NRUC 10-K & 10-Q changes, risk factors and insider trading

We face the risk that the principal of, or interest on, a loan will not be paid on a timely basis or at all or that the value of any underlying collateral securing a loan will be insufficient to cover our outstanding exposure. A deterioration in the financial condition of a borrower or underlying collateral could impair the ability of a borrower to repay a loan or our ability to recover unpaid amounts from the underlying collateral. We maintain an internal borrower risk rating system in which we assign a rating to each borrower and credit facility that is intended to reflect the ability of a borrower to repay its obligations and assess the probability of default and loss given default. The borrower risk rating system comprises both quantitative metrics and qualitative considerations. Each component is risk weighted in accordance with its importance. Unforeseen events and developments that affect specific borrowers or that occur in a region where we have a high concentration of credit risk may result in risk rating downgrades. Such an event may result in an increase in any or all of the following: in the allowance for credit losses; delinquent, nonperformingnonaccrual and criticized loans; net charge-offs; and our credit risk.

We establish an allowance for credit losses based on management’s current estimate of credit losses that are expected to occur over the remaining life of the loans in our portfolio. Because the process for determining our allowance for credit losses requires informed judgments about the ability of borrowers to repay their loans, we identify the estimation of our allowance for credit losses as a critical accounting estimate. Our borrower risk ratings are a key input in establishing our allowance for credit losses. Therefore, the deterioration in the financial condition of a borrower may result in a significant increase in our allowance for credit losses and provision for credit losses and may have a material adverse impact on our results of operations, financial condition and liquidity. In addition, we might underestimate expected credit losses and have credit losses in excess of the established allowance for credit losses if we fail to timely identify a deterioration in a borrower’s financial condition or due to other factors. These other factors may include if the methodologypossibility that the methodologies and processprocesses we use into assigningassign borrower risk ratings and makingmake judgments in extending credit to our borrowers doesdo not accurately capture the level of our credit risk exposure or our historical loss experienceexperience, and therefore proves to be not indicative of our expected future losses.

The threat of weather-related events or shifts in climate patterns resulting from climate change, including, but not limited to, increases in storm intensity, number of intense storms and temperature extremes in areas in which our member rural electric cooperatives operate, could result in increased power supply and operating costs, adversely impacting our members’ results of operations, liquidity and ability to make payments to us. While ourOur members have traditionally largely been reimbursed by Federalthe Emergency Management Agency (“FEMA”) relief programs for eligible storm-relatedstorm‑related damages,damages. inIn January 2025, an executive order established the FEMA Review Council withto the intent of implementingimplement significant reforms to FEMA and its reimbursement programs. Ongoing organizational and policy reformschanges at FEMA, including leadership changes, staffing reductions and evolving federal and state roles, may present a risk toaffect the eligibilityeligibility, scope and timing of disaster cost reimbursements. AsIn a result, the programs on which our members have relied upon may not be implemented in their current forms or payments may not be received on a timely basis. Further,addition, FEMA generally does not provide relief for events caused by human errorerror, and, as a result, the majority of wildfires may not be coveredcovered. events.More Forbroadly, increasedthe powercurrent costs,administration althoughis weimplementing believesignificant changes to federal agencies and programs, including executive actions to eliminate or modify agency and program funding, reduce the federal workforce and change agency oversight. Federal programs on which our members rely have thebeen, abilityand may continue to passbe, throughdisrupted increasedor costseliminated, tomay not be implemented in their members,current informs, some cases itor may benot difficultfund to pass through the entire costspayments on a timely basis if they are significant.basis. To the extent CFCwe makesmake bridge loans to members as they wait forawaiting FEMA payments, changes to FEMA programs or delays in FEMA payments from FEMA could adversely impact the quality of our loan portfolio and our financial condition. Additionally, our member rural electric cooperatives are subject to evolving local, state and federal laws, regulations and expectations regarding the environment. These requirements and expectations may increase the time and costs of efforts to monitor and comply with such obligations and expose them to liability. The impacts of climate change present notable risks, including damage to the assets of our members, which could adversely impact the quality of our loan portfolio and our financial condition.

AdvancesTechnological in technologyadvancements may change the way electricity is generated and transmitted or the way broadband is deployed, which could adversely affect the business operations of our members and negatively impact the credit quality of our loan portfolio and financial results.

AdvancesAdvancements in alternative energy technology could reduce demand for power supply systems and distribution services. The development of alternative technologies that produce electricity, including solar cells, wind power and microturbines, has expanded and could ultimately provide affordable alternative sources of electricity and permit end users to adopt distributed generation systems that would allow them to generate electricity for their own use. As these and other technologies, including energy conservation measures, are created, developed and improved, the quantity and frequency of electricity usage by rural customers could decline. As with any internet service provider, rural electric cooperatives may face the risk of being outpaced by technological advancements. While fiber broadband is currently a leading technology, the rise of 5G satellite internet, and other emerging technology, could potentially disrupt the broadband market. Advances in technology and conservation that cause our electric system members’ power supply, transmission and/or distribution facilities to become obsolete prior to the maturity of loans secured by these assets could have an adverse impact on the ability of our members to repay such loans, which could result in an increase in nonperformingnonaccrual or restructured loans. These conditions could negatively impact the credit quality of our loan portfolio and financial results.

