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 2024 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
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited)
ThefollowingdiscussionsummarizesthefinancialpositionandresultsofoperationsofFarmCreditofSouthern Colorado,ACA(theAssociation)fortheninemonthsendedSeptember30,2025,withcomparisonstopriorperiods. Youshouldreadthesecommentsalongwiththeaccompanyingfinancialstatementsandfootnotesandthe2024 AnnualReporttoShareholders.Theaccompanyingfinancialstatementswerepreparedundertheoversightofour AuditCommittee.
TheU.S.economysawimprovementinthethirdquarterof2025duetostronggrowthinrealGDPcarriedoverfrom thesecondquarter.RealGDPisprojectedtoreachanannualizedgrowthrateof3.9%inthethirdquarterof2025 largelyduetopositivetrendsinpersonalconsumptionexpenditures,imports,andbusinessinvestments.Thelabor marketremainedrelativelysteadyforthethirdquarterof2025at4.3%unemployment.TheFederalReservecut interestrates25basispointsinSeptemberandOctober,bringingthefundstargetrangeto3.75%-4.00%.After Congresswasunabletopassappropriationlegislationforthe2026fiscalyearbytheSeptember30,2025deadline, thefederalgovernmentshutdown,drasticallyreducingfederalgovernmentoperationsbeginningonOctober1,2025. TheimpactontheU.S.economywillbelargelydeterminedbythedurationoftheshutdown.In2025,farmincomeis anticipatedtoincreaseprimarilybecauseofdirectgovernmentreliefpaymentsthroughtheAmericanReliefActof 2025,aswellasstronganimal/animalproductcommodityprices.Farmproductionexpensesarealsoexpectedto increaseby2.6%incomparisonto2024.Spendingonfeed,livestockandpoultry,andlaborareexpectedto representthethreelargestcategoriesofspendingin2025.
EconomicconditionsacrossFarmCreditofSouthernColorado’sterritoryweresteadythroughthethirdquarterof 2025.Croppricesforcorn,wheat,potatoes,andhayhavebeenflatandremainasignificantchallengeforcrop producers.Incontrast,cashbidsforfeedercattleandlivecattlehavecontinuedtostrengthenandcow/calfproducers havebenefittedfromexcellentpastureconditions,rapidgrowth,andstrongmarkets.Realestatevalues remain strong;however,demandforfarmlandhassoftenedinresponsetolowercommodityprices,whileinterestin pasturelandhasheldsteady.
MoistureconditionsweremostlystableinSoutheasternColoradoduringthethirdquarterof2025.Countiesalongthe I-25corridorandthroughouttheeasternplainsreceivedadequatemoistureandwerereportedwithnodrought conditionsasoftheendofSeptember.ThemountaincountieswestofI-25,includingtheSanLuisValley,doreport increasingdroughtconditions.TheU.S.DroughtMonitorclassificationshowsareasalongtheRioGrandeRiverand southwardtowardthestatelinewithdroughtconditionsrangingfromAbnormallyDry(D0)toSevereDrought(D2).
WheatproducersacrosstheeasterncountiesoftheAssociation’sterritoryarecurrentlyinplantingseasonandare benefitingfromadequatemoisturelevelsandfavorablegrowingconditions.Theyareplantinginadequatemoisture withgoodgrowingconditions.Theweatherhasbeenfavorableforproducersofallcropsandlivestockthroughoutthe summer.Corn,milo,milletandhaycropsareallingoodconditionwithproducersexpectingstrongyields.While betterthanaverageyieldswillsupportproducerprofitability,thestrongyieldsthroughouttheUnitedStateswill continuetodepressgrainpricesandadddownwardpressuretobasisbids.Grainstorageavailabilitythroughoutthe territoryisaconcernwithgraincooperativesandproducersalikeexpectingtorunshortofstoragespace.Potato producersintheSanLuisValleyhavealsoproducedalargecropandwillstruggletofindadequatestorage.Apush tomarketpotatoesatharvestandfreeupstoragespaceisaddingdownwardpressuretoanalreadychallenged potatomarketintheSanLuisValley.
