June 30, 2021 Individually Collectively evaluated for evaluated for impairment impairment

$

600

$

860 838 822 197 10 -

$

6,649 482 768

$

$

600

$

2,727

$

7,899

$ 1,266,509

Allowance for Loan Losses Ending Balance at December 31, 2020 Individually Collectively evaluated for evaluated for impairment impairment

810,588 201,451 169,973 67,628 16,844 25 -

Recorded Investments in Loans Outstanding Ending Balance at December 31, 2020 Individually Collectively evaluated for evaluated for impairment impairment

$

1 600

$

1,073 857 1,021 265 9 -

$

7,144 52 825

$

723,098 207,314 172,075 72,927 10,153 27 -

$

601

$

3,225

$

8,021

$ 1,185,594

A restructuring of a debt constitutes a troubled debt restructuring (TDR) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Association recorded no new TDRs during the six months ended June 30, 2021 or June 30, 2020.

The Association had no TDRs within the previous 12 months and for which there were subsequent payment defaults during the first six months of 2021 and 2020. Additional commitments to lend to borrowers whose loans have been modified in troubled debt restructurings were $752 thousand at June 30, 2021 and $1.2 million at December 31, 2020.

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The following table provides information on outstanding loans restructured in troubled debt restructurings at period end. These loans are included as impaired loans in the impaired loan table.

Loans modified as TDRs (dollars in thousands) Real estate mortgage Production and intermediate-term Total

June 30, 2021

TDRs in Nonaccrual Status* June 30, 2021

December 31, 2020

December 31, 2020

$

401 482

$

403 50

$

-

$

-

$

883

$

453

$

-

$

-

* Represents the portion of loans modified as TDRs (first column) that are in nonaccrual status.

NOTE 3 - CAPITAL A summary of select capital ratios based on a three-month average and minimums set by the Farm Credit Administration follows.

As of June 30, 2021 Risk Adjusted: Common equity tier 1 ratio Tier 1 capital ratio Total capital ratio Permanent capital ratio Non-Risk Adjusted: Tier 1 leverage ratio Unallocated retained earnings and equivalents leverage ratio

As of December 31, 2020

Regulatory Minimums

Capital Conservation Buffer

Total

17.85% 17.85% 18.19% 17.98%

18.83% 18.83% 19.20% 18.97%

4.5% 6.0% 8.0% 7.0%

2.5% 2.5% 2.5% –

7.0% 8.5% 10.5% 7.0%

18.68%

19.65%

4.0%

1.0%

5.0%

19.46%

20.31%

1.5%

–

1.5%

If capital ratios fall below the regulatory minimum plus buffer amounts, capital distributions (equity redemptions, cash dividend payments, and cash patronage payments) and discretionary senior executive bonuses are restricted or prohibited without prior FCA approval.

The following tables present the activity in the accumulated other comprehensive income/loss, net of tax by component: For the Three Months Ended June 30 2021 2020

(dollars in thousands) Pension and other benefit plans: Beginning balance Amounts reclassified from accumulated other comprehensive loss Net current period other comprehensive income

$

-

$

Ending balance

-

$ (219)

For the Six Months Ended June 30 2021 2020 $

-

71 71 $ (148)

$

-

$ (290) 142 142 $ (148)

The following table represents reclassifications out of accumulated other comprehensive loss.

(dollars in thousands) Pension and other benefit plans: Net actuarial loss Total reclassifications

Amount Reclassified from Accumulated Other Comprehensive Loss For the Three Months Ended June 30 2021 2020 $

-

$

71

$

-

$

71

15

Location of Gain/Loss Recognized in Statement of Income Salaries and employee benefits

(dollars in thousands) Pension and other benefit plans: Net actuarial loss

Amount Reclassified from Accumulated Other Comprehensive Loss For the Six Months Ended June 30 2021 2020

Total reclassifications

$

-

$ 142

$

-

$ 142

Location of Gain/Loss Recognized in Statement of Income Salaries and employee benefits

NOTE 4 - FAIR VALUE MEASUREMENTS Accounting guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability. See Note 2 of the 2020 Annual Report to Shareholders for a more complete description.

Assets measured at fair value on a recurring basis are summarized below:

(dollars in thousands) Assets held in nonqualified benefits trusts June 30, 2021 December 31, 2020

Fair Value Measurement Using Level 1 Level 2 Level 3 $ $

58 40

$ $

– –

$ $

– –

Total Fair Value $ $

58 40

The Association had no liabilities measured at fair value on a recurring basis at June 30, 2021 or December 31, 2020.

Assets measured at fair value on a non-recurring basis for each of the fair value hierarchy values are summarized below:

(dollars in thousands) Loans June 30, 2021 December 31, 2020

Fair Value Measurement Using Level 1 Level 2 Level 3 $ $

– –

$ $

– –

$ $

173 782

Total Fair Value $ $

173 782

With regard to impaired loans it is not practicable to provide specific information on inputs as each collateral property is unique. System institutions utilize appraisals to value these loans and takes into account unobservable inputs such as income and expense, comparable sales, replacement cost and comparability adjustments.

The Association had no liabilities measured at fair value on a non-recurring basis at June 30, 2021 or December 31, 2020.

Valuation Techniques As more fully discussed in Note 2 of the 2020 Annual Report to Shareholders, accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following presents a brief summary of the valuation techniques used by the Association for assets and liabilities, subject to fair value measurement.

Assets Held in Non-Qualified Benefits Trusts Assets held in trust funds related to deferred compensation and supplemental retirement plans are classified within Level 1. The trust funds include investments that are actively traded and have quoted net asset values that are observable in the marketplace.

Loans Evaluated for Impairment For impaired loans measured on a non-recurring basis, the fair value is based upon the underlying collateral since the loans are collateral dependent loans for which real estate is the collateral. The fair value measurement process uses independent appraisals and other market-based information, but in many cases, it also requires significant input based on management’s knowledge of and judgment about current market conditions, specific issues relating to the collateral and other matters. As a result, these fair value measurements fall within Level 3 of the hierarchy. When the

16

value of the real estate, less estimated costs to sell, is less than the principal balance of the loan, a specific reserve is established.

NOTE 5 - SUBSEQUENT EVENTS The Association has evaluated subsequent events through August 9, 2021, which is the date the financial statements were issued, and no material subsequent events were identified.

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