As a financial institution, from time to time we may obtain entities and assets of borrowers in default through foreclosure proceedings. If we become the owner and operator of entities or assets obtained through foreclosure, we are subject to the same performance and financial risks as any other owner or operator of similar assets or entities. In particular, the value of the foreclosed assets or entities may deteriorate and have a negative impact on our results of operations. We assess foreclosed assets, if any, for impairment periodically as required under generally accepted accounting principles in the U.S.United States (“U.S. GAAP”). Impairment charges, if required, represent a reduction to earnings in the period of the charge. There may be substantial judgment used in the determination of whether such assets are impaired and in the calculation of the amount of the impairment. In addition, when foreclosed assets are sold to a third party, the sale price we receive may be below the amount previously recorded in our financial statements, which will result in a loss being recorded in the period of the sale.

We depend on access to the capital markets and other sources of financing, such as bank revolving credit agreements, investments from our members, private debt issuances through Farmer Mac and the Guaranteed Underwriter Program, to fund new loan advances, refinance our long- and short-term debt and, if necessary, to fulfill our obligations under our guarantee and repurchase agreements. Prolonged market disruptions, downgrades to our long-term and/or short-term debt ratings, adverse changes in our business or performance, downturns in the electric industry and other events over which we have no control may deny or limit our access to the capital markets and/or subject us to higher costs for such funding. Our access to other sources of funding could also could be limited by the same factors, by adverse changes in the business or performance of our members, by the banks committed to our revolving credit agreements or Farmer Mac, or by changes in federal law or the Guaranteed Underwriter Program. Our funding needs are determined primarily by scheduled short- and long-term debt maturities and the amount of our loan advances to our borrowers relative to the scheduled payment amortization of loans previously made by us. If we are unable to timely issue debt in the capital markets or obtain funding from other sources, we may not have the funds to meet all of our obligations as they become due.

Pursuant to our collateral trust bond indentures, we are required to maintain eligible pledged collateral at least equal to 100% of the principal amount of the bonds issued under the respective indenture. Pursuant to one of our collateral trust bond indentures and our medium-term note indenture, we are required to limit senior indebtedness to 20 times the sum of our members’ equity, subordinated deferrable debt and members’ subordinated certificates. If we were in default under our collateral trust bond or medium-term note indentures, the existing holders of these securities have the right to accelerate the repayment of the full amount of the outstanding debt of the security before the stated maturity of such debt. That acceleration of debt repayments poses a significant liquidity risk, as we might not have enough cash or committed credit available to repay the debt. In addition, if we are not in compliance with the collateral trust bond and medium-term note covenants, we would be unable to issue new debt securities under such indentures. If we were unable to issue new collateral trust bonds and medium-term notes, our ability to fund new loan advances and refinance maturing debt would be impaired.

We use our IT networks and related systems to access, store, transmit and manage or support a variety of our business processes and information, as well as that of our members. We face risks associated with cybersecurity incidents and other disruptions of our IT networks and related systems. Cybersecurity incidents pose a risk to the security of our members’ strategic business information and the confidentiality and integrity of our data, which include strategic and proprietary information. This risk continues to increase and cyberattack methods continue to evolve in sophistication, velocity and frequency. The use of new and emergingdeveloping technologies throughsuch artificialas intelligenceAI and machine learning and quantum computing may intensify this riskrisk. as adversariesAdversaries may leverage artificial intelligenceAI to craft more sophisticated phishing schemes, automate social engineering attacks orattacks, generate malware with increased speed.speed, create deepfakes of company personnel or conduct AI-orchestrated cyberattacks with minimal human involvement, potentially increasing both the frequency and sophistication of attacks. Cybersecurity incidents may occur from a variety of sources, such as foreign governments, hackers or other well-financed entities, and may originate from less regulated and remote areas of the world. Employee errors, malfeasance, technology failures and other irregularities may also contribute to these events. Any such cybersecurity incident can result in a loss of our own business information or information we process on behalf of our members or others, a loss of integrity of such information, a delay or inability to provide service of affected products to our members, material harm to our financial condition or cash flows, damage to our reputation, including a loss of confidence in the security of our products and services, and significant legal and financial exposure, including regulatory scrutiny or enforcement, litigation and damage to our stakeholder relationships. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, we may be unable to anticipate these techniques or implement adequate preventative measures. As a result, cyber-related attacks may remain undetected for an extended period and may be costly to remediate.