Ruraleconomiesinourterritoryremainresilient.Strongyieldswillsupportfarmprofitabilityin2025,butweakprices acrossthegrain,hay,andpotatomarketswillchallengeourproducers.Livestockoperationscontinuetobearobust contributortoourruralcommunities.However,producersremainconcernedaboutinflation,tariffs,interestrates,and theimpactoffederaltradepolicyoncommoditypricesaswellasagriculturalinputcosts.
LOAN PORTFOLIO
LoansoutstandingatSeptember30,2025,totaled$1.66billion,anincreaseof$71.4million,or4.5%,fromloansof $1.59billionatDecember31,2024.Theincreasewasduetoincreasesinourpurchasedparticipationsportfolioand coreportfolio.Theincreaseinourpurchasedparticipationsportfolioisattributedtoincreasesinrealestate, agribusiness,ruralinfrastructure,andagriculturalexportloans,partiallyoffsetbyadecreaseinproductionand intermediateloans.Theincreaseinourcoreportfolioisattributedtoanincreaseinproductionandintermediate loans,partiallyoffsetbyadecreaseinrealestateloans.
OTHER PROPERTY OWNED
Otherpropertyownedisrealorpersonalpropertythathasbeenacquiredthroughforeclosure,deedinlieuof foreclosure,orothermeans.Wehadotherpropertyownedof$3.6millionatSeptember30,2025,comparedwith $844thousandatDecember31,2024.Theincreaseinotherpropertyownedwasduetotwocoreloancomplexes movingfromnonaccrualtootherpropertyowned,partiallyoffsetbythepartialsale/liquidationofotherpropertyowned thatwasacquiredduring2024.
RESULTS OF OPERATIONS
NetincomefortheninemonthsendedSeptember30,2025,was$15.4million,adecreaseof$1.7million,or9.9%, fromthesameperiodendedoneyearago.Thedecreaseisduetoincreasesintheprovisionforcreditlossesand noninterestexpense,partiallyoffsetbyincreasesinnetinterestincomeandnoninterestincome.
FortheninemonthsendedSeptember30,2025,netinterestincomewas$34.9million,anincreaseof$2.4million,or 7.4%,comparedwiththeninemonthsendedSeptember30,2024.Netinterestincomeincreasedprimarilyasaresult ofanincreaseinaverageaccrualloanvolume,anincreasedreturnonourloanablefunds,andanincreaseinour averageyear-to-datespreadbetweenborrowerratesandourrelatedcostoffunds.
TheprovisionforcreditlossesfortheninemonthsendedSeptember30,2025,was$2.6million,anincreaseof$2.2 million,fromtheprovisionforcreditlossesforthesameperiodendedoneyearago.Theprovisionforcreditlossesfor thefirstninemonthsof2025wasprimarilydrivenbycharge-offsoftwocoreloansandonepurchasedparticipation loan,alargespecificreserveonapurchasedparticipationloan,andhigherlossratesinourgeneralreserve.The provisionexpenseforthefirstninemonthsof2024wasprimarilydrivenbyacoreloancomplexandoneparticipation beingdowngradedandrequiringspecificreserves.
Noninterestincomeincreased$342thousandduringthefirstninemonthsof2025comparedwiththefirstnine monthsof2024primarilyduetoincreasesinpatronagedistributionfromFarmCreditinstitutionsandloanfees, partiallyoffsetbyadecreaseinFarmCreditInsuranceFunddistribution.PatronagedistributionfromFarmCredit institutionsincreasedinthefirstninemonthsendedSeptember30,2025,comparedwiththefirstninemonthsin2024 primarilyduetoincreasedpatronagefromCoBankresultingfromanincreaseinouraveragenetnotepayable.Loan feesincreasedprimarilyduetoprepaymentfeesandfeeincomegeneratedthroughFarmCreditMid-America'sRural 1stProgram.
Wereceivedarefundof$297thousandduringthefirstninemonthsof2025fromtheFarmCreditSystemInsurance Corporation(FCSIC),comparedwitharefundof$454thousandreceivedinthesameperiodendedoneyearago. TheserefundsrepresentourportionofexcessfundsabovethesecurebaseamountintheFCSICAllocated InsuranceReserveAccounts.
