Farm Credit's Bad-Loan Share Rose 50% in Two Years. Its Examiner Corps Shrank 12%.

The Farm Credit System is a network of borrower-owned cooperative banks that supplies close to half of U.S. agricultural lending, funded by issuing bonds on Wall Street and insured, in the last resort, by a government-controlled corporation.▸ Its own June 2026 investor presentation calls its credit standing Strong Asset Quality, pointing to a nonaccrual rate of "99 bps" — well under 1%. Read the same document's five-year table, and the trend behind that single quarter looks less reassuring. The claim isn't false. It's a snapshot standing in for a trend line pointed the other way, at the same moment the regulator's own examiner corps is thinner than it planned to be.

Gross loans across the System's banks and associations reached $459.2 billion as of March 31, 2026, up from $456.9 billion at the end of 2025, according to the Farm Credit System's own investor presentation (Federal Farm Credit Banks Funding Corporation).▸ The System remains well-capitalized on paper — a 14.8% capital-to-assets ratio backed by $86.4 billion in total capital, and net income of $2.1 billion for the first quarter, up 8.4% from a year earlier. But capital cushions and earnings are backward-looking measures of what a bank already has; loan grading is a forward-looking measure of what it's about to lose. On that measure, the Farm Credit Administration — the System's regulator — reported to its own board on June 11, 2026 that loans classified "Less than Acceptable" have climbed in every loan category for three straight years.

That's a rise from 4.4% to 6.6% of the entire portfolio in two years — a 50% jump in the share of loans regulators consider higher-risk.▸ The production-and-intermediate and agribusiness categories, which cover operating loans and farm-supply businesses rather than real estate, are running even hotter: 9.2% and 11.1% of those books, respectively, were graded below Acceptable as of March 2026, per the same FCA report.

The nonaccrual rate the System advertises — loans on which a bank has stopped booking interest because collection is in doubt — tells the same story in a different unit.

Nonaccrual loans stood at 0.40% of the portfolio at year-end 2023.▸ By the first quarter of 2026 they had reached 0.99% — more than double, in about two years. Framed as "99 basis points" in an investor slide next to "Robust Liquidity" and "Leading Market Share," the number reads as a badge. Framed against its own three-year-old self, it's the fastest deterioration the System has posted since before the pandemic. Neither framing is manufactured — both numbers come from the same table in the same document. Only one of them is on the cover slide.

The Farm Credit Administration's Office of Examination is the System's safety inspector: 60-plus agricultural credit associations and four funding banks, examined on a rolling schedule by a staff drawn from five field offices.▸ In its semi-annual report to the FCA board on December 11, 2025, the agency's Office of Inspector General reported that OE "did not meet hiring and retention targets for FY 25," citing a federal deferred resignation program and a hiring freeze. Attrition ran 12% at fiscal year-end 2025, up from the prior year. The office onboarded 9 associate examiners instead of the 14 it had planned to hire, and could not complete its planned mid-career hiring either.

The System's own insurance backstop is running behind its target on a similar logic.▸ The Farm Credit System Insurance Corporation — a government-controlled corporation separate from the FCA — held $8.6 billion in its Insurance Fund as of December 31, 2025, grown from $260 million in Treasury seed money at its 1989 founding. Congress set the fund's target at 2% of insured debt outstanding. By FCSIC's own account, deductions for government-guaranteed loans mean "in recent years FCSIC has held around 1.73 percent of total insured debt" instead — a gap the corporation has judged "actuarially sound" every year it has reviewed the question, most recently confirming the 10-basis-point premium rate for 2026 and returning $223.9 million in excess funds to System banks in February.

Loan classification categories ("Less than Acceptable") and nonaccrual status are distinct regulatory measures reported in separate System documents; both describe the same underlying loan portfolio but are not directly additive. Figures for the Farm Credit Insurance Fund describe FCSIC, a corporation distinct from the FCA examiner corps discussed above, though both are Farm Credit System oversight bodies.