While CFC maintains insurance coverage that, subject to policy terms and conditions, covers certain aspects of cyber risks, including business interruptions caused by cybersecurity incidents on information technology systems managed by third parties, such insurance coverage may be insufficient to cover all losses. Our failure to comply with applicable laws, regulations or standards regarding data security and privacy could result in fines, sanctions and litigation. Additionally, newlegislators and regulators are continually adopting or revising privacy, data protection and information and cybersecurity laws at both the federal and state level, creating a complex regulatory patchwork. New or increased laws, regulations, enforcement activity and regulatory guidance in the areas of data security and privacy may increase our costs and our members’ costs, limit our ability to grow our business or otherwise harm our business.

In accordance with our charter documents and the purpose for which we were formed, we lend only to our members and associates. CFC’s directors are elected or appointed from our membership, with 10 director positions filled by directors of members, 10 director positions filled by general managers or chief executive officers of members, two positions appointed by NRECA until June 2027 and one at-large position that must, among other things, be a director, financial officer, general manager or chief executive of one of our members. Upon the termination of the two positions appointed by NRECA in June 2027, two at-large positions will be filled by an executive staff member of our Class B members and a director of our Class D members. CFC currently has loans outstanding to members that are affiliated with CFC directors and may periodically extend new loans to such members. The relationship of CFC’s directors to our members may give rise to conflicts of interests from time to time. See “Item 13. Certain Relationships and Related Transactions, and Director Independence— Review and Approval of Transactions with Related Persons” for a description of our policies with regard to approval of loans to members affiliated with CFC directors.

Labor shortages and supply chain complications exacerbated by, among other things, the invasion of Ukraine by Russia and subsequent sanctions and export controls against RussiaRussia, the ongoing conflict with Iran and increased geopolitical tensions between the United States and Canada, China and Mexico, hashave contributed to continuing inflationary pressures. While general inflation in the United States has decreased from peak levels in 2022, it remains at levels not experienced in recent decades. Certain utility assets of our members, such as transformers and solar panels, are highly sensitive to supply chain complications. Rising energy prices, interest rates and wages, and the pending tariffs to be imposed by the United States on imported goods may increase our operating costs, as well as both the operating and borrowing costs of our members, potentially disrupting our business.

We compete with other lenders for the portion of the rural utility loan demand for which RUS will not lend and for loans to members that have elected not to borrow from RUS. The primary competition for the non-RUS loan volume is from CoBank, ACB, a federally chartered instrumentality of the U.S.United States that is a member of the Farm Credit System. As a government-sponsored enterprise, CoBank, ACB has the benefit of an implied government guarantee with respect to its funding. Competition may limit our ability to raise rates to adequately cover increases in costs, which could have an adverse impact on our results of operations.

CFC has been recognized by the Internal Revenue Service as an organization for which income is exempt from federal taxation under Section 501(c)(4) of the Internal Revenue Code (other than any income from an unrelated trade or business). under Section 501(c)(4) of the Internal Revenue Code. In order to maintain CFC’s tax-exempt status, it must continue to operate exclusively for the promotion of social welfare by operating on a cooperative basis for the benefit of its members by providing them cost-based financial products and services consistent with sound financial management, and no part of CFC’s net earnings may inure to the benefit of any private shareholder or individual other than the allocation or return of net earnings or capital to its members in accordance with CFC’s bylaws and incorporating statute in effect in 1996.

Financial institutions that are subject to regulations, oversight and monitoring by U.S. financial regulators are required to maintain specified levels of capital and may be restricted from engaging in certain lending-related and other activities that could adversely affect the safety and soundness of the financial institution or are considered conflicts of interest. As a tax-exempt, nonbank financial institution, we are not subject to the same oversight and supervision. There is no federal financial regulator that monitors compliance with our risk policies and practices or that identifies and addresses potential deficiencies that could adversely affect our financial results. Without regulatory oversight and monitoring, there is a greater potential for us to engage in activities that could pose a risk to our safety and soundness relative to regulated financial institutions.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the reported carrying amount of our assets or liabilities and our results of operations. We consider the accounting policies that require management to make difficult, subjective and complex judgments about matters that are inherently uncertain as our most critical accounting estimates. The use of reasonably different estimates and assumptions could have a material impact on our financial statements or if the assumptions, estimates or judgments were incorrectly made, we could be required to correct and restate prior-period financial statements. In addition, from time to time, the Financial Accounting Standards Board (“FASB”) and the SEC may change the accounting and reporting standards that govern the preparation of our financial statements. These changes can be harddifficult to predict and can materiallyhave a material impact on how CFC records and reports its financial condition and results of operations. We could be required to retroactively apply a new or revised standard retroactively or apply an existing standard differently, on a retroactive basis, in each case potentially resulting in restating prior-period financial statements. For information on what we consider to be our most critical accounting estimates and recent accounting changes, see “Item 7. MD&A—Critical Accounting Estimates” and “Note 1—Summary of Significant Accounting Policies” to our consolidated financial statements.