Duringthefirstninemonthsof2025,noninterestexpenseincreased$2.2millionto$23.9million,primarilydueto increasesinsalariesandemployeebenefits,purchasedservicesfromourserviceprovider,AgVantis,Inc.,andother noninterestexpense.Salariesandemployeebenefitsincreased$1.2millionprimarilyduetoanincreaseinstaffing levels.PurchasedservicesfromAgVantis,Inc.increasedduetoanincreaseintheircostdrivers,projectedloan growth,andloancount,alongwithincreasedoffboardingcostsassociatedwithourtechnologytransition.Other noninterestexpenseincreasedprimarilyduetoincreasesinpublicandmemberrelationsandpurchasedservice expenses.
CAPITAL RESOURCES
Ourshareholders’equityatSeptember30,2025,was$340.2million,anincrease from$325.1millionatDecember 31,2024.Thisincreaseisprimarilyduetonetincome,partiallyoffsetbynetstockretirements.
//signature on file//
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
ConsolidatedStatementofComprehensiveIncome
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements. endedSeptember30endedSeptember30
Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
AdescriptionoftheorganizationandoperationsofFarmCreditofSouthernColorado,ACA(theAssociation),the significantaccountingpoliciesfollowed,andthefinancialconditionandresultsofoperationsasofandfortheyear endedDecember31,2024,arecontainedinthe2024AnnualReporttoShareholders.Theseunauditedthirdquarter 2025financialstatementsshouldbereadinconjunctionwiththe2024AnnualReporttoShareholders.
TheaccompanyingunauditedfinancialstatementshavebeenpreparedinaccordancewithU.S.generallyaccepted accountingprinciples(GAAP)forinterimfinancialinformation.Certaindisclosuresincludedintheannualfinancial statementshavebeencondensedoromittedfromthesefinancialstatementsastheyarenotrequiredforinterim financialstatementsunderU.S.GAAPandtherulesoftheFarmCreditAdministration(FCA).Thisreportshouldbe readinconjunctionwiththeauditedfinancialstatementsasofandfortheyearendedDecember31,2024,as containedinthe2024AnnualReporttoShareholders.
Intheopinionofmanagement,alladjustments,consistingofnormalrecurringadjustmentsnecessaryforafair statementofresultsfortheinterimperiods,havebeenmade.Thepreparationoffinancialstatementsinaccordance withGAAPrequiresmanagementtomakeestimatesandassumptionsthataffecttheamountsreportedinthe financialstatementsandaccompanyingnotes.Actualresultscoulddifferfromthoseestimates.Theresultsof operationsforinterimperiodsarenotnecessarilyindicativeoftheresultstobeexpectedforthefullyearending December31,2025.Descriptionsofthesignificantaccountingpoliciesareincludedinthe2024AnnualReportto Shareholders.Intheopinionofmanagement,thesepoliciesandthepresentationoftheinterimfinancialconditionand resultsofoperationsconformwithGAAPandprevailingpracticeswithinthebankingindustry.
Recently Issued or Adopted
Accounting Pronouncements
Targeted Improvements to the Accounting for Internal-Use Software (Subtopic 350-40)
InSeptember2025,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU) 2025-06Intangibles–GoodwillandOther–Internal-UseSoftware(Subtopic350-40):TargetedImprovementstothe AccountingforInternal-UseSoftware.Theamendmentintroducesseveralkeychanges:(1)eliminatesthestagebasedrulesforcapitalization,(2)replacestheseruleswithaprinciples-basedframeworkwherecapitalizationoccurs whenmanagementhasauthorizedandcommittedtofunding,anditisprobablethattheprojectwillbecompletedand thesoftwareusedasintended,(3)clarifieswebsitedevelopmentscostsand(4)modifiesthedisclosurerequirements forcapitalizedsoftwarecosts.ThestandardiseffectiveforannualperiodsstartingafterDecember15,2027,with earlyadoptionpermittedasofthebeginningofanyannualreportingperiod.TheAssociationiscurrentlyassessing thepotentialimpactofthisamendmentonitsdisclosures.
