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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

__________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2025


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-7102

__________________________________

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

__________________________________


District of Columbia						52-0891669
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


20701 Cooperative Way,	Dulles,	Virginia,	20166
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (703) 467-1800

__________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
7.35% Collateral Trust Bonds, due 2026	NRUC 26	New York Stock Exchange
5.50% Subordinated Notes, due 2064	NRUC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The Registrant is a tax-exempt cooperative and therefore does not issue capital stock.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION		1
Item 1.	Financial Statements	44
	Consolidated Statements of Operations (Unaudited)	45
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	46
	Consolidated Balance Sheets (Unaudited)	47
	Consolidated Statements of Changes in Equity (Unaudited)	48
	Consolidated Statements of Cash Flows (Unaudited)	49
	Notes to Consolidated Financial Statements (Unaudited)	50
	Note 1 — Summary of Significant Accounting Policies	50
	Note 2 — Interest Income and Interest Expense	52
	Note 3 — Investment Securities	53
	Note 4 — Loans	54
	Note 5 — Allowance for Credit Losses	64
	Note 6 — Short-Term Borrowings	66
	Note 7 — Long-Term Debt	68
	Note 8 — Subordinated Deferrable Debt	70
	Note 9 — Derivative Instruments and Hedging Activities	70
	Note 10 — Equity	74
	Note 11 — Guarantees	75
	Note 12 — Fair Value Measurement	77
	Note 13 — Variable Interest Entities	79
	Note 14 — Business Segments	80

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)	1
	Forward-Looking Statements	1
	Introduction	1

	Non-GAAP Financial Measures	2
	Executive Summary	3
	Consolidated Results of Operations	8
	Consolidated Balance Sheet Analysis	15
	Enterprise Risk Management	20
	Credit Risk	21
	Liquidity Risk	27
	Market Risk	37
	Critical Accounting Estimates	40
	Recent Accounting Changes and Other Developments	40
	Non-GAAP Financial Measures and Reconciliations	40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	85
Item 4.	Controls and Procedures	85

PART II—OTHER INFORMATION		85
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	86
Item 6.	Exhibits	86

SIGNATURES		87

Table of Contents

CROSS REFERENCE INDEX OF MD&A TABLES


Table	Description	Page

1	Net Income (Loss) and TIER	3
2	Reconciliation of Net Income (Loss)	4
3	Adjusted Net Income and Adjusted TIER	5
4	Reconciliation of Adjusted Net Income	5
5	Average Balances, Interest Income/Interest Expense and Average Yield/Cost	9
6	Rate/Volume Analysis of Changes in Interest Income/Interest Expense	11
7	Non-Interest Income (Loss)	13
8	Derivative Gains (Losses)	14
9	Comparative Swap Curves	14
10	Non-Interest Expense	15
11	Debt—Total Debt Outstanding	17
12	Debt—Member Investments	18
13	Equity	19
14	Loans—Loan Portfolio Security Profile	22
15	Loans—Loan Exposure to 20 Largest Borrowers	23
16	Allowance for Credit Losses by Borrower Member Class and Evaluation Methodology	25
17	Available Liquidity	28
18	Liquidity Coverage Ratios	29
19	Committed Bank Revolving Line of Credit Agreements	31
20	Short-Term Borrowings—Funding Sources	32
21	Long-Term and Subordinated Debt—Issuances and Repayments	33
22	Long-Term and Subordinated Debt—Scheduled Principal Maturities and Amortization	33
23	Collateral Pledged	34
24	Loans—Unencumbered Loans	35
25	Projected Long-Term Sources and Uses of Funds	36
26	Credit Ratings	36
27	Interest Rate Sensitivity Analysis	39
28	Adjusted Net Income	41
29	TIER and Adjusted TIER	41

30	Adjusted Total Debt Outstanding and Equity	42
31	Debt-to-Equity Ratio and Adjusted Debt-to-Equity Ratio	43
32	Members’ Equity	43

Table of Contents

PART I—FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2025 (“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.


INTRODUCTION

Our financial statements include the consolidated accounts of National Rural Utilities Cooperative Finance Corporation (“CFC”) and National Cooperative Services Corporation (“NCSC”). Our principal operations are currently organized for management reporting purposes into two business segments, which are based on the accounts of each of the legal entities included in our consolidated financial statements: CFC and NCSC, which are discussed below.

CFC is a member-owned, nonprofit finance cooperative association with a principal purpose of providing financing to its members to supplement the loan programs of the Rural Utilities Service (“RUS”) of the United States Department of Agriculture (“USDA”). CFC extends loans to its rural electric members for construction, acquisitions, system and facility repairs and maintenance, enhancements and ongoing operations to support the goal of electric distribution and generation and transmission (“power supply”) systems of providing reliable, affordable power to the customers they serve. CFC also provides its members and associates with credit enhancements in the form of letters of credit and guarantees of debt obligations. As a Section 501(c)(4) tax-exempt, member-owned cooperative, CFC’s objective is not to maximize profit, but rather to offer members cost-based financial products and services. The interest rates on lending products offered to our member borrowers reflect our funding costs plus a spread to cover operating expenses and estimated credit losses, while also generating sufficient earnings to cover interest owed on our debt obligations and achieve certain financial target goals.

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CFC’s primary funding sources consist of a combination of public and private issuances of debt securities, member investments and retained equity. As a tax-exempt cooperative, CFC cannot issue equity securities as a source of funding.

NCSC is a member-owned taxable cooperative that is permitted to provide financing to two types of members: NCSC electric and NCSC telecommunication. NCSC electric members and associates consist of members of CFC, entities eligible to be members of CFC, government or quasi-government entities that own electric utility systems that meet the Rural Electrification Act definition of “rural,” and for-profit and nonprofit entities that are owned, operated or controlled by, or provide significant benefits to certain members of CFC. NCSC telecommunication (“telecom”) members and associates consist of rural telecommunications members and their affiliates.

Cooperative Securities LLC (“Cooperative Securities”) is a limited liability company and a wholly owned subsidiary of NCSC. Cooperative Securities is a broker-dealer registered with the U.S. Securities and Exchange Commission (“SEC”), and is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Cooperative Securities provides institutional debt placement services, which may include advising, arranging and structuring private debt financing transactions, for NCSC’s members, and for-profit and not-for-profit entities that are owned, operated or controlled by, or provide a significant benefit to certain rural utility providers.

See “Item 1. Business” in our 2025 Form 10-K for additional information on the business structure, mission, principal purpose, members and core business activities of each of these entities. Unless stated otherwise, references to “we,” “our” or “us” relate to CFC and its consolidated entities. All references to members within this document include members, associates and affiliates of CFC and its consolidated entities, except where indicated otherwise.

The following MD&A is intended to enhance the understanding of our consolidated financial statements by providing information that we believe is relevant in evaluating our results of operations, financial condition and liquidity and the potential impact of material known events or uncertainties that, based on management’s assessment, are reasonably likely to cause the financial information included in this Report not to be necessarily indicative of our future financial performance. Management monitors a variety of key indicators and metrics to evaluate our business performance. We discuss these key measures and factors influencing changes from period to period. Our MD&A is provided as a supplement to, and should be read in conjunction with, the unaudited consolidated financial statements included in this Report, our audited consolidated financial statements and related notes for the fiscal year ended May 31, 2025 (“fiscal year 2025”) included in our 2025 Form 10-K and additional information, including the risk factors discussed under “Item 1A. Risk Factors,” contained in our 2025 Form 10-K, as well as additional information contained elsewhere in this Report.

Our fiscal year begins on June 1 and ends on May 31. References to “Q1 FY2026” and “Q1 FY2025” refer to three months ended August 31, 2025 and 2024, respectively.


NON-GAAP FINANCIAL MEASURES

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

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expense, adjusted net interest yield, adjusted times interest earned ratio (“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) and the amounts of accumulated other comprehensive income (loss) (“AOCI”); and (v) adjusting CFC equity to exclude derivative forward value gains (losses) and AOCI.

We believe our non-GAAP financial measures, which should not be considered in isolation or as a substitute for measures determined in conformity with U.S. GAAP, provide meaningful information and are useful to investors because management evaluates performance based on these metrics for purposes of (i) establishing short- and long-term performance goals; (ii) budgeting and forecasting; (iii) comparing period-to-period operating results, analyzing changes in results and identifying potential trends; and (iv) making compensation decisions. In addition, certain of the financial covenants in our committed bank revolving line of credit agreements and debt indentures are based on non-GAAP financial measures, as the forward fair value gains and losses related to our interest rate swaps that are excluded from our non-GAAP financial measures do not affect our cash flows, liquidity or ability to service our debt. Our non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated. We provide a reconciliation of our non-GAAP adjusted measures to the most directly comparable U.S. GAAP measures in the section “Non-GAAP Financial Measures and Reconciliations.”


EXECUTIVE SUMMARY

Reported Results

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


(Dollars in thousands)	Q1 FY2026		Q1 FY2025		Variance
Net income (loss)	$	4,682	$	(164,326)	$	169,008
TIER(1)	1.01		0.54		0.47

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(1)Calculated based on net income (loss) plus interest expense for the period divided by interest expense for the period.

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Table 2 below presents a reconciliation of net income (loss) between Q1 FY2026 and Q1 FY2025.

Table 2: Reconciliation of Net Income (Loss)

Q1 FY2026 versus Q1 FY2025—Key Highlights

•Losses recorded on our derivatives portfolio decreased $166 million from Q1 FY2025. We recorded derivative losses of $32 million for Q1 FY2026, primarily attributable to declines in interest rates across the swap curve, with the exception of the 30-year swap rate, which increased slightly during Q1 FY2026. In comparison, we recorded derivative losses of $198 million for Q1 FY2025, attributable to more pronounced declines in interest rates across the entire swap curve during Q1 FY2025.

•Net interest income increased $9 million from Q1 FY2025 driven by an increase in the net interest yield of 6 basis points, or 9%, to 0.75% and an increase in average interest-earning assets of $2,223 million, or 6%.

•Operating and other expenses increased by $5 million from Q1 FY2025 primarily driven by higher expenses recorded for salaries and employee benefits and general and administrative.

•Gains recorded on our investment securities decreased $3 million from Q1 FY2025 primarily driven by period-to-period market fluctuations in fair value and a reduction in our debt security balance due to maturities.

•We recorded a provision for credit losses of $2 million and $1 million for Q1 FY2026 and Q1 FY2025, respectively, primarily driven by an increase in the collective allowance due to the growth in our loan portfolio.

•The increase in TIER for Q1 FY2026 compared with Q1 FY2025 was driven by the net income recorded for Q1 FY2026 compared with the net loss recorded for Q1 FY2025, which was primarily attributable to our derivative portfolio forward value change as discussed above, partially offset by an increase in interest expense during Q1 FY2026.

Debt-to-Equity Ratio

The debt-to-equity ratio was 11.55 and 11.20 as of August 31, 2025 and May 31, 2025, respectively. The increase in the debt-to-equity ratio during Q1 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 $5 million for Q1 FY2026.

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Non-GAAP Adjusted Results

Adjusted Net Income and Adjusted TIER

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.”

Table 3: Adjusted Net Income and Adjusted TIER


(Dollars in thousands)	Q1 FY2026		Q1 FY2025		Variance
Adjusted net income	$	57,153	$	66,060	$	(8,907)
Adjusted TIER	1.16		1.20		(0.04)

Table 4 below presents a reconciliation of adjusted net income between Q1 FY2026 and Q1 FY2025.

Table 4: Reconciliation of Adjusted Net Income

Q1 FY2026 versus Q1 FY2025—Key Highlights

•Adjusted net interest income decreased by $2 million from Q1 FY2025 driven by a decrease in the adjusted net interest yield of 9 basis points, or 9%, to 0.96%, partially offset by an increase in average interest-earning assets of $2,223 million, or 6%.

•We discuss the variances in the other components above under our net income (loss) key highlights.

•The decrease in adjusted TIER for Q1 FY2026 compared with Q1 FY2025 was primarily driven by an increase in adjusted interest expense during Q1 FY2026.

Adjusted Debt-to-Equity Ratio

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 7.50 and 7.39 as of August 31, 2025 and May 31, 2025, respectively. The increase in the adjusted debt-to-equity ratio during Q1 FY2026 was due to an increase in adjusted total debt outstanding 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 due to our adjusted net income of $57 million for Q1 FY2026, partially offset by a decrease in equity of $53 million attributable to the CFC Board of Directors’ authorized patronage capital retirement in July 2025.

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We provide a more detailed discussion of the 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.

Lending and Credit Quality

We segregate our loan portfolio into segments based on the borrower member class, which consists of CFC distribution, CFC power supply, CFC statewide and associate, NCSC electric and NCSC telecom.