Our reported financial results are determined in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) and are subject to period-to-period volatility due to changes in market conditions and differences in the way our financial assets and liabilities are accounted for under U.S. GAAP. Our financial assets and liabilities expose us to interest-rate risk, therefore we use derivatives, primarily interest rate swaps, to economically hedge and manage the interest-rate sensitivity mismatch between our financial assets and liabilities. We are required under U.S. GAAP to carry derivatives at fair value on our consolidated balance sheets; however, the financial assets and liabilities for which we use derivatives to economically hedge are carried at amortized cost. Changes in interest rates and the shape of the swap curve result in periodic fluctuations in the fair value of our derivatives, which may cause volatility in our earnings because we do not apply hedge accounting for our interest rate swaps. As a result, the mark-to-market changes in our interest rate swaps are recorded in earnings. The majority of our derivative portfolio consists of pay-fixed swaps with longer maturities, leading to derivative losses when interest rates decline and derivative gains when interest rates rise. This earnings volatility generally is not indicative of the underlying economics of our business, as the derivative forward fair value gains or losses recorded each period may or may not be realized over time, depending on the terms of our derivative instruments and future changes in market conditions that impact the periodic cash settlement amounts of our interest rate swaps.

Therefore, management uses non-GAAP financial measures, which we refer to as “adjusted” measures, to evaluate financial performance. Our key non-GAAP financial measures are adjusted net income, adjusted net interest income, adjusted interest expense, adjusted net interest yield, adjusted TIER, adjusted debt-to-equity ratio and members’ equity. The most comparable U.S. GAAP financial measures are net income, net interest income, interest expense, net interest yield, TIER, debt-to-equity ratio and CFC equity, respectively. The primary adjustments we make to calculate these non-GAAP financial measures consist of (i) adjusting interest expense and net interest income to include the impact of net periodic derivative cash settlements income (expense) amounts; (ii) adjusting net income and total equity to exclude the non-cash impact of the accounting for derivative financial instruments; (iii) adjusting total debt outstanding to exclude members’ subordinated certificates and 50% of the subordinated deferrable debt; (iv) adjusting total equity to include members’ subordinated certificates and 50% of the subordinated deferrable debt, and exclude cumulative derivative forward value gains (losses), historical foreign currency translation adjustments, and the amounts of accumulated other comprehensive income (loss) (“AOCI”); and (v) adjusting CFC equity to exclude derivative forward value gains (losses), historical foreign currency adjustments and AOCI.

•A shift to lossesgains from gainslosses was recorded on our derivatives portfolio of $398$88 million, as we recorded derivative gains of $82 million for FY2026, primarily attributable to increases in the medium- and longer-term swap interest rates during FY2026. In comparison, we recorded derivative losses of $6 million for FY2025, primarily attributable to decreases in interest rates across the swap curve, with the exception of the 30-year swap rate, which increased slightly during FY2025. In comparison, we recorded derivative gains of $392 million for FY2024, primarily due to increases in the medium- and longer-term swap interest rates during FY2024.

•Net interest income increased by $7$41 million, attributable to an increase in average interest-earning assets of $1,772$1,960 million, or 5%, partiallyand offsetan by a decreaseincrease in the net interest yield of 27 basis points, or 3%,10%, to 0.72%.0.79%.

•We recorded a benefit for credit losses of $10 million and $8 million for FY2026 and FY2025, resultingrespectively, primarily fromdriven aby decreasedecreases in the asset-specific allowance for a nonperformingnonaccrual CFC power supply loan attributabledue to higher actual than expectedhigher-than-expected payments received on this loan during FY2025.both In comparison, we recorded a benefit for credit losses of $5 million for FY2024, resulting primarily from a decrease in the asset-specific allowance, partially offset by an increase in the collective allowance due to loan portfolio growth.periods.

•The decreaseincrease in TIER for FY2025FY2026 compared with FY2024FY2025 was primarily driven by thehigher combinednet impactincome, ofreflecting a decreasechanges in netthe incomeforward primarilyvalue attributable toof our derivative portfolio forward value change as discussed above and anincreased increase innet interest expense during FY2025.income.

During FY2025, we refined our methodology for calculating the debt-to-equity ratio to revise from total liabilities divided by total equity to total debt outstanding divided by total equity. This change was driven by a change in our methodology for calculating the adjusted debt-to-equity ratio, which is discussed in more detail under the section “Non-GAAP Financial Measures and Reconciliations” in this Report. The debt-to-equity ratio under the revised methodology was 11.2010.85 and 10.8611.20 as of May 31, 20252026 and 2024,2025, respectively. The increasedecrease in the debt-to-equity ratio during FY2025FY2026 was due to an increase in total equity, partially offset by an increase in debt to fund loan growth, partially offset by an increase in total equity.growth. The increase in total equity was primarily drivendue byto our reported net income of $140$263 million for FY2025,FY2026, partially offset by the CFC Board of Directors’ authorized patronage capital retirement of $47$53 million in July 2024.2025.