Measurementof Credit Losses for Accounts Receivableand ContractAssets (Topic 326)
InJuly2025,theFASBissuedAccountingStandardsUpdate(ASU)2025-05FinancialInstruments–CreditLosses–MeasurementofCreditLossesforAccountsReceivableandContractAssets.Theamendmentsinthisupdate provide(1)allentitieswithapracticalexpedientand(2)entitiesotherthanpublicbusinessentitieswithanaccounting policyelectionwhenestimatingexpectedcreditlossesforcurrentaccountsreceivablesandcurrentcontractassets arisingfromtransactionsaccountedforunderTopic606.Thepracticalexpedientwouldallowallentitieswhen developingreasonableandsupportableforecastsaspartofestimatingexpectedcreditlossestoassumethatcurrent conditionsasofthebalancesheetdatedonotchangefortheremaininglifeoftheasset.Theaccountingpolicy electionallowsanentitytoconsidercollectionactivityafterthebalancesheetdatewhenestimatingexpectedcredit losses.TheamendmentswillbeeffectiveforannualreportingperiodsbeginningafterDecember15,2025,and interimperiodswithinthoseannualreportingperiodsunderaprospectiveapproach.Earlyadoptionispermittedfor interimorannualperiodsinwhichfinancialstatementshavenotyetbeenissued.Theadoptionofthisguidanceisnot expectedtohaveamaterialimpactontheAssociation’sfinancialcondition,resultsofoperations,orcashflows.
Disaggregation ofIncome StatementExpenses (Topic 220)
InNovember2024,theFinancialAccountingStandardsBoard(FASB)issuedAccountingStandardsUpdate(ASU) 2024-03IncomeStatement–ReportingComprehensiveIncome–ExpenseDisaggregationDisclosures: DisaggregationofIncomeStatementExpenses.TheamendmentsinthisASUapplytoallpublicbusinessentities andrequiredisclosureofspecifiedinformationaboutcertaincostsandexpensesinthenotestofinancialstatements. Theamendmentsrequirethatateachinterimandannualreportingperiodanentity:
Disclosetheamountsof(a)purchasesofinventory,(b)employeecompensation,(c)depreciation,(d) intangibleassetamortization,and(e)depreciation,depletion,andamortizationrecognizedaspartofoiland gas-producingactivities(DD&A)(orotheramountsofdepletionexpense)includedineachrelevantexpense caption.Arelevantexpensecaptionisanexpensecaptionpresentedonthefaceoftheincomestatement withincontinuingoperationsthatcontainsanyoftheexpensecategorieslistedin(a)-(e).
IncludecertainamountsthatarealreadyrequiredtobedisclosedundercurrentGAAPinthesame disclosureastheotherdisaggregationrequirements.
Discloseaqualitativedescriptionoftheamountsremaininginrelevantexpensecaptionsthatarenot separatelydisaggregatedquantitatively.
Disclosethetotalamountofsellingexpensesand,inannualreportingperiods,anentity’sdefinitionofselling expenses.
TheamendmentsareeffectiveforannualreportingperiodsbeginningafterDecember15,2026,andinterimreporting periodsbeginningafterDecember15,2027.Earlyadoptionispermitted.Theamendmentsshouldbeappliedeither (1)prospectivelytofinancialstatementsissuedforreportingperiodsaftertheeffectivedateofthisASUor(2) retrospectivelytoanyorallpriorperiodspresentedinthefinancialstatements.TheAssociationiscurrentlyassessing thepotentialimpactofthisstandardonitsdisclosures.