Loans to members totaled $37,570 million as of August 31, 2025, an increase of $490 million, or 1%, from May 31, 2025, reflecting net increases in long-term and line of credit loans of $262 million and $228 million, respectively. Our loan portfolio composition remained largely unchanged from May 31, 2025 with 79% of loans outstanding to CFC distribution borrowers, 16% to CFC power supply borrowers, 3% to NCSC electric borrowers, and 2% to NCSC telecom borrowers as of August 31, 2025.

The overall credit quality of our loan portfolio remained strong as of August 31, 2025. We had no loan charge-offs during Q1 FY2026 and Q1 FY2025. We had one loan totaling $24 million and $26 million classified as nonperforming as of August 31, 2025 and May 31, 2025, respectively. The reduction in the nonperforming loan outstanding was due to a payment received from the borrower during Q1 FY2026.

Our allowance for credit losses was $42 million as of August 31, 2025, compared with $41 million as of May 31, 2025. The increase in the allowance for credit losses was attributable to an increase in the collective allowance primarily driven by the growth in our loan portfolio. Our allowance coverage ratio remained steady at 0.11% as of both August 31, 2025 and May 31, 2025.

Financing and Liquidity

Total debt outstanding increased $512 million, or 1%, to $35,281 million as of August 31, 2025, primarily due to borrowings to fund the increase in loans to our members. During Q1 FY2026, we issued unsecured long-term dealer medium-term notes totaling $1,225 million, of which $700 million was at a fixed interest rate of 4.15% with a term of three years and $525 million was at a floating interest rate with a term of 18 months. On September 23, 2025, notice was provided to investors that we will redeem $50 million in principal amount of our $300 million fixed-to-floating rate subordinated deferrable debt due 2043 (the “2043 Notes”) on October 23, 2025.

On June 2, 2025, at our request, S&P withdrew its “A-2” short-term issue ratings on CFC’s commercial paper program. The “A-” long-term issuer credit rating, the stable outlook and the other long-term debt ratings are unchanged as of the date of this Report. On August 25, 2025, Fitch Ratings (“Fitch”) affirmed CFC’s credit ratings and stable outlook.

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”), and a revolving note purchase agreement with the Federal Agricultural Mortgage Corporation (“Farmer Mac”). As of August 31, 2025, our available liquidity totaled $7,738 million and was $1,035 million less than our total scheduled debt obligations over the next 12 months of $8,773 million, of which $3,139 million, or 36%, represented member short-term investments. In addition to our existing available liquidity, we expect to receive $1,763 million from scheduled long-term loan principal payments over the next 12 months. In September 2025, we executed a commitment letter for the guarantee by RUS of an additional $450 million loan facility from the U.S. Treasury Department’s Federal Financing Bank (“FFB”) under the Guaranteed Underwriter Program.

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 $3,292 million over the last 12 fiscal quarter-end reporting periods. Our available liquidity as of August 31, 2025 was $2,104 million in excess of, or 1.4 times over, our total $5,634 million scheduled debt obligations over the next 12 months, excluding member short-term investments.

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Outlook

Macroeconomic Outlook

Following its meeting held in September 2025, the Federal Open Market Committee (“FOMC”) of the Federal Reserve cut its target range for the federal funds rate by 25 basis points to 4.00%–4.25%. The FOMC noted that recent economic indicators suggest (i) the growth of economic activity moderated in the first half of the year, (ii) job gains have slowed, (iii) the unemployment rate has edged up but remains low, and (iv) inflation has moved up and remains somewhat elevated. The Federal Reserve’s September 2025 median projection for the annual growth rate of real gross domestic product (“GDP”) in 2025 is 1.6%, up from 1.4% in its June 2025 projection. The median projection for Personal Consumption Expenditures (“PCE”) inflation in 2025 remains unchanged at 3.0%, and the U.S. unemployment rate in 2025 is projected to be 4.5%, also unchanged from June 2025. As of September 18, 2025, federal funds futures markets anticipated up to four additional 25 basis point rate cuts over the next 12 months: two in the fourth quarter of calendar year 2025, one in the first quarter of calendar year 2026, and one in the second quarter of calendar year 2026. If these rate cuts occur as expected, the federal funds target rate would decline to a range of 3.00%–3.25% by mid-2026. Overall, the market expects interest rates to decline, with a steepening yield curve ahead.

Projected Reported Results

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 August 31, 2025. See “Market Risk—Interest Rate Risk Assessment” in this Report for additional information.

Projected Non-GAAP Adjusted Results

Based on our current forecast assumptions, including the yield curve forecast noted above, we project:

•An increase in our adjusted net interest income over the next 12 months relative to the 12-month period ended August 31, 2025, primarily driven by an increase in interest-earning assets due to projected loan growth.

•A slight decrease in adjusted net interest yield over the next 12 months, primarily due to our baseline interest rates forecast and that our interest-earning assets, primarily lines of credit, are repricing faster than our interest-bearing liabilities. Additionally, lower-cost long-term debt maturing in the near term will need to be refinanced at a forecasted higher interest rate and the expected decrease in the variable rate debt cost will be offset by the lower average yield earned on our interest rate swaps derivative cash settlements. See “Market Risk—Interest Rate Risk Assessment” in this Report for additional information.

•A decrease in our adjusted net income over the next 12 months, primarily due to an increase in projected operating expenses.

•A decrease in adjusted TIER over the next 12 months, primarily attributable to increases in projected adjusted interest expense and operating expenses.

•An increase in our adjusted debt-to-equity ratio, primarily due to the projected increase in total 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 13 years as of August 31, 2025, 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.

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Projected Loan Portfolio

Based on our current forecast assumptions, we anticipate net loan growth of $2,180 million over the next 12 months. Historically, line of credit loans activity has been fairly unpredictable due to the short-term and dynamic usage patterns of these facilities. Our baseline forecast scenario takes into account known likely near-term activity as well as historical analysis.


CONSOLIDATED RESULTS OF OPERATIONS

This section provides a comparative discussion of our consolidated results of operations between Q1 FY2026 and Q1 FY2025. Following this section, we provide a discussion and analysis of material changes between amounts reported on our consolidated balance sheets as of August 31, 2025 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.

Net Interest Income

Net interest income, which is our largest source of revenue, represents the difference between the interest income earned on our interest-earning assets and the interest expense on our interest-bearing liabilities. Our net interest yield represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities plus the impact of non-interest bearing funding. We expect net interest income and our net interest yield to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities, and term structures our members select on their loans. We do not fund each individual loan with specific debt. Rather, we attempt to minimize costs and maximize efficiency by proportionately funding large aggregated amounts of loans.

Table 5 presents average balances for Q1 FY2026 and Q1 FY2025, and for each major category of our interest-earning assets and interest-bearing liabilities, the interest income earned or interest expense incurred, and the average yield or cost. Table 5 also presents non-GAAP adjusted interest expense, adjusted net interest income and adjusted net interest yield, which reflect the inclusion of net accrued periodic derivative cash settlements income (expense) in interest expense. We provide reconciliations of our non-GAAP financial measures to the most comparable U.S. GAAP financial measures under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

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Table 5: Average Balances, Interest Income/Interest Expense and Average Yield/Cost



	Q1 FY2026						Q1 FY2025
(Dollars in thousands)	Average Balance		Interest Income/Expense		Average Yield/Cost		Average Balance		Interest Income/Expense		Average Yield/Cost
Assets:
Long-term fixed-rate loans(1)	$	31,410,907	$	357,428	4.51	%	$	30,555,116	$	337,608	4.38	%
Long-term variable-rate loans	1,200,072		18,063		5.97		872,592		15,734		7.15
Line of credit loans	4,705,001		70,627		5.96		3,486,346		61,828		7.04
Other, net(2)	—		(546)		—		—		(470)		—
Total loans	37,315,980		445,572		4.74		34,914,054		414,700		4.71
Cash and investment securities	261,007		1,874		2.85		440,122		3,419		3.08
Total interest-earning assets	$	37,576,987	$	447,446	4.72	%	$	35,354,176	$	418,119	4.69	%
Other assets, less allowance for credit losses(3)	1,167,478						1,233,528
Total assets(3)	$	38,744,465					$	36,587,704

Liabilities:
Commercial paper	$	2,864,717	$	32,483	4.50	%	$	2,031,649	$	28,025	5.47	%
Other short-term borrowings	1,729,908		17,843		4.09		1,691,091		21,958		5.15
Short-term borrowings(4)	4,594,625		50,326		4.35		3,722,740		$	49,983	5.33
Medium-term notes	10,753,923		129,368		4.77		9,829,186		113,409		4.58
Collateral trust bonds(5)	6,895,725		70,169		4.04		6,790,135		65,637		3.84
Guaranteed Underwriter Program notes payable	6,428,415		53,895		3.33		6,399,568		52,358		3.25
Farmer Mac notes payable	3,766,117		37,667		3.97		3,720,634		39,937		4.26
Other(6)	7,238		93		5.10		3,126		44		5.58
Subordinated deferrable debt	1,330,592		21,671		6.46		1,286,877		21,738		6.70
Subordinated certificates	1,183,039		13,280		4.45		1,196,932		13,354		4.43
Total interest-bearing liabilities	$	34,959,674	$	376,469	4.27	%	$	32,949,198	$	356,460	4.29	%
Other liabilities(3)	696,419						690,585
Total liabilities(3)	35,656,093						33,639,783
Total equity(3)	3,088,372						2,947,921
Total liabilities and equity(3)	$	38,744,465					$	36,587,704
Net interest spread(7)					0.45	%					0.40	%
Impact of non-interest bearing funding(8)					0.30						0.29
Net interest income/net interest yield(9)			$	70,977	0.75	%			$	61,659	0.69	%

Adjusted net interest income/adjusted net interest yield:
Interest income			$	447,446	4.72	%			$	418,119	4.69	%
Interest expense			376,469		4.27				356,460		4.29
Add: Net periodic derivative cash settlements interest income(10)			(20,267)		(1.11)				(32,061)		(1.72)
Adjusted interest expense/adjusted average cost(11)			$	356,202	4.04	%			$	324,399	3.91	%
Adjusted net interest spread(7)					0.68						0.78
Impact of non-interest bearing funding(8)					0.28						0.27
Adjusted net interest income/adjusted net interest yield(12)			$	91,244	0.96	%			$	93,720	1.05	%

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(1)Interest income on long-term, fixed-rate loans includes loan conversion fees, which are generally deferred and recognized as interest income using the effective interest method.

(2)Consists of late payment fees and net amortization of deferred loan fees and loan origination costs.

(3)The average balance represents average monthly balances, which is calculated based on the month-end balance as of the beginning of the reporting period and the balances as of the end of each month included in the specified reporting period.

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(4)Short-term borrowings reported on our consolidated balance sheets consist of borrowings with an original contractual maturity of one year or less. However, short-term borrowings presented in Table 5 consist of commercial paper, select notes, and daily liquidity fund notes. Short-term borrowings presented on our consolidated balance sheets related to medium-term notes, Farmer Mac notes payable and other notes payable are reported in the respective category for presentation purposes in Table 5. The period-end amounts reported as short-term borrowings on our consolidated balance sheets, which are excluded from the calculation of average short-term borrowings presented in Table 5, totaled $469 million and $519 million as of August 31, 2025 and August 31, 2024, respectively.

(5)Collateral trust bonds represent secured obligations sold to investors in the capital markets, including those issued through both public offerings and private placement transactions.

(6)Other represents the average balance of lease liabilities and the interest expense for our finance leases.

(7)Net interest spread represents the difference between the average yield on total average interest-earning assets and the average cost of total average interest-bearing liabilities. Adjusted net interest spread represents the difference between the average yield on total average interest-earning assets and the adjusted average cost of total average interest-bearing liabilities.

(8)Includes other liabilities and equity.

(9)Net interest yield is calculated based on the annualized net interest income for the period divided by total average interest-earning assets for the period.

(10)Represents the impact of net periodic contractual interest amounts on our interest rate swaps during the period. This amount is added to interest expense to derive non-GAAP adjusted interest expense. The average (benefit)/cost associated with derivatives is calculated based on the annualized net periodic swap settlement interest amount during the period divided by the average outstanding notional amount of derivatives during the period. The average outstanding notional amount of interest rate swaps was $7,217 million and $7,393 million for Q1 FY2026 and Q1 FY2025, respectively.

(11)Adjusted interest expense consists of interest expense plus net periodic derivative cash settlements interest income (expense) during the period. Net periodic derivative cash settlements interest income (expense) is reported in our consolidated statements of operations as a component of derivative gains (losses). Adjusted average cost is calculated based on the annualized adjusted interest expense for the period divided by total average interest-bearing liabilities during the period.

(12)Adjusted net interest yield is calculated based on the annualized adjusted net interest income for the period divided by total average interest-earning assets for the period.