Table 3 below shows our adjusted net income and adjusted TIER for the periods presented and the variance between these periods. Our financial goals focus on earning an annual minimum adjusted TIER of 1.10. We provide a more detailed discussion of our non-GAAP adjusted results under the section “Consolidated Results of Operations.” See “Item 7. MD&A —Consolidated Results of Operations” in our 20242025 Form 10-K for a comparative discussion of our consolidated results of operations between FY2024FY2025 and FY2023.FY2024.

•Adjusted net interest income decreasedincreased by $21$6 million for FY2025FY2026 compared with FY2024,FY2025, driven by an increase in average interest-earning assets of $1,960 million, or 5%, partially offset by a decrease in the adjusted net interest yield of 114 basis points, or 10%,4%, to 1.00%, partially offset by an increase in average interest-earning assets of $1,772 million, or 5%.0.96%.

•We discuss the variances in the other components above under ourthe netsection income“Reported keyResults—Net highlights.Income and TIER—FY2026 versus FY2025—Key Highlights.”

•The slight decrease in adjusted TIER for FY2025FY2026 compared with FY2024FY2025 was primarily driven by the increasedslight decrease in adjusted interestnet expenseincome andduring FY2026 driven by higher operating and other expenses during FY2025.expense.

DuringOur FY2025,financial wegoals refinedfocus ouron methodologymaintaining for calculating thean adjusted debt-to-equity ratio.ratio Consequently,at weapproximately revised8.5-to-1 ouror internally established adjusted debt-to-equity threshold from 6-to-1 to 8.5-to-1.below. The adjusted debt-to-equity ratio under the revised methodology was 7.397.46 and 7.277.39 as of May 31, 20252026 and 2024,2025, respectively. The increase in the adjusted debt-to-equity ratio during FY2025FY2026 was due to an increase in adjusted total debt outstandingoutstanding, resulting from additional borrowings to fund growth in our loan portfolio, partially offset by an increase in adjusted total equity. The increase in adjusted total equity was primarily duedriven to a combined impact ofby our adjusted net income of $245 million for FY2025 and issuances of subordinated deferrable debt during FY2025,FY2026, partially offset by net decreases in members’ subordinated certificates and subordinated deferrable debt, as well as a decrease$53 million reduction in equity ofresulting $47 million attributable tofrom the CFC Board of Directors’ authorized patronage capital retirementretirements in July 2024, as discussed above.2025.

We provide a more detailed discussion of the revised methodology for calculating the adjusted debt-to-equity ratio and a reconciliation of our non-GAAP adjusted measures to the most directly comparable U.S. GAAP measures under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

Loans to members totaled $37,080$38,422 million as of May 31, 2025,2026, an increase of $2,538$1,342 million, or 7%,4%, from May 31, 2024,2025, reflectingdriven netprimarily increasesby growth in long-term andloans, linewhich ofincreased credit loans of $1,405$1,310 million andduring $1,130 million, respectively. Of the increase in line of credit loans, 78% was attributable to borrowings under emergency line of credit loans by our members primarily for recovery costs for Hurricane Helene, which impacted the Southeastern United States in September 2024. The remaining 22% was primarily attributable to funding provided for member working capital and NCSC renewable project financing.FY2026. Our loan portfolio composition remained largely unchanged from May 31, 20242025 with 79%78% of loans outstanding to CFC distribution borrowers, 16%17% to CFC power supply borrowers, 3% to NCSC electric borrowers and 2% to NCSC telecom borrowers as of May 31, 2025.2026.

The overall credit quality of our loan portfolio remained strong as of May 31, 2025.2026. We recorded an immaterial charge-off of $0.3 million related to a CFC electric power supply loan during FY2026. We had no loan charge-offs during FY2025 and FY2024. We recorded $1 million in net loan recoveries to previously charged-off loan amounts during FY2024.FY2025.

Total debt outstanding increased by $2,051$1,175 million, or 6%,3%, to $34,769$35,944 million as of May 31, 2025,2026, compared with May 31, 2024,2025, primarily due to borrowings to fund the increase in loans to our members. During FY2025,FY2026, substantially all of our new long-term debt issuances were unsecured as we issuedcontinued to access diverse funding sources and strengthen our liquidity position, including:

Emerging developments and trends in the electric cooperative sector continue to present both opportunities as well asand challenges for our electric cooperative members.members Theseand influence the demand for capital and credit products we provide. Key trends include (i)the changing federal government programsregulatory and policiesfinancing for electric utilities; (ii)landscape, increased electricity demand; (iii)and large-load development, significant generation and transmission capital investment, supply chain and equipment constraints, and continued focus on grid reliability risk; and (iv) expanded investments by many electric cooperatives to deploy broadband services.resiliency.

Based on our current forecast assumptions, including the yieldinterest curverates forecast noted above, we project increases in our reported net interest income and net interest yield over the next 12 months compared with the 12-month period ended May 31, 2025.2026. See “Market Risk—Interest Rate Risk Assessment” for an additional discussion.