Improvements to Income Tax Disclosures (Topic 740)
InDecember2023,FASBissuedASU2023-09–IncomeTaxes:ImprovementstoIncomeTaxDisclosures.The amendmentsinthisstandardrequiremoretransparencyaboutincometaxinformationthroughimprovementsto incometaxdisclosuresprimarilyrelatedtotheratereconciliationandincometaxespaidinformation.The amendmentsrequirequalitativedisclosureaboutspecificcategoriesofreconcilingitemsandindividualjurisdictions thatresultinasignificantdifferencebetweenthestatutorytaxrateandtheeffectivetaxrate.Incometaxespaidwill requiredisaggregateddisclosurebyfederal,state,andforeignjurisdictionsforamountsexceedingaquantitative thresholdofgreaterthanfivepercentoftotalincometaxespaid.Theamendmentsareeffectiveforannualperiods beginningafterDecember15,2024.Theadoptionofthisguidanceisnotexpectedtohaveamaterialimpactonthe Association’sfinancialcondition,resultsofoperations,orcashflows,butwillimpacttheincometaxdisclosures.
NOTE 2 - LOANS AND ALLOWANCE FOR CREDIT LOSSES
Asummaryofloansbytypefollows: (dollars in thousands) September 30, 2025 December31,2024
TheAssociationpurchasesandsellsparticipationinterestswithotherpartiesinordertodiversifyrisk,manageloan volume,andcomplywithFarmCreditAdministrationregulations.Thefollowingtablepresentsinformationregarding thebalancesofparticipationspurchasedandsoldatSeptember30,2025:
Credit Quality
Creditriskarisesfromthepotentialinabilityofanobligortomeetitspaymentobligationandexistsinouroutstanding loans,lettersofcredit,andunfundedloancommitments.TheAssociationmanagescreditriskassociatedwiththe retaillendingactivitiesthroughananalysisofthecreditriskprofileofanindividualborrowerusingitsownsetof underwritingstandardsandlendingpolicies,approvedbyitsboardofdirectors,whichprovidesdirectiontoitsloan officers.Theretailcreditriskmanagementprocessbeginswithananalysisoftheborrower’scredithistory,repayment capacity,financialposition,andcollateral,whichincludesananalysisofcreditscoresforsmallerloans.Repayment capacityfocusesontheborrower’sabilitytorepaytheloanbasedoncashflowsfromoperationsorothersourcesof income,includingoff-farmincome.Realestatemortgageloansmustbesecuredbyfirstliensontherealestate (collateral).AsrequiredbyFarmCreditAdministrationregulations,eachinstitutionthatmakesloansonasecured basismusthavecollateralevaluationpoliciesandprocedures.Realestatemortgageloansmaybemadeonlyin amountsupto85%oftheoriginalappraisedvalueofthepropertytakenassecurityorupto97%oftheappraised valueifguaranteedbyastate,federal,orothergovernmentalagency.Theactualloantoappraisedvaluewhenloans aremadeisgenerallylowerthanthestatutorymaximumpercentage.Loansotherthanrealestatemortgagemaybe madeonasecuredorunsecuredbasis.
TheAssociationusesatwo-dimensionalriskratingmodelbasedonaninternallygeneratedcombinedSystemrisk ratingguidancethatincorporatesa14-pointprobabilityofdefaultratingscaletoidentifyandtracktheprobabilityof borrowerdefaultandaseparatescaleaddressinglossgivendefault.Probabilityofdefaultistheprobabilitythata borrowerwillexperienceadefaultduringthenexttwelvemonths.Thelossgivendefaultismanagement’sestimateas totheanticipatedprincipallossonaspecificloanassumingdefaultoccurs.Adefaultisconsideredtohaveoccurredif thelenderbelievestheborrowerwillnotbeabletopayitsobligationinfullortheborrowerortheloanisclassified nonaccrual.Thiscreditriskratingprocessincorporatesobjectiveandsubjectivecriteriatoidentifyinherentstrengths, weaknesses,andrisksinaparticularrelationship.Theinstitutionreviews,atleastonanannualbasis,orwhena creditactionistaken,theprobabilityofdefaultcategory.
Eachoftheprobabilityofdefaultcategoriescarriesadistinctpercentageofdefaultprobability.Theprobabilityof defaultratebetweenoneandnineoftheacceptablecategoriesisverynarrowandwouldreflectalmostnodefaultto aminimaldefaultpercentage.Theprobabilityofdefaultrategrowsmorerapidlyasaloanmovesfromacceptableto otherassetsespeciallymentionedandgrowssignificantlyasaloanmovestoasubstandard(viable)level.A substandard(non-viable)ratingindicatesthattheprobabilityofdefaultisalmostcertain.Thesecategoriesaredefined asfollows:
Acceptable–assetsareexpectedtobefullycollectibleandrepresentthehighestquality.