Table 6 displays the change in net interest income between periods and the extent to which the variance for each category of interest-earning assets and interest-bearing liabilities is attributable to (i) changes in volume, which represents the change in the average balances of our interest-earning assets and interest-bearing liabilities or volume, and (ii) changes in the rate, which represents the change in the average interest rates of these assets and liabilities. The table also presents the change in adjusted net interest income between periods.

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Table 6: Rate/Volume Analysis of Changes in Interest Income/Interest Expense



		Q1 FY2026		versus		Q1 FY2025
	Total	Variance Due To:(1)
(Dollars in thousands)		Variance		Volume		Rate
Interest income:
Long-term fixed-rate loans		$	19,820	$	9,456	$	10,364
Long-term variable-rate loans		2,329		5,905		(3,576)
Line of credit loans		8,799		21,612		(12,813)


Other, net		(76)		—		(76)
Total loans		30,872		36,973		(6,101)
Cash and investment securities		(1,545)		(1,391)		(154)
Total interest income		29,327		35,582		(6,255)

Interest expense:
Commercial paper		4,458		11,492		(7,034)
Other short-term borrowings		(4,115)		504		(4,619)
Short-term borrowings		343		11,996		(11,653)
Medium-term notes		15,959		10,670		5,289
Collateral trust bonds		4,532		1,021		3,511
Guaranteed Underwriter Program notes payable		1,537		236		1,301
Farmer Mac notes payable		(2,270)		488		(2,758)
Other		49		58		(9)
Subordinated deferrable debt		(67)		738		(805)
Subordinated certificates		(74)		(155)		81
Total interest expense		20,009		25,052		(5,043)
Net interest income (expense)		$	9,318	$	10,530	$	(1,212)

Adjusted net interest income:
Interest income		$	29,327	$	35,582	$	(6,255)
Interest expense		20,009		25,052		(5,043)
Net periodic derivative cash settlements interest income(2)		11,794		762		11,032
Adjusted interest expense(3)		31,803		25,814		5,989
Adjusted net interest income(3)		$	(2,476)	$	9,768	$	(12,244)

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(1)The changes for each category of interest income and interest expense represent changes in either average balances (volume) or average rates for both interest-earning assets and interest-bearing liabilities. We allocate the amount attributable to the combined impact of volume and rate to the rate variance.

(2)For the net periodic derivative cash settlements interest amount, the variance due to average volume represents the change in the net periodic derivative cash settlements interest amount resulting from the change in the average notional amount of derivative contracts outstanding. The variance due to average rate represents the change in the net periodic derivative cash settlements amount resulting from the net difference between the average rate paid and the average rate received for interest rate swaps during the period.

(3)See “Non-GAAP Financial Measures and Reconciliations” in this Report for additional information on our adjusted non-GAAP financial measures.

Reported Net Interest Income

Reported net interest income of $71 million for Q1 FY2026 increased $9 million from Q1 FY2025, driven by the combined impact of an increase in the net interest yield of 6 basis points, or 9%, to 0.75%, and an increase in average interest-earning assets of $2,223 million, or 6%.

•Average Interest-Earning Assets: The increase in average interest-earning assets of 6% was attributable to a growth in average total loans of $2,402 million, or 7%, partially offset by a decrease of $179 million in our average total

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investments, which include cash and investment securities. The average loans increase was driven by increases in average line of credit loans of $1,219 million, average long-term fixed-rate loans of $856 million and average long-term variable-rate loans of $327 million as members continued to advance loans to fund capital expenditures and for working capital purposes. In addition, the increase in line of credit loans between Q1 FY2026 and Q1 FY2025 was also 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.

•Net Interest Yield: The increase in the net interest yield of 6 basis points, or 9%, was primarily attributable to an increase in the average yield on interest-earning assets of 3 basis points to 4.72%, an increase in the benefit from non-interest bearing funding of 1 basis point to 0.30%, and a decrease in our average cost of borrowings of 2 basis points to 4.27%. The increase in average yields on long-term fixed-rate loans was the primary driver for the increase in the average yield on interest-earning assets, while the interest rates for variable-rate and line of credit loans decreased due to the federal funds rate cuts since August 31, 2024. The decrease in our average cost of borrowings was driven by the lower average cost of our short-term borrowings and variable-rate long-term debt due to the federal funds rate cuts since August 31, 2024, partially offset by fixed-rate long-term debt issued at higher interest rates since August 31, 2024.

Adjusted Net Interest Income

Adjusted net interest income of $91 million for Q1 FY2026 decreased $2 million from Q1 FY2025, driven by a decrease in the adjusted net interest yield of 9 basis points, or 9%, to 0.96%, partially offset by an increase in average interest-earning assets of $2,223 million, or 6%.

•Average Interest-Earning Assets: The increase in average interest-earning assets was primarily driven by the growth in average total loans, as discussed above.

•Adjusted Net Interest Yield: The decrease in the adjusted net interest yield of 9 basis points, or 9%, was attributable to an increase in our adjusted average cost of borrowings of 13 basis points to 4.04%, which was partially offset by the combined impact of an increase in the average yield on interest-earning assets of 3 basis points to 4.72% and an increase in the benefit from non-interest bearing funding of 1 basis point to 0.28%. We discussed above the primary drivers for the increase in the average yield on interest-earning assets and the decrease in the average cost of borrowings. However, the primary driver of the increase in adjusted average cost of borrowings in Q1 FY2026 compared with Q1 FY2025 was the lower average yield earned on our interest rate swaps derivative cash settlements in Q1 FY2026 as discussed below.

Derivative Cash Settlements

We include the net periodic derivative cash settlements interest income (expense) amounts on our interest rate swaps in the calculation of our adjusted average cost of borrowings, which, as a result, also impacts the calculation of adjusted net interest income and adjusted net interest yield. Because our derivative portfolio consists of a higher proportion of pay-fixed swaps than receive-fixed swaps, the net periodic derivative cash settlements interest income (expense) amounts generally change based on changes in the floating interest amount received each period. When floating rates increase during the period, the floating interest amounts received on our pay-fixed swaps increase and, conversely, when floating rates decrease, the floating interest amounts received on our pay-fixed swaps decrease. We recorded net periodic derivative cash settlements interest income of $20 million for Q1 FY2026 compared with $32 million for Q1 FY2025. The decrease was primarily due to the lower net interest rates received on our pay-fixed swaps in Q1 FY2026, compared with Q1 FY2025, due to the federal funds rate cuts since August 31, 2024.

See “Non-GAAP Financial Measures and Reconciliations” in this Report for additional information on our non-GAAP financial measures, including a reconciliation of these measures to the most comparable U.S. GAAP financial measures.

Provision (Benefit) for Credit Losses

Our provision (benefit) for credit losses for each period is driven by changes in our measurement of lifetime expected credit losses for our loan portfolio recorded in the allowance for credit losses. Our allowance for credit losses increased to $42 million as of August 31, 2025, compared with $41 million as of May 31, 2025. Our allowance coverage ratio remained steady at 0.11% as of both August 31, 2025 and May 31, 2025.

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We recorded a provision for credit losses of $2 million and $1 million for Q1 FY2026 and Q1 FY2025, respectively, primarily from an increase in the collective allowance due to the growth in our loan portfolio.

We discuss our methodology for estimating the allowance for credit losses in “Note 1—Summary of Significant Accounting Policies—Allowance for Credit Losses—Loan Portfolio” in our 2025 Form 10-K. We also provide additional information on our allowance for credit losses below under section “Credit Risk—Allowance for Credit Losses” and “Note 5—Allowance for Credit Losses” in this Report.

Non-Interest Income (Loss)

Non-interest income (loss) consists of fee and other income, gains and losses on derivatives not accounted for in hedge accounting relationships and gains and losses on equity and debt investment securities, which consist of both unrealized and realized gains and losses.

Table 7 presents the components of non-interest income (loss) recorded in our consolidated statements of operations.

Table 7: Non-Interest Income (Loss)



(Dollars in thousands)	Q1 FY2026		Q1 FY2025
Non-interest income (loss) components:
Fee and other income	$	7,075	$	5,668
Derivative losses	(32,204)		(198,325)
Investment securities gains	1,445		4,131
Total non-interest loss	$	(23,684)	$	(188,526)

The significant decrease in non-interest loss from Q1 FY2025 was primarily attributable to a reduction in the derivative losses recognized in our consolidated statements of operations. In addition, we experienced a decrease in gains recorded on our debt and equity investment securities of approximately $3 million for Q1 FY2026, compared with Q1 FY2025, primarily driven by period-to-period market fluctuations in fair value and a reduction in our debt security balance due to maturities. We expect period-to-period market fluctuations in the fair value of our equity and debt investment securities, which we report together with realized gains and losses from the sale of investment securities in our consolidated statements of operations.

Derivative Gains (Losses)

As of August 31, 2025 and May 31, 2025, our derivatives portfolio included interest rate swap agreements not designated for hedge accounting, composed of pay-fixed swaps and receive-fixed swaps, with benchmark variable rate for the floating rate payments based on daily compounded Secured Overnight Financing Rate (“SOFR”). Additionally, treasury locks may be used to manage the interest rate risk associated with future debt issuance or repricing and are typically designated as cash flow hedges. We did not have any derivatives designated as accounting hedges as of August 31, 2025 and May 31, 2025.

The total notional amount for our interest rate swaps was $7,169 million and $7,252 million as of August 31, 2025 and May 31, 2025, respectively. The portfolio was primarily composed of longer-dated pay-fixed swaps, which accounted for approximately 80% of the outstanding notional amount as of both August 31, 2025 and May 31, 2025. Consequently, changes in medium- and longer-term swap rates generally have a more pronounced impact on the net fair value of our swap portfolio. As of August 31, 2025, the average remaining maturity of our pay-fixed and receive-fixed swaps was 16 years and one year, respectively, compared with 16 years and two years, respectively, as of May 31, 2025.

Table 8 presents the components of net derivative gains (losses) recorded in our consolidated statements of operations. Derivative cash settlements interest income (expense) represents the net periodic contractual interest amount for our interest rate swaps during the reporting period. Derivative forward value gains (losses) represent the change in fair value of our interest rate swaps during the applicable reporting period due to changes in expected future interest rates over the remaining life of our derivative contracts.

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Table 8: Derivative Gains (Losses)



(Dollars in thousands)	Q1 FY2026		Q1 FY2025
Derivative gains (losses) attributable to:
Derivative cash settlements interest income	$	20,267	$	32,061
Derivative forward value losses	(52,471)		(230,386)
Derivative losses	$	(32,204)	$	(198,325)

We recorded derivative losses of $32 million for Q1 FY2026, attributable to declines in interest rates across the swap curve, with the exception of the 30-year swap rate which increased slightly during Q1 FY2026. In comparison, we recorded derivative losses of $198 million for Q1 FY2025, primarily attributable to more pronounced declines in interest rates across the entire swap curve during Q1 FY2025.

We present comparative swap curves, which depict the relationship between swap rates at varying maturities, for our reported periods in Table 9 below.

Comparative Swap Curves

Table 9 provides comparative swap curves as of August 31, 2025, May 31, 2025, August 31, 2024 and May 31, 2024.

Table 9: Comparative Swap Curves

____________________________

Benchmark rates obtained from Bloomberg.

See “Note 9—Derivative Instruments and Hedging Activities” in this Report for additional information on our derivative instruments. Also refer to “Note 14—Fair Value Measurement” to the Consolidated Financial Statements in our 2025 Form 10-K for information on how we measure the fair value of our derivative instruments.

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Non-Interest Expense

Non-interest expense consists of salaries and employee benefit expense, general and administrative expenses and other miscellaneous expenses. Table 10 presents the components of non-interest expense recorded in our consolidated statements of operations.

Table 10: Non-Interest Expense



(Dollars in thousands)	Q1 FY2026		Q1 FY2025
Non-interest expense components:
Salaries and employee benefits	$	(19,976)	$	(17,188)
Other general and administrative expenses	(20,793)		(19,104)
Operating expenses	(40,769)		(36,292)

Other non-interest expense	(275)		(318)
Total non-interest expense	$	(41,044)	$	(36,610)

Non-interest expense increased $4 million, or 12%, from Q1 FY2025, primarily attributable to an increase in operating expenses, driven by higher expenses recorded for salaries and employee benefits, member relations, information technology and depreciation and amortization, partially offset by lower consulting expense.

Net Income (Loss) Attributable to Noncontrolling Interests

We recorded a net loss attributable to noncontrolling interests of less than $1 million for both Q1 FY2026 and Q1 FY2025, which represented 100% of the results of operations of NCSC, as the members of NCSC own or control 100% of the interest in its company. The fluctuations in net income (loss) attributable to noncontrolling interests are primarily due to changes in the fair value of NCSC’s derivative instruments recognized in NCSC’s earnings.