This Quarterly Report on Form 10-Q for the quarterly period ended NovemberFebruary 30,28, 20252026 (“this Report”) contains certain statements that are considered “forward-looking statements” as defined in and within the meaning of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts or statements of current conditions. Instead, forward-looking statements represent management’s current beliefs and expectations, based on certain assumptions and estimates made by, and information available to, management at the time the statements are made, regarding our future plans, strategies, operations, financial results or other events and developments, many of which, by their nature, are inherently uncertain and outside our control. Forward-looking statements are generally identified by the use of words such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “target,” “believe,” “expect,” “forecast,” “continue,” “potential,” “opportunity,” “outlook” and similar expressions, whether in the negative or affirmative. All statements about future expectations or projections, including statements about loan volume, the adequacy of the allowance for credit losses, operating income and expenses, leverage and debt-to-equity ratios, borrower financial performance, impaired loans, and sources and uses of liquidity, are forward-looking statements. Although we believe the expectations reflected in our forward-looking statements are based on reasonable assumptions, actual results and performance may differ materially from our forward-looking statements. Therefore, you should not place undue reliance on any forward-looking statement and should consider the risks and uncertainties that could cause our current expectations to vary from our forward-looking statements, including, but not limited to, legislative changes that could affect our tax status and other matters, demand for our loan products, lending competition, changes in the quality or composition of our loan portfolio, changes in our ability to access external financing, fluctuations in interest rates and market volatility, changes in the credit ratings on our debt, valuation of collateral supporting impaired loans, charges associated with our operation or disposition of foreclosed assets, nonperformance of counterparties to our derivative agreements, economic conditions and regulatory or technological changes within the rural electric industry, the costs and impact of legal or governmental proceedings involving us or our members, general economic conditions, governmental monetary and fiscal policies, the occurrence and effect of natural disasters, including severe weather events or public health emergencies, and the factors listed and described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 (“2025 Form 10-K”), as well as any risk factors identified under “Part II—Item 1A. Risk Factors” in this Report. Forward-looking statements speak only as of the date they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect the impact of events, circumstances or changes in expectations that arise after the date any forward-looking statement is made.

Our fiscal year begins on June 1 and ends on May 31. References to “Q2Q3 FY2026” and “YTD FY2026” refer to three and sixnine months ended NovemberFebruary 30,28, 2025,2026, respectively. References to “Q2Q3 FY2025” and “YTD FY2025” refer to three and sixnine months ended NovemberFebruary 30,28, 2024,2025, respectively.

Net Income (Loss) and TIER

Table 1 below shows our net income (loss) and TIER for the periods presented and the variance between these periods. We provide a more detailed discussion of our reported results under the section “Consolidated Results of Operations.”

Table 1: Net Income (Loss) and TIER

•We experienced a shift from gains to losses on our derivatives portfolio of $128$73 million. We recorded derivative losses of $19$32 million for Q2Q3 FY2026, primarilydriven attributable toby declines in the short-term and longer-term swap interest rates across the entire swap curve during Q2Q3 FY2026. In comparison, we recorded derivative gains of $109$40 million for Q2Q3 FY2025, attributable to increases in the medium- and longer-term swap interest rates during Q2Q3 FY2025.

•Operating and other expenses increased by $2$5 million from Q2Q3 FY2025, driven by higher expenses recorded for salaries and employee benefits.benefits and higher other non-interest expenses mainly from losses on extinguishment of debt.

•We recorded a provisionbenefit for credit losses of $1$7 million and $6 million for Q2Q3 FY2026,FY2026 aand slight increase from Q2Q3 FY2025, respectively, primarily driven by an increasedecreases in the collectiveasset-specific allowance for a nonperforming and nonaccrual CFC power supply loan due to thehigher growthactual inand ourexpected payments on this loan portfolio.during both periods.

Table 3 below presents a reconciliation of net income (loss) between YTD FY2026 and YTD FY2025.

Table 3: Reconciliation of Net Income (Loss)—YTD

•Losses on our derivatives portfolio decreasedincreased $38$34 million compared to YTD FY2025. We recorded derivative losses of $51$83 million for YTD FY2026FY2026, compareddriven withby $89declines in interest rates across the entire swap curve. In comparison, we recorded derivative losses of $49 million for YTD FY2025, driven by declines in interest rates across the entire swap curve in both periods,curve, with the rateexception declinesof inthe YTD30-year FY2026swap beingrate, lesswhich pronouncedincreased thanslightly induring YTD FY2025.

•Operating and other expenses increased by $6$11 million from YTD FY2025, driven by higher expensesoperating recordedexpense for salaries and employee benefits and other general and administrative.administrative, as well as higher other non-interest expenses, primarily due to losses on extinguishment of debt.

•We recorded a provisionbenefit for credit losses of $3$5 million and $2$4 million for YTD FY2026 and YTD FY2025, respectively, primarily driven by decreases in the asset-specific allowance for a nonperforming and nonaccrual CFC power supply loan, partially offset by increases in the collective allowance due to the growth in our loan portfolio forin both the periods.