Otherassetsespeciallymentioned(OAEM)–assetsarecurrentlycollectiblebutexhibitsomepotential weakness.
Substandard–assetsexhibitsomeseriousweaknessinrepaymentcapacity,equity,and/orcollateral pledgedontheloan.
Doubtful–assetsexhibitsimilarweaknessestosubstandardassets;however,doubtfulassetshave additionalweaknessesinexistingfactors,conditions,andvaluesthatmakecollectioninfullhighly questionable.
Loss–assetsareconsidereduncollectible.
ThefollowingtableshowsloansundertheFarmCreditAdministrationUniformLoanClassificationSystemasa percentageoftotalloansbyloantypeasof:
Accruedinterestreceivableof$35.6milliononloansatSeptember30,2025and$32.1millionatDecember31,2024, isexcludedfromtheamortizedcostofloansandreportedseparatelyintheConsolidatedStatementofCondition.The Associationwroteoffaccruedinterestof$195thousandduringthefirstninemonthsof2025and$53thousandduring thefirstninemonthsof2024.
Nonperformingassetsconsistofnonaccrualloans,accruingloans90daysormorepastdue,andotherproperty owned.Thefollowingtableshowsthesenonperformingassetsandrelatedcreditqualitystatisticsasfollows:
Thefollowingtablesprovidetheamortizedcostfornonaccrualloanswithandwithoutarelatedallowanceforloan losses,aswellasinterestincomerecognizedonnonaccrualloansduringtheperiod: (dollars in thousands)
Thefollowingtablesprovideanageanalysisofpastdueloansatamortizedcost.
September 30, 2025
December31,2024
Aloanisconsideredcollateraldependentwhentheborrowerisexperiencingfinancialdifficultyandrepaymentis expectedtobeprovidedsubstantiallythroughtheoperationorsaleofthecollateral.TheAssociation’scollateral dependentloansareprimarilyrealestatemortgageandproductionandintermediateloans.Certaincollateraldependentloansaresecuredbycollateralwhosefairvalueisinsufficienttosatisfytheoutstandingprincipalofthese loans.Suchshortfallsarereflectedinourallowance.
Loan Modifications to Borrowers Experiencing Financial Difficulty
Thefollowingtablesshowtheamortizedcostbasisattheendoftherespectivereportingperiodsforloan modificationsgrantedtoborrowersexperiencingfinancialdifficulty,disaggregatedbyloantypeandtypeof modificationgranted.
TermExtension
(dollars in thousands)
TheAssociationhadnoaccruedinterestreceivablerelatedtoloanmodificationsgrantedtoborrowersexperiencing financialdifficultyasofthethreemonthsendedSeptember30,2025and$106thousand asoftheninemonthsended September30,2025.
(dollars in thousands)
(dollars in thousands)
TermExtension
FortheThreeMonthsEnded FortheNineMonthsEnded September30, 2024
September30, 2024
PaymentDeferral
FortheThreeMonthsEnded FortheNineMonthsEnded September30, 2024
September30, 2024
Accruedinterestreceivablerelatedtoloanmodificationsgrantedtoborrowersexperiencingfinancialdifficultywas $18thousandasofthethreemonthsendedSeptember30,2024,and$47thousand asoftheninemonthsended September30,2024.
Thefollowingtablesdescribethefinancialeffectofthemodificationsmadetoborrowersexperiencingfinancial difficultyduringtheperiodspresented:
Weighted-AverageTermExtension(inMonths)
FortheThreeMonthsEnded September30
FortheNineMonthsEnded September30
Weighted-AveragePaymentDeferral(inMonths)
FortheThreeMonthsEnded September30
FortheNineMonthsEnded September30
Thefollowingtablessetforththeamortizedcostofloanstoborrowersexperiencingfinancialdifficultythatdefaulted duringtheperiodspresentedandreceivedamodificationinthetwelvemonthsbeforedefault:
(dollars in thousands)
ModifiedLoansthatSubsequentlyDefaulted FortheThreeMonthsEndedSeptember30,2024 TermExtension
Productionandintermediate-term $ –
(dollars in thousands)
ModifiedLoansthatSubsequentlyDefaulted FortheNineMonthsEndedSeptember30,2024 TermExtension
Productionandintermediate-term $ 530
Therewerenoloanstoborrowersexperiencingfinancialdifficultythatdefaultedduringthethreemonthsornine monthsendedSeptember30,2025whichweremodifiedduringthetwelvemonthspriortothoseperiods.