CONSOLIDATED BALANCE SHEET ANALYSIS

Total assets increased $524 million, or 1%, to $38,849 million as of August 31, 2025 compared with May 31, 2025, primarily due to growth in our loan portfolio. We experienced an increase in total liabilities of $572 million, or 2%, to $35,794 million as of August 31, 2025 compared with May 31, 2025, largely due to the issuances of debt to fund the growth in our loan portfolio. Total equity decreased $49 million to $3,055 million as of August 31, 2025, primarily attributable to the CFC Board of Directors’ authorized patronage capital retirement of $53 million in Q1 FY2026, partially offset by our reported net income of $5 million for the period.

Below is a discussion of changes in the major components of our assets and liabilities during Q1 FY2026. Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities that are intended to manage our liquidity requirements and market risk exposure in accordance with our risk appetite framework.

Loan Portfolio

We segregate our loan portfolio into segments, by legal entity, based on the borrower member class, which consists of CFC distribution, CFC power supply, CFC statewide and associate, NCSC electric and NCSC telecom. We offer both long-term and line of credit loans to our borrowers. Under our long-term loan facilities, a borrower may select a fixed interest rate or a variable interest rate at the time of each loan advance. Line of credit loans are revolving loan facilities and generally have a variable interest rate. We describe and provide additional information on our member classes under “Item 1. Business—Members” and information about our loan programs and loan product types under “Item 1. Business—Loan and Guarantee Programs” in our 2025 Form 10-K.

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Loans Outstanding

Loans to members totaled $37,570 million and $37,080 million as of August 31, 2025 and May 31, 2025, respectively. Loans to CFC distribution and power supply borrowers accounted for 95% of total loans to members as of both August 31, 2025 and May 31, 2025. The increase in loans to members of $490 million, or 1%, from May 31, 2025, was primarily attributable to net increases in long-term and line of credit loans of $262 million and $228 million, respectively. We experienced increases in CFC distribution loans, CFC power supply loans, CFC statewide and associate loans, NCSC electric and NCSC telecom loans of $349 million, $116 million, $4 million, $14 million and $7 million, respectively during Q1 FY2026.

Long-term loan advances totaled $702 million during Q1 FY2026, of which approximately 96% was provided to members for capital expenditures, 3% was provided for bridge financing and 1% was provided for other purposes. In comparison, long-term loan advances totaled $848 million during Q1 FY2025, of which approximately 97% was provided to members for capital expenditures, 2% was provided for the refinancing of loans made by other lenders and 1% was provided for other purposes. Of the $702 million total long-term loans advanced during Q1 FY2026, $523 million were fixed-rate loan advances with a weighted average fixed-rate term of six years. In comparison, of the $848 million total long-term loans advanced during Q1 FY2025, $774 million were fixed-rate loan advances with a weighted average fixed-rate term of eight years.

Our aggregate loans outstanding to CFC electric distribution cooperative members relating to broadband projects, which we started tracking in October 2017, increased to an estimated $3,459 million as of August 31, 2025, from approximately $3,441 million as of May 31, 2025. Although we expect our member electric cooperatives to continue in their efforts to expand broadband access to unserved and underserved communities, their investment in broadband projects has slowed down in the recent years and is expected to increase at a slower rate.

We provide information on the credit performance and risk profile of our loan portfolio below under the section “Credit Risk—Loan Portfolio Credit Risk” in this Report. Also refer to “Note 4—Loans” in this Report for addition information on our loans to members.

Debt

We utilize both secured and unsecured short-term borrowings and long-term debt as part of our funding strategy and asset/liability interest rate risk management. We seek to maintain diversified funding sources, including our members, affiliates, the capital markets and other private funding sources. Our funding strategy consists of various products and programs across markets to manage funding concentrations and reduce our liquidity or debt rollover risk.

Debt Outstanding

Table 11 displays the composition, by product type, of our outstanding debt as of August 31, 2025 and May 31, 2025. Table 11 also displays the composition of our debt based on several additional selected attributes.

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Table 11: Debt—Total Debt Outstanding


(Dollars in thousands)	August 31, 2025		May 31, 2025		Change
Debt product type:
Commercial paper:
Members, at par	$	924,277	$	785,608	$	138,669
Dealer, net of discounts	1,697,466		2,206,451		(508,985)
Total commercial paper	2,621,743		2,992,059		(370,316)
Select notes to members	1,433,452		1,304,240		129,212
Daily liquidity fund notes to members	312,706		343,916		(31,210)

Medium-term notes:
Members, at par	855,536		870,849		(15,313)
Dealer(1)	10,506,322		9,611,038		895,284
Total medium-term notes	11,361,858		10,481,887		879,971
Collateral trust bonds(1)(2)	6,896,715		6,895,702		1,013
Guaranteed Underwriter Program notes payable	6,402,349		6,456,852		(54,503)
Farmer Mac notes payable	3,737,375		3,780,461		(43,086)

Subordinated deferrable debt(1)	1,332,739		1,329,485		3,254
Members’ subordinated certificates:
Membership subordinated certificates	628,637		628,637		—
Loan and guarantee subordinated certificates	307,678		309,914		(2,236)
Member capital securities	246,163		246,163		—
Total members’ subordinated certificates	1,182,478		1,184,714		(2,236)
Total debt outstanding	$	35,281,415	$	34,769,316	$	512,099


Security type:
Secured debt	48	%	49	%
Unsecured debt	52		51
Total	100	%	100	%

Funding source:
Members	13	%	13	%
Other non-capital markets:
Guaranteed Underwriter Program notes payable	18		18
Farmer Mac notes payable	11		11

Total other non-capital markets	29		29
Capital markets	58		58
Total	100	%	100	%

Interest rate type:
Fixed-rate debt	81	%	81	%
Variable-rate debt	19		19
Total	100	%	100	%

Interest rate type including swaps impact:
Fixed-rate debt(3)	93	%	94	%
Variable-rate debt(4)	7		6
Total	100	%	100	%

Maturity classification:(5)
Short-term borrowings	14	%	15	%
Long-term and subordinated debt(6)	86		85
Total	100	%	100	%

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(1)Amount is presented net of unamortized discounts, premium and issuance costs as applicable.

(2)Amount includes collateral trust bonds issued to investors through both public offerings and private placement transactions.

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(3)Includes variable-rate debt that has been swapped to a fixed rate, net of any fixed-rate debt that has been swapped to a variable rate.

(4)Includes fixed-rate debt that has been swapped to a variable rate, net of any variable-rate debt that has been swapped to a fixed rate. Also includes commercial paper notes, which generally have maturities of less than 90 days. The interest rate on commercial paper notes does not change once the note has been issued; however, the interest rate for new commercial paper issuances changes daily.

(5)Borrowings with an original contractual maturity of one year or less are classified as short-term borrowings. Borrowings with an original contractual maturity of greater than one year are classified as long-term debt.

(6)Consists of long-term debt, subordinated deferrable debt and total members’ subordinated debt reported on our consolidated balance sheets. Maturity classification is based on the original contractual maturity as of the date of issuance of the debt.

We issue debt primarily to fund growth in our loan portfolio. As such, our debt outstanding generally increases and decreases in response to member loan demand. Total debt outstanding increased $512 million, or 1%, to $35,281 million as of August 31, 2025 compared with May 31, 2025, due to borrowings to fund the increase in loans to members. We provide additional information on our financing activities during Q1 FY2026 in the below section “Liquidity Risk” of this Report.

Member Investments

Debt securities issued to our members represent an important, stable source of funding. Table 12 displays member debt outstanding, by product type, as of August 31, 2025 and May 31, 2025.

Table 12: Debt—Member Investments


	August 31, 2025					May 31, 2025					Change
(Dollars in thousands)	Amount			% of Total(1)		Amount			% of Total(1)
Member investment product type:
Commercial paper	$	924,277		35	%	$	785,608		26	%	$	138,669
Select notes	1,433,452			100		1,304,240			100		129,212
Daily liquidity fund notes	312,706			100		343,916			100		(31,210)
Medium-term notes	855,536			8		870,849			8		(15,313)
Members’ subordinated certificates	1,182,478			100		1,184,714			100		(2,236)
Total member investments	$	4,708,449				$	4,489,327				$	219,122

Percentage of total debt outstanding	13		%			13		%

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(1)Represents outstanding debt attributable to members for each debt product type as a percentage of the total outstanding debt for each debt product type.

Member investments accounted for 13% of total debt outstanding as of both August 31, 2025 and May 31, 2025. Over the last twelve fiscal quarters, our member investments, including both short-term and long-term investments, have averaged $4,855 million, calculated based on outstanding member investments as of the end of each fiscal quarter during the period.

Short-Term Borrowings

Short-term borrowings consist of borrowings with an original contractual maturity of one year or less and do not include the current portion of long-term debt. Short-term borrowings decreased to $4,837 million as of August 31, 2025, from $5,091 million as of May 31, 2025, primarily driven by a decrease in outstanding dealer commercial paper of $508 million, partially offset by an increase in short-term member investments of $254 million during Q1 FY2026. Short-term borrowings accounted for 14% and 15% of total debt outstanding as of August 31, 2025 and May 31, 2025, respectively.

See “Liquidity Risk” below and “Note 6—Short-Term Borrowings” for information on the composition of our short-term borrowings.

Long-Term and Subordinated Debt

Long-term debt, defined as debt with an original contractual maturity term of greater than one year, primarily consists of medium-term notes, collateral trust bonds, notes payable under the Guaranteed Underwriter Program and notes payable under the Farmer Mac revolving note purchase agreement. Subordinated debt consists of subordinated deferrable debt and

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members’ subordinated certificates. Our subordinated deferrable debt and members’ subordinated certificates have original contractual maturity terms of greater than one year.

Long-term and subordinated debt increased to $30,445 million as of August 31, 2025, compared with $29,678 million as of May 31, 2025. The increase primarily reflects the issuances of $1,233 million in dealer medium-term notes, partially offset by $338 million in repayments. Additionally, the balance was further reduced by total repayments to secured debt of $101 million during Q1 FY2026, related to notes payable under the Guaranteed Underwriter Program, notes payable under the Farmer Mac revolving purchase agreement and collateral trust bonds. Long-term and subordinated debt accounted for 86% and 85% of total debt outstanding as of August 31, 2025 and May 31, 2025, respectively.

We provide additional information on our long-term debt below under the section “Liquidity Risk” and “Note 7—Long-Term Debt” and “Note 8—Subordinated Deferrable Debt” in this Report.

Equity

Table 13 presents the components of total CFC equity and total equity as of August 31, 2025 and May 31, 2025.

Table 13: Equity


(Dollars in thousands)	August 31, 2025		May 31, 2025
Equity components:
Membership fees and educational fund:
Membership fees	$	967	$	966
Educational fund	2,224		2,658
Total membership fees and educational fund	3,191		3,624
Patronage capital allocated	895,548		948,526
Members’ capital reserve	1,631,609		1,631,609
Total allocated equity	2,530,348		2,583,759
Unallocated net income (loss):
Prior fiscal year-end cumulative derivative forward value gains(1)	501,663		606,215
Year-to-date derivative forward value losses(1)	(52,276)		(104,552)
Period-end cumulative derivative forward value gains(1)	449,387		501,663
Other unallocated net income (loss)	56,333		(709)
Unallocated net income	505,720		500,954
CFC retained equity	3,036,068		3,084,713
Accumulated other comprehensive loss	(2,235)		(2,236)
Total CFC equity	3,033,833		3,082,477
Noncontrolling interests	20,903		20,989
Total equity	$	3,054,736	$	3,103,466

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(1)Represents derivative forward value gains (losses) for CFC only, as total CFC equity does not include the noncontrolling interests of the variable interest entities, which we are required to consolidate. We present the consolidated total derivative forward value gains (losses) in Table 30 in the “Non-GAAP Financial Measures and Reconciliations” section below. Also, see “Note 14—Business Segments” in this Report for the statements of operations for CFC.

The decrease in total equity of $49 million to $3,055 million as of August 31, 2025 compared with May 31, 2025 was attributable primarily to the CFC Board of Directors’ authorized patronage capital retirement of $53 million in Q1 FY2026, partially offset by our reported net income of $5 million for the period.

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Allocation and Retirement of Patronage Capital

We are subject to District of Columbia law governing cooperatives, under which CFC is required to make annual allocations of net earnings, if any, in accordance with the provisions of the District of Columbia statutes. We describe the allocation requirements under “Item 7. MD&A—Consolidated Balance Sheet Analysis—Equity—Allocation and Retirement of Patronage Capital” in our 2025 Form 10-K. The amount of patronage capital allocated each year by CFC’s Board of Directors is based on non-GAAP adjusted net income, which excludes the impact of derivative forward value gains (losses). We provide a reconciliation of our adjusted net income to our reported net income and an explanation of the adjustments below in “Non-GAAP Financial Measures and Reconciliations.”