•The increasedecrease in TIER for YTD FY2026 compared with YTD FY2025 was driven by the higherlower net income, primarily attributable to our derivative portfolio forward value change as discussed above, partiallyand offset by anthe increase in interest expense during YTD FY2026.

The debt-to-equity ratio was 11.5811.74 and 11.20 as of NovemberFebruary 30,28, 20252026 and May 31, 2025, respectively. The increase in the debt-to-equity ratio during YTD FY2026 was due to the combined impact of an increase in debt to fund loan growth and a decrease in total equity. The decrease in total equity was primarily driven by the CFC Board of Directors’ authorized patronage capital retirement of $53 million in July 2025, partially offset by our reported net income of $24$47 million for YTD FY2026.

•Adjusted net interest income decreasedincreased by $2$5 million from Q2Q3 FY2025, driven by a decrease in the adjusted net interest yield of 8 basis points, or 8%, to 0.95%, partially offsetprimarily by an increase in average interest-earning assets of $2,109$1,831 million, or 6%.5%.

•We discuss the variances in the other components above under ourthe netsection income“Reported (loss)Results—Net keyIncome highlights.and TIER— Q3 FY2026 versus Q3 FY2025—Key Highlights.”

•Adjusted net interest income decreasedincreased by $5 millionslightly from YTD FY2025, driven by an increase in average interest-earning assets of $2,055 million, or 6%, largely offset by a decrease in the adjusted net interest yield of 86 basis points, or 8%,6%, to 0.96%, partially offset by an increase in average interest-earning assets of $2,166 million, or 6%.

•We discuss the variances in the other components above under ourthe netsection income“Reported (loss)Results—Net keyIncome highlights.and TIER— YTD FY2026 versus YTD FY2025—Key Highlights.”

Our financial goals focus on maintaining an adjusted debt-to-equity ratio at approximately 8.5-to-1 or below. The adjusted debt-to-equity ratio was 7.597.76 and 7.39 as of NovemberFebruary 30,28, 20252026 and May 31, 2025, respectively. The increase in the adjusted debt-to-equity ratio during YTD FY2026 was primarily duedriven toby an increase in adjusted total debt outstandingoutstanding, resulting from additional borrowings to fund growth in our loan portfolio.portfolio, partially offset by a slight increase in adjusted total equity. The increase in adjusted total equity was primarily attributable to adjusted net income of $181 million for YTD FY2026, partially offset by the net decrease in subordinated debt and the CFC Board of Directors’ authorized patronage capital retirement of $53 million in July 2025.

Loans to members totaled $37,842$38,750 million as of NovemberFebruary 30,28, 2025,2026, an increase of $762$1,670 million, or 2%,5%, from May 31, 2025, reflecting net increases in long-term and line of credit loans of $582$1,076 million and $180$594 million, respectively. Our loan portfolio composition remained largely unchanged from May 31, 2025 with 78% of loans outstanding to CFC distribution borrowers, 16% to CFC power supply borrowers, 3% to NCSC electric borrowers, 2% to NCSC telecom borrowers, and 1% to CFC statewide and associate borrowers as of NovemberFebruary 30,28, 2025.2026.

The overall credit quality of our loan portfolio remained strong as of NovemberFebruary 30,28, 2025.2026. We recorded a charge-off of $0.3 million related to a CFC electric power supply loan during Q3 FY2026 and YTD FY2026. We had no loan charge-offs during YTD FY2026 and YTD FY2025. We had one loan totaling $24$13 million and $26 million classified as nonperforming and nonaccrual as of NovemberFebruary 30,28, 20252026 and May 31, 2025, respectively. The reductiondecrease in thethis nonperformingoutstanding loan outstandingbalance wasreflected due$13 tomillion a paymentpayments received from the borrower during YTD FY2026.FY2026 and an immaterial charge-off during Q3 FY2026, as discussed above. Subsequent to the quarter ended NovemberFebruary 30,28, 2025,2026, we received an $11$5 million paymentpayments on this nonperforming loan which reduced its outstanding balance to $13$8 million.

Our allowance for credit losses wasand $43allowance coverage ratio were $36 million and 0.09%, respectively, as of NovemberFebruary 30,28, 2025,2026, compared with $41 million and 0.11%, respectively, as of May 31, 2025. The increase$5 million decrease in the allowance for credit losses wasreflected a $9 million reduction in the asset-specific allowance attributable to anhigher-than-expected payments received on a nonperforming and nonaccrual CFC power supply loan, partially offset by a $4 million increase in the collective allowanceallowance, primarily drivendue by theto growth in our loan portfolio. Our allowance coverage ratio remained steady at 0.11% as of both November 30, 2025 and May 31, 2025.

OnIn November 12, 2025, we amended our three-year and four-year committed bank revolving line of credit agreements to extend the maturity date of each facility by one year and to increase the total commitments by $200 million, resulting in a total commitment amount under the two facilities of $3,500 million.