Thefollowingtablesetsforthanaginganalysisofloanstoborrowersexperiencingfinancialdifficultythatwere modifiedduringthetwelvemonthspriortoSeptember30,2025:
PaymentStatusofModifiedLoans During the Past Twelve Months Ended September 30, 2025
30-89Days
(dollars in thousands)
Thefollowingtablesetsforthanaginganalysisofloanstoborrowersexperiencingfinancialdifficultythatwere modifiedduringthetwelvemonthspriortoSeptember30,2024:
PaymentStatusofModifiedLoans DuringthePastTwelveMonthsEndedSeptember30,2024
30-89Days
(dollars in thousands)
Additionalcommitmentstolendtoborrowersexperiencingfinancialdifficultywhoseloanshavebeenmodifiedduring theninemonthsendedSeptember30,2025were$1.6millionandduringtheyearendedDecember31,2024were $2.6million.
TheAssociationhadnoloansheldforsaleatSeptember30,2025andDecember31,2024.
Allowance for Credit Losses
Theallowanceforcreditlosses(ACL)representstheestimatedcurrentexpectedcreditlossesovertheremaining contractuallifeoftheloansmeasuredatamortizedcostandcertainoff-balancesheetcreditexposures.TheACL takesintoconsiderationrelevantinformationaboutpastevents,currentconditions,andreasonableandsupportable macroeconomicforecastsoffutureconditions.Thecontractualtermexcludesexpectedextensions,renewals,and modifications.TheAssociationusesasingleeconomicscenariooverareasonableandsupportableforecastperiodof 12months.Subsequenttotheforecastperiod,theAssociationexplicitlyrevertstolongrunhistoricallossexperience beyondthe12monthstoinformtheestimateoflossesfortheremainingcontractuallifeoftheloanportfolio.The economicforecastsareupdatedonaquarterlybasisandincorporatemacroeconomicvariablessuchasagricultural commodityprices,unemploymentrates,GrossDomesticProduct(GDP)annualgrowthrates,governmentspending toGDP,realconsumerspending,UnitedStatesexports,inflation,andFedFundsrates.
ThecreditriskratingmethodologyisakeycomponentoftheAssociation’sallowanceforcreditlossesevaluationand isgenerallyincorporatedintotheAssociation’sloanunderwritingstandardsandinternallendinglimits.Inaddition, borrowerandcommodityconcentrationlendingandleasinglimitshavebeenestablishedbytheAssociationto managecreditexposure.Theregulatorylimittoasingleborrowerorlesseeis15%oftheAssociation’slendingand leasinglimitbasebuttheAssociation’sboardofdirectorshasgenerallyestablishedmorerestrictivelendinglimits. ThislimitappliestoAssociationswithlong-termandshort-andintermediate-termlendingauthorities.
Asummaryofchangesintheallowanceforloanlossesisasfollows:
(dollars in thousands) Balanceat June30, 2025
(dollars in thousands)
(dollars in thousands)
Balanceat December31, 2024
(dollars in thousands)
Balanceat June30, 2024 Charge-offs
Balanceat December31, 2023 Charge-offs Recoveries
TheAssociationmaintainsaseparatereserveforunfundedcommitments,whichisincludedinLiabilitiesonthe Association’sConsolidatedStatementofCondition.Therelatedprovisionforthereserveforunfundedcommitments isincludedaspartoftheprovisionforcreditlossesontheConsolidatedStatementofComprehensiveIncome,along withtheprovisionforloanlosses.Asummaryofchangesinthereserveforunfundedcommitmentsfollows:
(dollars in thousands)
For the Three Months Ended September 30, 2025 For the Nine Months Ended September 30, 2025
(dollars in thousands)
NOTE 3 – CAPITAL
MonthsEnded September30,2024
MonthsEnded September30,2024
Asummaryofselectcapitalratiosbasedonathree-monthaverageandminimumssetbytheFarmCredit Administrationfollows.