In May 2025, the CFC Board of Directors authorized the allocation of $1 million of net earnings for fiscal year 2025 to the cooperative educational fund. In July 2025, the CFC Board of Directors authorized the allocation of fiscal year 2025 adjusted net income as follows: $67 million to members in the form of patronage capital and $176 million to the members’ capital reserve.

In July 2025, the CFC Board of Directors also authorized the retirement of patronage capital totaling $53 million, of which $34 million represented 50% of the patronage capital allocation for fiscal year 2025, and $19 million represented the portion of the allocation from fiscal year 2000 net earnings that has been held for 25 years pursuant to the CFC Board of Directors’ policy. This amount was returned to members in cash in September 2025. The remaining portion of the patronage capital allocation for fiscal year 2025 will be retained by CFC for 25 years pursuant to the guidelines adopted by the CFC Board of Directors in June 2009.


ENTERPRISE RISK MANAGEMENT

Overview

CFC has an Enterprise Risk Management (“ERM”) framework that is designed to identify, assess, monitor and manage the risks we assume in conducting our activities to serve the financial needs of our members. We face a variety of potential internal and external risks that can significantly affect our financial condition, liquidity position, reputation and ability to meet the expectations of our members, investors and other stakeholders. As a financial services company, the major categories of risk exposures inherent in our business activities include credit risk, liquidity risk, market risk and operational risk. These risk categories are summarized below.

•Credit risk is the risk that a borrower or other counterparty will be unable to meet its obligations in accordance with agreed-upon terms.

•Liquidity risk is the risk that we will be unable to fund our operations and meet our contractual financial obligations or that we will be unable to fund new loans to borrowers at a reasonable cost and tenor in a timely manner.

•Market risk is the risk that changes in market variables, such as movements in interest rates, may adversely affect the match between the timing of the contractual maturities, repricing and prepayments of our financial assets and the related financial liabilities funding those assets.

•Operational risk is the risk of loss resulting from inadequate or failed internal controls, processes, systems, human error or external events, including natural disasters or public health emergencies. Operational risk also includes cybersecurity risk, compliance risk, fiduciary risk, reputational risk and litigation risk.

Effective risk management is critical to our overall operations and to achieving our primary objective of providing cost-based financial products to our rural electric members while maintaining the sound financial results required to retain our investment-grade credit ratings on our rated debt instruments. In line with this, we have established a risk-management framework designed to oversee the key risks encountered in our operations and the maximum level of risk we are prepared to undertake, known as risk tolerance. This also includes risk limits and guidelines that are in alignment with CFC’s mission and strategic objectives. We provide a discussion of our risk management framework in our 2025 Form 10-K under “Item 7. MD&A—Enterprise Risk Management” and describe how we manage these risks under each respective MD&A section in our 2025 Form 10-K.

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CREDIT RISK

Our loan portfolio, which represents the largest component of assets on our balance sheet, accounts for the substantial majority of our credit risk exposure. We also engage in certain nonlending activities that may give rise to counterparty credit risk, such as entering into derivative transactions to manage interest rate risk and investment in debt and equity securities. We provide additional information on our credit risk-management framework under “Item 7. MD&A—Credit Risk—Credit Risk Management” in our 2025 Form 10-K.

Loan Portfolio Credit Risk

Our primary credit exposure is loans to rural electric cooperatives, which provide essential electric services to end-users, the majority of which are residential customers. We also have a limited portfolio of loans to not-for-profit and for-profit telecommunication companies. The substantial majority of loans to our borrowers are long-term fixed-rate loans with terms of up to 35 years. Long-term fixed-rate loans accounted for 84% and 85% of total loans outstanding as of August 31, 2025 and May 31, 2025, respectively.

Because we lend primarily to our rural electric utility cooperative members, we have had a loan portfolio inherently subject to single-industry and single-obligor credit concentration risk since our inception in 1969. We historically, however, have experienced limited defaults and losses in our electric utility loan portfolio due to several factors. First, the majority of our electric cooperative borrowers operate in states where electric cooperatives are not subject to rate regulation. Thus, they are able to make rate adjustments to pass along increased costs to the end customer without first obtaining state regulatory approval, allowing them to cover operating costs and generate sufficient earnings and cash flows to service their debt obligations. Second, electric cooperatives face limited competition, as they tend to operate in exclusive territories not serviced by public investor-owned utilities. Third, electric cooperatives typically are consumer-owned, not-for-profit entities that provide an essential service to end-users, the majority of which are residential customers. As not-for-profit entities, rural electric cooperatives, unlike investor-owned utilities, generally are eligible to apply for assistance from federal and/or state agencies to help recover from major disasters or emergencies. Fourth, electric cooperatives tend to adhere to a conservative core business strategy model that has historically resulted in a relatively stable, resilient operating environment and overall strong financial performance and credit strength for the electric cooperative network. Finally, we generally lend to our members on a senior secured basis, which reduces the risk of loss in the event of a borrower default.

Below we provide information on the credit risk profile of our loan portfolio, including security provisions, credit concentration, credit quality indicators and our allowance for credit losses.

Security Provisions

Except when providing line of credit loans, we generally lend to our members on a senior secured basis. Table 14 presents, by legal entity and member class and by loan type, secured and unsecured loans in our loan portfolio as of August 31, 2025 and May 31, 2025. Of our total loans outstanding, 89% were secured as of both August 31, 2025 and May 31, 2025.

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Table 14: Loans—Loan Portfolio Security Profile


	August 31, 2025
(Dollars in thousands)	Secured		% of Total		Unsecured		% of Total		Total
Member class:
CFC:
Distribution	$	26,690,367	90	%	$	2,921,309	10	%	$	29,611,676
Power supply	4,827,306		80		1,183,891		20		6,011,197
Statewide and associate	241,014		94		14,304		6		255,318
Total CFC	31,758,687		89		4,119,504		11		35,878,191
NCSC:
Electric	1,076,936		99		15,876		1		1,092,812
Telecom	559,770		96		21,935		4		581,705
Total NCSC	1,636,706		98		37,811		2		1,674,517
Total loans outstanding(1)	$	33,395,393	89		$	4,157,315	11		$	37,552,708

Loan type:
Long-term loans:
Fixed rate	$	31,388,881	100	%	$	113,954	—	%	$	31,502,835
Variable rate	988,248		78		280,617		22		1,268,865
Total long-term loans	32,377,129		99		394,571		1		32,771,700
Line of credit loans	1,018,264		21		3,762,744		79		4,781,008
Total loans outstanding(1)	$	33,395,393	89		$	4,157,315	11		$	37,552,708



	May 31, 2025
(Dollars in thousands)	Secured		% of Total		Unsecured		% of Total		Total
Member class:
CFC:
Distribution	$	26,376,425	90	%	$	2,886,070	10	%	$	29,262,495
Power supply	4,771,255		81		1,124,245		19		5,895,500
Statewide and associate	238,596		95		12,729		5		251,325
Total CFC	31,386,276		89		4,023,044		11		35,409,320
NCSC:
Electric	1,064,125		99		14,638		1		1,078,763
Telecom	561,132		98		14,333		2		575,465
Total NCSC	1,625,257		98		28,971		2		1,654,228
Total loans outstanding(1)	$	33,011,533	89		$	4,052,015	11		$	37,063,548

Loan type:
Long-term loans:
Fixed rate	$	31,269,102	100	%	$	119,211	—	%	$	31,388,313
Variable rate	911,573		81		210,677		19		1,122,250

Total long-term loans	32,180,675		99		329,888		1		32,510,563
Line of credit loans	830,858		18		3,722,127		82		4,552,985
Total loans outstanding(1)	$	33,011,533	89		$	4,052,015	11		$	37,063,548

____________________________

(1)Represents the unpaid principal balance, net of discounts, charge-offs and recoveries, of loans as of the end of each period. Excludes unamortized deferred loan origination costs of $17 million and $16 million as of August 31, 2025 and May 31, 2025, respectively.

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Credit Concentration

Concentrations of credit may exist when a lender has large credit exposures to single borrowers, large credit exposures to borrowers in the same industry sector or engaged in similar activities or large credit exposures to borrowers in a geographic region that would cause the borrowers to be similarly impacted by economic or other conditions in the region. As discussed above under “Credit Risk—Loan Portfolio Credit Risk,” because we lend primarily to our rural electric utility cooperative members, our loan portfolio is inherently subject to single-industry and single-obligor credit concentration risk. Loans outstanding to electric utility organizations totaled $36,971 million and $36,488 million as of August 31, 2025 and May 31, 2025, respectively, and represented approximately 98% of our total loans outstanding as of each respective date. Our credit exposure is partially mitigated by long-term loans guaranteed by RUS, which totaled $102 million and $105 million as of August 31, 2025 and May 31, 2025, respectively.

Single-Obligor Concentration

Table 15 displays the outstanding loan exposure for our 20 largest borrowers, by legal entity and member class, as of August 31, 2025 and May 31, 2025. Our 20 largest borrowers consisted of 14 distribution systems and six power supply systems as of both August 31, 2025 and May 31, 2025. The largest total exposure to a single borrower or controlled group represented approximately 1% of total loans outstanding as of both August 31, 2025 and May 31, 2025.

Table 15: Loans—Loan Exposure to 20 Largest Borrowers


	August 31, 2025				May 31, 2025
(Dollars in thousands)	Amount		% of Total		Amount		% of Total
Member class:
CFC:
Distribution	$	5,043,011	14	%	$	5,054,345	14	%
Power supply	1,877,376		5		1,926,448		5
Total CFC	6,920,387		19		6,980,793		19
NCSC Electric	165,737		—		168,063		—
Total loan exposure to 20 largest borrowers	7,086,124		19		7,148,856		19
Less: Loans covered under Farmer Mac standby purchase commitment	(183,839)		(1)		(155,078)		—
Net loan exposure to 20 largest borrowers	$	6,902,285	18	%	$	6,993,778	19	%

We entered into a long-term standby purchase commitment agreement with Farmer Mac during fiscal year 2016. Under this agreement, we may designate certain long-term loans to be covered under the commitment, subject to approval by Farmer Mac, and in the event any such loan later goes into payment default for at least 90 days, upon request by us, Farmer Mac must purchase such loan at par value. The aggregate unpaid principal balance of designated and Farmer Mac approved loans was $341 million and $346 million as of August 31, 2025 and May 31, 2025, respectively. Loan exposure to our 20 largest borrowers covered under the Farmer Mac agreement totaled $184 million and $155 million as of August 31, 2025 and May 31, 2025, respectively, which reduced our exposure to the 20 largest borrowers to $6,902 million and $6,994 million of our total loans outstanding as of each respective date. No loans have been put to Farmer Mac for purchase pursuant to this agreement.

Geographic Concentration

Although our organizational structure and mission result in single-industry concentration, we serve a geographically diverse group of electric and telecommunications borrowers throughout the U.S. The consolidated number of borrowers with loans outstanding totaled 907 and 899 as of August 31, 2025 and May 31, 2025, respectively, located in 49 states. Of the 907 and 899 borrowers with loans outstanding as of August 31, 2025 and May 31, 2025, respectively, 51 and 50 were electric power supply borrowers as of each respective date. Electric power supply borrowers generally require significantly more capital than electric distribution and telecommunications borrowers.

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Texas, which had 68 borrowers with loans outstanding as of both August 31, 2025 and May 31, 2025, accounted for the largest number of borrowers with loans outstanding in any one state as of each respective date, as well as the largest concentration of loan exposure in any one state. Loans outstanding to Texas-based borrowers totaled $6,142 million and $6,105 million as of August 31, 2025 and May 31, 2025, respectively, and accounted for approximately 16% of total loans outstanding as of each respective date. Of the loans outstanding to Texas-based borrowers, $117 million and $118 million as of August 31, 2025 and May 31, 2025, respectively, were covered by the Farmer Mac standby repurchase agreement, which reduced our credit risk exposure to Texas-based borrowers to $6,025 million and $5,987 million as of each respective date. See “Note 4—Loans” in this Report for information on the Texas-based number of borrowers and loans outstanding by legal entity and member class.

Credit Quality Indicators

Assessing the overall credit quality of our loan portfolio and measuring our credit risk is an ongoing process that involves tracking payment status, modifications to borrowers experiencing financial difficulty, nonperforming loans, charge-offs, the internal risk ratings of our borrowers and other indicators of credit risk. We monitor and subject each borrower and loan facility in our loan portfolio to an individual risk assessment based on quantitative and qualitative factors. Payment status trends and internal risk ratings are indicators, among others, of the probability of borrower default and overall credit quality of our loan portfolio. We believe the overall credit quality of our loan portfolio remained strong as of August 31, 2025.

Loan Modifications to Borrowers Experiencing Financial Difficulty

We had no loan modifications to borrowers experiencing financial difficulty entered during Q1 FY2026 and Q1 FY2025.