Our available liquidity consists of cash and cash equivalents, investments in debt securities, availability under committed bank revolving line of credit agreements, committed loan facilities under the USDA Guaranteed Underwriter Program (“Guaranteed Underwriter Program”),Program, and a revolving note purchase agreement with Farmer Mac. As of NovemberFebruary 30,28, 2025,2026, our available liquidity totaled $7,975$8,148 million and was $2,515$2,022 million less than our total scheduled debt obligations over the next 12 months of $10,490$10,170 million, of which $3,358$2,908 million, or 32%,29%, represented member short-term investments. In addition to our existing available liquidity, we expect to receive $1,849$2,060 million from scheduled long-term loan principal payments over the next 12 months.

We believe we can continue to roll over our member short-term investments based on our expectation that our members will continue to reinvest their excess cash primarily in short-term investment products offered by CFC. Our members historically have maintained a relatively stable level of short-term investments in CFC. Member short-term investments in CFC have averaged $3,250$3,227 million over the last 12 fiscal quarter-end reporting periods. Our available liquidity as of NovemberFebruary 30,28, 20252026 was $843$886 million in excess of, or 1.1 times over, our total $7,132$7,262 million scheduled debt obligations over the next 12 months, excluding member short-term investments.

The Federal Reserve’s DecemberMarch 20252026 median projection for the annual growth rate of real gross domestic product (“GDP”) in 2026 is 2.3%,2.4%, up from 1.8%2.3% in its SeptemberDecember 2025 projection. The median projection for Personal Consumption Expenditures (“PCE”) inflation in 2026 has declinedincreased to 2.4%2.7% from 2.6%2.4% previously. The U.S. unemployment rate in 2026 is projected to average 4.4%, unchanged from its SeptemberDecember 2025 projection.

Federal funds futures markets anticipate twono additional 25 basis pointfurther rate cuts in calendar year 2026: and one inrate thecut secondof quarter25 andbasis anotherpoints in thecalendar thirdyear quarter.2027. If thesethis rate cutscut occur as expected,occurs, the federal funds target rate would decline to a range of 3.00%3.25%–3.25%3.50% by the end of 2026.2027. Overall the market expects the yield curve to steepen, as short-term interest rates are forecasted to decline, withwhile alonger-term steepeningrates yieldare curveexpected ahead.to remain near current levels.

Based on our current forecast assumptions, including the yield curve forecast noted above, we project increases in our reported net interest income and net interest yield over the next 12 months compared with the 12-month period ended NovemberFebruary 30,28, 2025.2026. See “Market Risk—Interest Rate Risk Assessment” in this Report for additional information.

•An increaseIncreases in our adjusted net interest income and a slight increase in our adjusted net interest yield over the next 12 months relative to the 12-month period ended NovemberFebruary 30,28, 2025,2026, primarily driven by an increase in interest-earning assets due to projected loan growth and by projected lower adjusted average cost of funding. The projected lowerdecline in adjusted average cost of funding isreflects driven by the expected decreasechanges in thefunding mix and lower variable rate debt cost, partially offset by lower expected average yield earned on our interest rate swaps derivative cash settlements and bythe refinancing of maturing lower-cost long-term debt maturing in the near term that will need to be refinanced at a forecasted higher interest rate.rates. See “Market Risk—Interest Rate Risk Assessment” in this Report for additional information.

•A decreaseslight increase in our adjusted net income over the next 12 months, primarily duedriven toby anhigher increaseadjusted innet interest income, partially offset by higher projected operating expenses.

•A slight decrease in adjusted TIER over the next 12 months, primarily attributable to increases in projected adjustednon-interest interestexpenses, expense andmainly operating expenses.

•AnA increasedecrease in our adjusted debt-to-equity ratio, primarily due to thea projected increase in total adjusted equity driven by an anticipated private placement subordinated debt issuance in April 2026, which outweighs the increase in debt outstanding to fund anticipated growth in our loan portfolio.

As stated above, we exclude the impact of unrealized derivative forward fair value gains (losses) from our non-GAAP financial measures. As the majority of our swaps are long-term with an average remaining life of approximately 1415 years as of NovemberFebruary 30,28, 2025,2026, the unrealized periodic derivative forward value gains (losses) are largely based on future expected changes in longer-term interest rates, which we are unable to accurately predict for each reporting period over the next 12 months. Due to the difficulty in predicting these unrealized amounts, we are unable to provide without unreasonable effort a reconciliation of our forward-looking adjusted financial measures to the most directly comparable GAAP financial measures.

This section provides a comparative discussion of our consolidated results of operations between Q2Q3 FY2026 and Q2Q3 FY2025, and between YTD FY2026 and YTD FY2025. Following this section, we provide a discussion and analysis of material changes between amounts reported on our consolidated balance sheets as of NovemberFebruary 30,28, 20252026 and May 31, 2025. You should read these sections together with our “Executive Summary—Outlook” in this Report where we discuss trends and other factors that we expect will affect our future results of operations.