Ifcapitalratiosfallbelowtheregulatoryminimumplusbufferamounts,capitaldistributions(equityredemptions,cash dividendpayments,andcashpatronagepayments)anddiscretionaryseniorexecutivebonusesarerestrictedor prohibitedwithoutpriorFCAapproval.
NOTE 4 - FAIR VALUE MEASUREMENTS
Accountingguidancedefinesfairvalueastheexchangepricethatwouldbereceivedforanassetorpaidtotransfera liabilityintheprincipalormostadvantageousmarketfortheassetorliability.SeeNote2ofthe2024AnnualReport toShareholdersforamorecompletedescription.
Assetsmeasuredatfairvalueonarecurringbasisaresummarizedbelow:
(dollars in thousands)
Assetsheldinnonqualifiedbenefitstrusts
TheAssociationhadnoliabilitiesmeasuredatfairvalueonarecurringbasisatSeptember30,2025orDecember31, 2024.
Assetsmeasuredatfairvalueonanon-recurringbasisforeachofthefairvaluehierarchyvaluesaresummarized below:
(dollars in thousands)
Withregardtoimpairedloansandotherpropertyowned,itisnotpracticabletoprovidespecificinformationoninputs aseachcollateralpropertyisunique.Systeminstitutionsutilizeappraisalstovaluetheseloansandotherproperty
ownedandtakesintoaccountunobservableinputssuchasincomeandexpense,comparablesales,replacement cost,andcomparabilityadjustments.
TheAssociationhadnoliabilitiesmeasuredatfairvalueonanon-recurringbasisatSeptember30,2025or December31,2024.
Valuation Techniques
AsmorefullydiscussedinNote2ofthe2024AnnualReporttoShareholders,accountingguidanceestablishesafair valuehierarchy,whichrequiresanAssociationtomaximizetheuseofobservableinputsandminimizetheuseof unobservableinputswhenmeasuringfairvalue.Thefollowingpresentsabriefsummaryofthevaluationtechniques usedbytheAssociationforassetsandliabilities,subjecttofairvaluemeasurement.
Assets Held in Non-Qualified Benefits Trusts
Assetsheldintrustfundsrelatedtodeferredcompensationandsupplementalretirementplansareclassifiedwithin Level1.Thetrustfundsincludeinvestmentsthatareactivelytradedandhavequotednetassetvaluesthatare observableinthemarketplace.
Loans Evaluated for Impairment
Forimpairedloansmeasuredonanon-recurringbasis,thefairvalueisbasedupontheunderlyingcollateralsincethe loansarecollateraldependentloans.Thefairvaluemeasurementprocessusesindependentappraisalsandother market-basedinformation,butinmanycases,italsorequiressignificantinputbasedonmanagement’sknowledgeof andjudgmentaboutcurrentmarketconditions,specificissuesrelatingtothecollateral,andothermatters.Asaresult, thesefairvaluemeasurementsfallwithinLevel3ofthehierarchy.Whenthevalueofthecollateral,lessestimated coststosell,islessthantheprincipalbalanceoftheloan,aspecificreserveisestablished.
Other Property Owned
Otherpropertyownedmeasuredonanon-recurringbasisisgenerallyclassifiedasLevel3ofthefairvaluehierarchy. Theprocessformeasuringthefairvalueofotherpropertyownedinvolvestheuseofappraisalsorothermarketbasedinformation.Coststosellrepresenttransactioncostsandarenotincludedasacomponentoftheasset’sfair value.
NOTE 5 - SUBSEQUENT EVENTS
TheAssociationhasevaluatedsubsequenteventsthroughNovember4,2025,whichisthedatethefinancial statementswereissued,andnomaterialsubsequenteventswereidentified.