Nonperforming Loans

We classify loans as nonperforming at the earlier of the date when we determine: (i) interest or principal payments on the loan are past due 90 days or more; (ii) as a result of court proceedings, the collection of interest or principal payments based on the original contractual terms is not expected; or (iii) the full and timely collection of interest or principal is otherwise uncertain. Once a loan is classified as nonperforming, we generally place the loan on nonaccrual status. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against earnings.

We had a loan to one CFC electric power supply borrower of $24 million and $26 million classified as nonperforming, which represented 0.06% and 0.07% of total loans outstanding as of August 31, 2025 and May 31, 2025, respectively. The reduction in the nonperforming loan outstanding was due to a payment received from the borrower during Q1 FY2026.

Net Charge-Offs

We had no charge-offs during Q1 FY2026 and Q1 FY2025. Prior to the two CFC electric power supply loan defaults in fiscal years 2021 and 2022, we had not experienced any defaults or charge-offs in our electric utility loan portfolios since fiscal year 2013, and in our telecommunications loan portfolios since fiscal year 2017.

Borrower Risk Ratings

As part of our management of credit risk, we maintain a credit risk rating framework under which we employ a consistent process for assessing the credit quality of our loan portfolio. We evaluate each borrower and loan facility in our loan portfolio and assign internal borrower and loan facility risk ratings based on consideration of a number of quantitative and qualitative factors. We categorize loans in our portfolio based on our internally assigned borrower risk ratings, which are intended to assess the general creditworthiness of the borrower and probability of default. Our borrower risk ratings align with the U.S. federal banking regulatory agencies’ credit risk definitions of pass and criticized categories, with the criticized category further segmented among special mention, substandard and doubtful. Pass ratings reflect relatively low probability of default, while criticized ratings have a higher probability of default. Our internally assigned borrower risk ratings serve as the primary credit quality indicator for our loan portfolio. Because our internal borrower risk ratings provide important information on the probability of default, they are a key input in determining our allowance for credit losses.

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Criticized loans totaled $249 million and $219 million as of August 31, 2025 and May 31, 2025, respectively, and represented approximately 1% of total loans outstanding as of each respective date. The increase of $30 million in criticized loans was primarily driven by a net increase of $32 million in loans outstanding in the special mention category, partially offset by a $2 million payment received from a CFC electric power supply borrower in the doubtful category during Q1 FY2026. Each of the borrowers with loans outstanding in the criticized category was current with regard to all principal and interest amounts due to us as of August 31, 2025 and May 31, 2025.

We provide additional information on our borrower risk rating framework in our 2025 Form 10-K under “Item 7. MD&A Credit Risk—Loan Portfolio Credit Risk—Credit Quality Indicators.” See “Note 4—Loans” of this Report for detail, by member class, on loans outstanding in each borrower risk rating category.

Allowance for Credit Losses

We are required to maintain an allowance based on a current estimate of credit losses that are expected to occur over the remaining contractual term of the loans in our portfolio. Our allowance for credit losses consists of a collective allowance and an asset-specific allowance. The collective allowance is established for loans in our portfolio that share similar risk characteristics and are therefore evaluated on a collective, or pool, basis in measuring expected credit losses. The asset-specific allowance is established for loans in our portfolio that do not share similar risk characteristics with other loans in our portfolio and are therefore evaluated on an individual basis in measuring expected credit losses.

Table 16 presents, by legal entity and member class, loans outstanding and the related allowance for credit losses and allowance coverage ratio as of August 31, 2025 and May 31, 2025 and the allowance components as of each date.

Table 16: Allowance for Credit Losses by Borrower Member Class and Evaluation Methodology


	August 31, 2025						May 31, 2025
(Dollars in thousands)	Loans Outstanding(1)		Allowance for Credit Losses		Allowance Coverage Ratio(2)		Loans Outstanding(1)		Allowance for Credit Losses		Allowance Coverage Ratio(2)
Member class:
CFC:
Distribution	$	29,611,676	$	19,475	0.07	%	$	29,262,495	$	18,473	0.06	%
Power supply	6,011,197		15,551		0.26		5,895,500		15,456		0.26
Statewide and associate	255,318		1,088		0.43		251,325		1,100		0.44
Total CFC	35,878,191		36,114		0.10		35,409,320		35,029		0.10
NCSC:
Electric	1,092,812		4,290		0.39		1,078,763		3,818		0.35
Telecom	581,705		1,798		0.31		575,465		1,768		0.31
Total NCSC	1,674,517		6,088		0.36		1,654,228		5,586		0.34
Total	$	37,552,708	$	42,202	0.11		$	37,063,548	$	40,615	0.11

Allowance components:
Collective allowance	$	37,525,144	$	33,167	0.09	%	$	37,031,238	$	31,313	0.08	%
Asset-specific allowance	27,564		9,035		32.78		32,310		9,302		28.79
Total	$	37,552,708	$	42,202	0.11		$	37,063,548	$	40,615	0.11

Allowance coverage ratios:
Nonaccrual loans(3)	$	24,193			174.44	%	$	26,099			155.62	%

___________________________

(1)Represents the unpaid principal balance, net of discounts, charge-offs and recoveries, of loans as of each period end. Excludes unamortized deferred loan origination costs of $17 million and $16 million as of August 31, 2025 and May 31, 2025, respectively.

(2)Calculated based on the allowance for credit losses attributable to each member class and allowance components at period end divided by the related loans outstanding at period end.

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(3)Calculated based on the total allowance for credit losses at period end divided by loans outstanding on nonaccrual status at period end. Nonaccrual loans represented 0.06% and 0.07% of total loans outstanding as of August 31, 2025 and May 31, 2025, respectively. We provide additional information on our nonaccrual loans in “Note 4—Loans” in this Report.

The allowance for credit losses was $42 million as of August 31, 2025, compared with $41 million as of May 31, 2025. The increase in the allowance for credit losses was attributable to an increase in the collective allowance primarily driven by the growth in our loan portfolio. The asset-specific allowance decreased slightly as of August 31, 2025, compared with May 31, 2025, primarily due to a timing change in the expected payments on a nonperforming CFC power supply loan. Our allowance coverage ratio remained steady at 0.11% as of both August 31, 2025 and May 31, 2025.

We discuss our methodology for estimating the allowance for credit losses under the current expected credit loss (“CECL”) model in “Note 1—Summary of Significant Accounting Policies—Allowance for Credit Losses—Loan Portfolio” and provide information on management’s judgment and the uncertainties involved in our determination of the allowance for credit losses in “MD&A—Critical Accounting Estimates” in our 2025 Form 10-K. We provide additional information on our loans and allowance for credit losses under “Note 4—Loans” and “Note 5—Allowance for Credit Losses” of this Report.

Counterparty Credit Risk

In addition to credit exposure from our borrowers, we enter into other types of financial transactions in the ordinary course of business that expose us to counterparty credit risk, primarily related to transactions involving our cash and cash equivalents, securities held in our investment securities portfolio and derivatives. We mitigate our risk by only entering into these transactions with counterparties with investment-grade ratings, establishing operational guidelines and counterparty exposure limits and monitoring our counterparty credit risk position. We evaluate our counterparties based on certain quantitative and qualitative factors and periodically assign internal risk rating grades to our counterparties.

Cash and Investments Securities Counterparty Credit Exposure

Our cash and cash equivalents and investment securities totaled $257 million and $87 million, respectively, as of August 31, 2025. The primary credit exposure associated with investments held in our investment portfolio is that issuers will not repay principal and interest in accordance with the contractual terms. Our cash and cash equivalents with financial institutions generally have an original maturity of less than one year and pursuant to our investment policy guidelines, all fixed-income debt securities, at the time of purchase, must be rated at least investment grade based on external credit ratings from at least two of the leading global credit rating agencies, when available, or the corresponding equivalent, when not available. We therefore believe that the risk of default by these counterparties is low. As of August 31, 2025, our overall counterparty credit risk was deemed to be satisfactory and not materially changed compared with May 31, 2025.

We provide additional information on the holdings in our investment securities portfolio below under “Liquidity Risk—Investment Securities Portfolio” and in “Note 3—Investment Securities.”

Derivative Counterparty Credit Exposure

Our derivative counterparty credit exposure relates principally to interest rate swap contracts. We generally engage in over-the-counter (“OTC”) derivative transactions, which expose us to individual counterparty credit risk because these transactions are executed and settled directly between us and each counterparty. We are exposed to the risk that an individual derivative counterparty defaults on payments due to us, which we may not be able to collect or which may require us to seek a replacement derivative from a different counterparty. This replacement may be at a higher cost, or we may be unable to find a suitable replacement.

We manage our derivative counterparty credit exposure through diversification of our derivative positions among various counterparties and by executing derivative transactions with financial institutions that have investment-grade credit ratings and maintaining enforceable master netting arrangements with these counterparties, which allow us to net derivative assets and liabilities with the same counterparty. We also manage the credit risk associated with our derivative counterparties by using internal credit risk analysis, limits and a monitoring process. We had 12 active derivative counterparties with credit ratings ranging from Aa1 to Baa1 by Moody’s as of both August 31, 2025 and May 31, 2025, and from AA- to BBB+ by

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S&P as of both August 31, 2025 and May 31, 2025. The total outstanding notional amount of derivatives with these counterparties was $7,169 million and $7,252 million as of August 31, 2025 and May 31, 2025, respectively. The highest single derivative counterparty concentration, by outstanding notional amount, accounted for approximately 25% of the total outstanding notional amount of our derivatives as of both August 31, 2025 and May 31, 2025.

While our derivative agreements include netting provisions that allow for offsetting of all contracts with a given counterparty in the event of default by one of the two parties, we report the fair value of our derivatives on a gross basis by individual contract as either a derivative asset or derivative liability on our consolidated balance sheets. The fair value of our derivatives includes credit valuation adjustments reflecting counterparty credit risk. We estimate our exposure to credit loss on our derivatives by calculating the replacement cost to settle at current market prices, as defined in our derivative agreements, of all outstanding derivatives in a net gain position at the counterparty level where a right of legal offset exists. We provide information on the impact of netting provisions under our master swap agreements and collateral pledged, if any, in “Note 9—Derivative Instruments and Hedging Activities—Impact of Derivatives on Consolidated Balance Sheets.” We believe our exposure to derivative counterparty risk, at any point in time, is equal to the amount of our outstanding derivatives in a net gain position, at the individual counterparty level, which totaled $454 million and $506 million as of August 31, 2025 and May 31, 2025, respectively.

We provide additional detail on our derivative agreements, including a discussion of derivative contracts with credit rating triggers and settlement amounts that would be required in the event of a ratings trigger, in “Note 9—Derivative Instruments and Hedging Activities” in this Report.

See “Item 1A. Risk Factors” in our 2025 Form 10-K and “Item 1A. Risk Factors” of this Report for additional information about credit risks related to our business.


LIQUIDITY RISK

We define liquidity as the ability to convert assets into cash quickly and efficiently, maintain access to available funding and roll-over or issue new debt under normal operating conditions and periods of CFC-specific and/or market stress, to ensure that we can meet borrower loan requests, pay current and future obligations and fund our operations in a cost-effective manner. We provide additional information on our liquidity risk-management framework under “Item 7. MD&A—Liquidity Risk—Liquidity Risk Management” in our 2025 Form 10-K.

In addition to cash on hand and investment securities, our primary sources of funds include member loan principal and interest payments, committed bank revolving lines of credit, committed loan facilities under the Guaranteed Underwriter Program, a revolving note purchase agreement with Farmer Mac and proceeds from debt issuances to members and in the public capital markets. Our primary uses of funds include loan advances to members, principal and interest payments on borrowings, periodic interest settlement payments related to our derivative contracts and operating expenses.

Available Liquidity

As part of our strategy in managing liquidity risk and meeting our liquidity objectives, we seek to maintain various committed sources of funding that are available to meet our near-term liquidity needs. Table 17 presents a comparison between our available liquidity, which consists of cash and cash equivalents, our debt securities investment portfolio and amounts under committed credit facilities, as of August 31, 2025 and May 31, 2025.

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Table 17: Available Liquidity


	August 31, 2025						May 31, 2025
(Dollars in millions)	Total		Accessed		Available		Total		Accessed		Available
Liquidity sources:
Cash and investment debt securities:
Cash and cash equivalents	$	257	$	—	$	257	$	135	$	—	$	135

Debt securities investment portfolio(1)	75		—		75		114		—		114
Total cash and investment debt securities	332		—		332		249		—		249
Committed credit facilities:
Committed bank revolving line of credit agreements—unsecured(2)	3,300		7		3,293		3,300		7		3,293
Guaranteed Underwriter Program committed facilities—secured(3)	10,373		9,023		1,350		10,373		9,023		1,350
Farmer Mac revolving note purchase agreement—secured(4)	6,500		3,737		2,763		6,500		3,780		2,720
Total committed credit facilities	20,173		12,767		7,406		20,173		12,810		7,363
Total available liquidity	$	20,505	$	12,767	$	7,738	$	20,422	$	12,810	$	7,612

____________________________

(1)Represents the aggregate fair value of our portfolio of debt securities as of period end. Our portfolio of equity securities consists of Farmer Mac Class A common stock, which we exclude from our available liquidity.

(2)The committed bank revolving line of credit agreements consist of a three-year and a four-year revolving line of credit agreement. The accessed amount of $7 million as of both August 31, 2025 and May 31, 2025 relates to letters of credit issued pursuant to the four-year revolving line of credit agreement.

(3)The committed facilities under the Guaranteed Underwriter Program are not revolving.

(4)Availability subject to market conditions.

Although as a nonbank financial institution we are not subject to regulatory liquidity requirements, our liquidity management framework includes monitoring our liquidity and funding positions on an ongoing basis and assessing our ability to meet our scheduled debt obligations and other cash flow requirements based on point-in-time metrics as well as forward-looking projections. Our liquidity and funding assessment takes into consideration amounts available under existing liquidity sources, the expected rollover of member short-term investments and scheduled loan principal payment amounts, as well as our continued ability to access the capital markets and other non-capital market related funding sources.

Liquidity Risk Assessment

We utilize several measures to assess our liquidity risk and ensure we have adequate coverage to meet our liquidity needs. Our primary liquidity measures indicate the extent to which we have sufficient liquidity to cover the payment of scheduled debt obligations over the next 12 months. We calculate our liquidity coverage ratios under several scenarios that take into consideration various assumptions about our near-term sources and uses of liquidity, including the assumption that maturities of member short-term investments will not have a significant impact on our anticipated cash outflows. Our members have historically maintained a relatively stable level of short-term investments in CFC in the form of daily liquidity fund notes, commercial paper, select notes and medium-term notes. As such, we expect that our members will continue to reinvest their excess cash in short-term investment products offered by CFC.

Table 18 presents our primary liquidity coverage ratios as of August 31, 2025 and May 31, 2025 and displays the calculation of each ratio as of these respective dates based on the assumptions discussed above.

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Table 18: Liquidity Coverage Ratios


(Dollars in millions)	August 31, 2025		May 31, 2025
Liquidity coverage ratio:(1)
Total available liquidity(2)	$	7,738	$	7,612
Debt scheduled to mature over next 12 months:
Short-term borrowings(3)	4,837		5,091
Long-term and subordinated debt scheduled to mature over next 12 months(4)	3,936		3,679
Total debt scheduled to mature over next 12 months	8,773		8,770
Deficit in available liquidity over debt scheduled to mature over next 12 months	$	(1,035)	$	(1,158)

Liquidity coverage ratio	0.88		0.87

Liquidity coverage ratio, excluding expected maturities of member short-term investments(5)
Total available liquidity(2)	$	7,738	$	7,612
Total debt scheduled to mature over next 12 months	8,773		8,770
Exclude: Member short-term investments(6)	(3,139)		(2,885)
Total debt, excluding member short-term investments, scheduled to mature over next 12 months	5,634		5,885
Excess in available liquidity over total debt, excluding member short-term investments, scheduled to mature over next 12 months	$	2,104	$	1,727

Liquidity coverage ratio, excluding expected maturities of member short-term investments	1.37		1.29

___________________________

(1)Calculated based on available liquidity at period end divided by total debt scheduled to mature over the next 12 months at period end.

(2)Total available liquidity is presented above in Table 17.

(3)The short-term borrowings scheduled maturity amount consists of member investments of $3,139 million and dealer commercial paper of $1,698 million as of August 31, 2025.

(4) The long-term and subordinated scheduled debt obligations over the next 12 months consist of debt maturities and scheduled debt payment amounts, of which, $180 million was from member investments as of August 31, 2025.

(5)Calculated based on available liquidity at period end divided by debt, excluding member short-term investments, scheduled to mature over the next 12 months.

(6)Member short-term investments include commercial paper sold directly to members, select notes, daily liquidity fund notes and short-term medium-term notes sold to members. See Table 20: Short-Term Borrowings—Funding Sources below for additional information.

As presented in Tables 17 and 18 above, our available liquidity increased by $126 million, or 2% as of August 31, 2025 compared with May 31, 2025. Our liquidity coverage ratio increased slightly from 0.87 as of May 31, 2025 to 0.88 as of August 31, 2025. The increase in our available liquidity amount was due to an increase of $83 million in cash and investment debt securities and an increase of $43 million in available amount from Farmer Mac revolving note purchase agreement.

We believe we can continue to roll over our member short-term investments of $3,139 million as of August 31, 2025, based on our expectation that our members will continue to reinvest their excess cash in short-term investment products offered by CFC. As mentioned above, our members historically have maintained a relatively stable level of short-term investments in CFC. Member short-term investments in CFC have averaged $3,292 million over the last 12 fiscal quarter-end reporting periods. Our available liquidity as of August 31, 2025 was $2,104 million in excess of, or 1.4 times over, our total $5,634 million scheduled debt obligations over the next 12 months, excluding member short-term investments. In addition, we expect to receive $1,763 million from scheduled long-term loan principal payments over the next 12 months.

We expect to continue accessing the dealer commercial paper market as a cost-effective means of satisfying our incremental short-term liquidity needs. To mitigate commercial paper rollover risk, we expect to continue to maintain our committed bank revolving line of credit agreements and be in compliance with the covenants of these agreements so we can draw on these facilities, if necessary, to repay commercial paper that cannot be refinanced with similar debt. Under master repurchase agreements we have with our bank counter parties, we can obtain short-term funding in secured borrowing

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transactions by selling investment-grade corporate debt securities from our investment securities portfolio subject to an obligation to repurchase the same or similar securities at an agreed-upon price and date.

The issuance of long-term debt, which represents the most significant component of our funding, allows us to reduce our reliance on short-term borrowings, as well as effectively manage our refinancing and interest rate risk. We expect to continue to issue long-term debt in the public capital markets and under our other non-capital market debt arrangements to meet our funding needs and believe that we have sufficient sources of liquidity to meet our debt obligations and support our operations over the next 12 months.

Investment Securities Portfolio

We have an investment portfolio of debt securities classified as trading and equity securities, both of which are reported on our consolidated balance sheets at fair value. This portfolio was initially intended to provide an additional source of liquidity. Our debt securities investment portfolio totaled $75 million and $114 million as of August 31, 2025 and May 31, 2025, respectively, reflecting the continued wind-down of this portfolio as we reduce our holdings over time. In September 2025, we sold $13 million of debt securities and recorded an immaterial gain on the sale. Under master repurchase agreements that we have with counterparties, we can obtain short-term funding by selling investment-grade corporate debt securities from our investment portfolio subject to an obligation to repurchase the same or similar securities at an agreed-upon price and date. Because we retain effective control over the transferred securities, transactions under these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a component of our short-term borrowings on our consolidated balance sheets. The aggregate fair value of debt securities underlying repurchase transactions is parenthetically disclosed on our consolidated balance sheets. We had no borrowings under repurchase agreements outstanding as of both August 31, 2025 and May 31, 2025; therefore, we had no debt securities in our investment portfolio pledged as collateral as of each respective date.

Our investment portfolio also included equity securities with a fair value of $12 million and $11 million as of August 31, 2025 and May 31, 2025, respectively, consisting of Farmer Mac Class A common stock, which we exclude from our available liquidity.

We provide additional information on our investment securities portfolio in “Note 3—Investment Securities” of this Report.

Borrowing Capacity Under Various Credit Facilities

The aggregate borrowing capacity under our committed bank revolving line of credit agreements, committed loan facilities under the Guaranteed Underwriter Program and revolving note purchase agreement with Farmer Mac totaled $20,173 million as of both August 31, 2025 and May 31, 2025, and the aggregate amount available for access totaled $7,406 million and $7,363 million as of each respective date. The following is a discussion of our borrowing capacity and key terms and conditions under each of these credit facilities.

Committed Bank Revolving Line of Credit Agreements—Unsecured

Our committed bank revolving lines of credit may be used for general corporate purposes; however, we generally rely on them as a backup source of liquidity for our commercial paper. As of August 31, 2025, the total commitment amount under the three-year facility and the four-year facility was $1,595 million and $1,705 million, respectively, resulting in a combined total commitment amount under the two facilities of $3,300 million. Under our current committed bank revolving line of credit agreements, we have the ability to request up to $300 million of letters of credit, which would result in a reduction in the remaining available amount under the facilities.

Table 19 presents the total commitment amount under our committed bank revolving line of credit agreements, outstanding letters of credit and the amount available for access as of August 31, 2025.

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Table 19: Committed Bank Revolving Line of Credit Agreements


	August 31, 2025
(Dollars in millions)	Total Commitment		Letters of Credit Outstanding		Amount Available for Access		Maturity	Annual Facility Fee (1)
Bank revolving agreements:
3-year agreement	$	1,595	$	—	$	1,595	November 28, 2027	7.5 bps
Total 3-year agreement	1,595		—		1,595

4-year agreement	150		—		150		November 28, 2026	10.0 bps
4-year agreement	1,555		7		1,548		November 28, 2028	10.0 bps
Total 4-year agreement	1,705		7		1,698
Total	$	3,300	$	7	$	3,293

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(1)Facility fee based on CFC’s senior unsecured credit ratings in accordance with the established pricing schedules at the inception of the related agreement.

We did not have any outstanding borrowings under our committed bank revolving line of credit agreements as of August 31, 2025; however, we had letters of credit outstanding of $7 million under the four-year committed bank revolving agreement as of this date.

Although our committed bank revolving line of credit agreements do not contain a material adverse change clause or rating triggers that would limit the banks’ obligations to provide funding under the terms of the agreements, we must be in compliance with the covenants to draw on the facilities. We have been and expect to continue to be in compliance with the covenants under our committed bank revolving line of credit agreements. As such, we could draw on these facilities to repay commercial paper that cannot be rolled over.

Guaranteed Underwriter Program Committed Facilities—Secured

Under the Guaranteed Underwriter Program, we can borrow from the FFB and use the proceeds to extend new loans to our members and refinance existing member debt. As part of the program, we pay fees, based on our outstanding borrowings, that are intended to help fund the USDA Rural Economic Development Loan and Grant program and thereby support additional investment in rural economic development projects. The borrowings under this program are guaranteed by RUS. Each advance is subject to quarterly amortization and a final maturity not longer than 30 years from the date of the advance.

As displayed in Table 17, we had accessed $9,023 million under the Guaranteed Underwriter Program and up to $1,350 million was available for borrowing as of August 31, 2025. Of the $1,350 million available borrowing amount, $450 million is available for advance through July 15, 2027, $450 million is available for advance through July 15, 2028 and $450 million is available for advance through July 15, 2029. We are required to pledge eligible distribution system loans or power supply system loans as collateral in an amount at least equal to our total outstanding borrowings under the Guaranteed Underwriter Program committed loan facilities, which totaled $6,402 million as of August 31, 2025. In September 2025, we executed a commitment letter for the guarantee by RUS of an additional $450 million loan facility from the FFB under the Guaranteed Underwriter Program.

Farmer Mac Revolving Note Purchase Agreement—Secured

We have a revolving note purchase agreement with Farmer Mac under which we can borrow up to $6,500 million from Farmer Mac at any time, subject to market conditions, through January 14, 2030. The agreement has successive one-year renewals upon sixty days’ notice by CFC, subject to approval by Farmer Mac and Farmer Mac Mortgage Securities Corporation. Pursuant to this revolving note purchase agreement, we can borrow, repay and re-borrow funds at any time through maturity, as market conditions permit, provided the outstanding principal does not exceed the total available under the agreement. Under this agreement, we had outstanding secured notes payable totaling $3,737 million and $3,780 million as of August 31, 2025 and May 31, 2025, respectively. We repaid $43 million in long-term notes payable under this note purchase agreement with Farmer Mac during Q1 FY2026. As displayed in Table 17, the amount available for borrowing

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under this agreement was $2,763 million as of August 31, 2025. We are required to pledge eligible electric distribution system or electric power supply system loans as collateral in an amount at least equal to the total principal amount of notes outstanding under this agreement.

We provide additional information on pledged collateral below under “Pledged Collateral” in this section and in “Note 3—Investment Securities” and “Note 4—Loans.”

Short-Term Borrowings

Our short-term borrowings, which we rely on to meet our daily, near-term funding needs, consist of commercial paper, which we offer to members and dealers, select notes and daily liquidity fund notes offered to members, medium-term notes offered to members and dealers and funds from repurchase secured borrowing transactions.

Short-term borrowings decreased to $4,837 million as of August 31, 2025, from $5,091 million as of May 31, 2025, and accounted for 14% and 15% of total debt outstanding as of each respective period.

Table 20 displays the composition, by funding source, of our short-term borrowings as of August 31, 2025 and May 31, 2025. As indicated in Table 20, members’ investments represented 65% and 57% of our outstanding short-term borrowings as of August 31, 2025 and May 31, 2025, respectively.

Table 20: Short-Term Borrowings—Funding Sources


	August 31, 2025				May 31, 2025
(Dollars in thousands)	Amount Outstanding		% of Total Short-Term Borrowings		Amount Outstanding		% of Total Short-Term Borrowings
Funding source:
Members	$	3,139,237	65	%	$	2,884,965	57	%

Capital markets	1,697,466		35		2,206,451		43
Total	$	4,836,703	100	%	$	5,091,416	100	%

Member investments have historically been our primary source of short-term borrowings. While our short-term member investments increased by $254 million during Q1 FY2026, the outstanding dealer commercial paper decreased by $508 million due to paydowns using the net proceeds from the issuance of long-term dealer medium-term notes during the period. See “Note 6—Short-Term Borrowings” in this Report for additional information on our short-term borrowings.

Long-Term and Subordinated Debt

Long-term and subordinated debt, which represents the most significant source of our funding, totaled $30,445 million and $29,678 million as of August 31, 2025 and May 31, 2025, respectively, and accounted for 86% and 85% of total debt outstanding as of each respective date. See Table 21 below for a summary of our long-term and subordinated debt issuances and repayments during Q1 FY2026.

The issuance of long-term debt allows us to reduce our reliance on short-term borrowings and effectively manage our refinancing and interest rate risk, due in part to the multi-year contractual maturity structure of long-term debt. Pursuant to Rule 405 of the Securities Act, we are classified as a “well-known seasoned issuer.” Under our effective shelf registration statements filed with the SEC, we may offer and issue the following debt securities:

•an unlimited amount of collateral trust bonds and senior and subordinated debt securities, including medium-term notes, member capital securities and subordinated deferrable debt, until October 2026; and

•daily liquidity fund notes up to $20,000 million in the aggregate—with a $3,000 million limit on the aggregate principal amount outstanding at any time—until March 2028.

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Although we register member capital securities and the daily liquidity fund notes with the SEC, these securities are not available for sale to the general public. Medium-term notes are available for sale to both the general public and members. Notwithstanding the foregoing, we have contractual limitations with respect to the amount of senior indebtedness we may incur.

In addition to issuances of unlimited debt in the public capital markets under our shelf registrations discussed above, we also have access to private debt facilities. We had an outstanding balance of $294 million and $298 million of collateral trust bonds issued in a private placement transaction as of August 31, 2025 and May 31, 2025, respectively, which was an unregistered debt offering.

Long-Term Debt and Subordinated Debt—Issuances and Repayments

Table 21 summarizes long-term and subordinated debt issuances and repayments during Q1 FY2026.

Table 21: Long-Term and Subordinated Debt— Issuances and Repayments


	Q1 FY2026
(Dollars in thousands)	Issuances		Repayments(1)
Debt product type:
Collateral trust bonds(2)	$	—	$	3,711
Guaranteed Underwriter Program notes payable	—		54,503
Farmer Mac notes payable	—		43,086
Medium-term notes sold to members	13,506		46,420
Medium-term notes sold to dealers	1,233,443		337,861

Subordinated deferrable debt	3,305		—

Members’ subordinated certificates	—		2,235
Total	$	1,250,254	$	487,816

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(1)Repayments include principal maturities, scheduled amortization payments, repurchases and redemptions.

(2)Amount includes the collateral trust bonds issued to investors through both public offerings and private placement transactions.

Long-Term and Subordinated Debt—Principal Maturity and Amortization

Table 22 summarizes scheduled principal maturity and amortization of our long-term debt, subordinated deferrable debt and members’ subordinated certificates outstanding as of August 31, 2025, in each fiscal year during the five-year period ending May 31, 2030, and thereafter.

Table 22: Long-Term and Subordinated Debt—Scheduled Principal Maturities and Amortization(1)


(Dollars in thousands)	Scheduled Amortization(2)		% of Total
Fiscal year ending May 31:
2026	$	3,192,140	10	%
2027	4,083,781		13
2028	3,719,915		12
2029	3,538,050		12
2030	2,612,600		9
Thereafter	13,521,705		44
Total	$	30,668,191	100	%

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(1)Amounts presented are based on the face amount of debt outstanding as of August 31, 2025, and therefore does not include related debt issuance costs and premiums (discounts).

(2)In addition, member loan subordinated certificates totaling $123 million amortize annually based on the unpaid principal balance of the related loan.

Additionally, on September 23, 2025, notice was provided to investors that we will redeem $50 million in principal amount of our $300 million 2043 Notes on October 23, 2025. The 2043 Notes will be redeemed at par plus accrued interest.

We provide additional information on our financing activities under the above section “Consolidated Balance Sheet Analysis—Debt” and in “Note 7—Long-Term Debt” and “Note 8—Subordinated Deferrable Debt” of this Report.

Pledged Collateral

Under our secured borrowing agreements, we are required to pledge loans, investment debt securities or other collateral and maintain certain pledged collateral ratios. Of our total debt outstanding of $35,281 million as of August 31, 2025, $17,036 million, or 48%, was secured by pledged loans totaling $20,092 million. In comparison, of our total debt outstanding of $34,769 million as of May 31, 2025, $17,133 million, or 49%, was secured by pledged loans totaling $20,516 million. The following provides additional information on the collateral pledging requirements for our secured borrowing agreements.

Secured Borrowing Agreements—Pledged Loan Requirements

We are required to pledge loans or other collateral in transactions under our collateral trust bond indentures, bond agreements under the Guaranteed Underwriter Program and note purchase agreement with Farmer Mac. Total debt outstanding is presented on our consolidated balance sheets net of unamortized discounts and issuance costs. Our collateral pledging requirements are based, however, on the face amount of secured outstanding debt, which excludes net unamortized discounts and issuance costs. However, as discussed below, we typically maintain pledged collateral in excess of the required percentage. Under the provisions of our committed bank revolving line of credit agreements, the excess collateral that we are allowed to pledge cannot exceed 150% of the outstanding borrowings under our collateral trust bond 2007 indenture, the Guaranteed Underwriter Program or the Farmer Mac note purchase agreements as of August 31, 2025.

Table 23 displays the collateral coverage ratios pursuant to these secured borrowing agreements as of August 31, 2025 and May 31, 2025.

Table 23: Collateral Pledged


	Requirement Coverage Ratios
			Maximum Committed Bank Revolving Line of Credit Agreements	Actual Coverage Ratios(1)
	Minimum Debt Indentures			August 31, 2025		May 31, 2025
Secured borrowing agreement type:
Collateral trust bonds 1994 indenture	100	%	N/A	140	%	146	%
Collateral trust bonds 2007 indenture	100		150	114		116
Guaranteed Underwriter Program notes payable	100		150	118		118
Farmer Mac notes payable	100		150	120		123

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(1)Calculated based on the amount of collateral pledged divided by the face amount of outstanding secured debt.

Table 24 displays the unpaid principal balance of loans pledged for secured debt, the excess collateral pledged and unencumbered loans as of August 31, 2025 and May 31, 2025.

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Table 24: Loans—Unencumbered Loans


(Dollars in thousands)	August 31, 2025		May 31, 2025
Total loans outstanding(1)	$	37,552,708	$	37,063,548
Less: Loans required to be pledged under secured debt agreements(2)	(17,218,724)		(17,320,024)
Loans pledged in excess of required amount(2)(3)	(2,873,382)		(3,195,994)
Total pledged loans	(20,092,106)		(20,516,018)
Unencumbered loans	$	17,460,602	$	16,547,530


Unencumbered loans as a percentage of total loans outstanding						46		%				45		%

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(1)Represents the unpaid principal balance of loans as of the end of each period. Excludes unamortized deferred loan origination costs of $17 million and $16 million as of August 31, 2025 and May 31, 2025, respectively.

(2)Reflects unpaid principal balance of pledged loans.

(3)If there is an event of default under most of our indentures, we can only withdraw the excess collateral if we substitute cash or permitted investments of equal value.

As displayed above in Table 24, we had excess loans pledged as collateral totaling $2,873 million and $3,196 million as of August 31, 2025 and May 31, 2025, respectively. To ensure that we do not fall below the minimum collateral coverage ratio requirement, we typically pledge loans in excess of the required amount for the following reasons: (i) our distribution and power supply loans are typically amortizing loans that require scheduled principal payments over the life of the loan, whereas the debt securities issued under secured indentures and agreements typically have bullet maturities; (ii) distribution and power supply borrowers have the option to prepay their loans; and (iii) individual loans may become ineligible for various reasons, some of which may be temporary.

We provide additional information on our borrowings, including the maturity profile, below in “Liquidity Risk” and additional information on pledged loans in “Note 4—Loans” in this Report. For additional detail on each of our debt product types, refer to “Note 6—Short-Term Borrowings,” “Note 7—Long-Term Debt,” “Note 8—Subordinated Deferrable Debt” and “Note 9—Members’ Subordinated Certificates” in our 2025 Form 10-K.

Off-Balance Sheet Arrangements

In the ordinary course of business, we engage in financial transactions that are not presented on our consolidated balance sheets or may be recorded on our consolidated balance sheets in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements consist primarily of unadvanced loan commitments intended to meet the financial needs of our members and guarantees of member obligations, which may affect our liquidity and funding requirements based on the likelihood that borrowers will advance funds under the loan commitments or we will be required to perform under the guarantee obligations. We provide information on our unadvanced loan commitments in “Note 4—Loans” and information on our guarantee obligations in “Note 11—Guarantees.”

Projected Near-Term Sources and Uses of Funds

Table 25 below displays a projection of our primary long-term sources and uses of funds, by quarter, over each of the next six fiscal quarters. Our projection is based on the following, which includes several assumptions: (i) the estimated issuance of long-term debt, including capital market and other non-capital market term debt, is based on our market-risk management goal of minimizing the mismatch between the cash flows from our financial assets and our financial liabilities; (ii) long-term loan scheduled amortization repayment amounts represent scheduled loan principal payments for long-term loans outstanding as of August 31, 2025 and estimated loan principal payments for long-term loan advances, plus estimated prepayment amounts on long-term loans; (iii) long-term and subordinated debt maturities consist of both scheduled principal maturity and amortization amounts and projected principal maturity and amortization amounts on term debt outstanding in each period presented; and (iv) long-term loan advances are based on our current projection of member demand for loans. In addition, amounts available under our committed bank revolving lines of credit, net increases in dealer commercial paper and short-term member investments are intended to serve as a backup source of liquidity.

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Table 25: Projected Long-Term Sources and Uses of Funds(1)


	Projected Long-Term Sources of Funds				Projected Long-Term Uses of Funds
(Dollars in millions)	Long-Term Debt Issuance		Anticipated Long-Term Loan Repayments(2)		Total Projected Long-Term Sources of Funds		Long-Term and Subordinated Debt Maturities(3)		Long-Term Loan Advances		Total Projected Long-Term Uses of Funds

Q2 FY2026	$	1,200	$	424	$	1,624	$	1,181	$	776	$	1,957
Q3 FY2026	1,808		432		2,240		945		945		1,890
Q4 FY2026	1,172		418		1,590		1,031		827		1,858
Q1 FY2027	1,138		489		1,627		721		839		1,560
Q2 FY2027	1,264		552		1,816		1,133		902		2,035
Q3 FY2027	1,780		551		2,331		1,239		901		2,140
Total	$	8,362	$	2,866	$	11,228	$	6,250	$	5,190	$	11,440

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(1)The dates presented represent the end of each quarterly period through the quarter ended February 28, 2027.

(2)Anticipated long-term loan repayments include scheduled long-term loan amortizations and anticipated cash repayments at repricing date.

(3)Long-term debt maturities also include expected early redemptions of debt and exclude long-term member medium-term notes maturing over the next 12 months totaling $120 million, as we expect we can continue to roll over our member medium-term notes investments based on our expectation that our members will continue to reinvest their excess cash with us.

As displayed in Table 25, we currently project long-term advances of $3,387 million over the next 12 months, which we project will exceed anticipated long-term loan repayments over the same period of $1,763 million, resulting in net long-term loan growth of approximately $1,624 million over the next 12 months.

The estimates presented above are developed at a particular point in time based on our expected future business growth and funding. Our actual results and future estimates may vary, perhaps significantly, from the current projections, as a result of changes in market conditions, management actions or other factors. In addition to the long-term sources of funds, we have access to short-term funding sources such as member and dealer commercial paper, select notes and daily liquidity fund notes offered to members, and medium-term notes offered to members and dealers, as discussed above.

Credit Ratings

Our funding and liquidity, borrowing capacity, ability to access capital markets and other sources of funds and the cost of these funds are partially dependent on our credit ratings.

On June 2, 2025, at our request, S&P withdrew its “A-2” short-term issue ratings on CFC’s commercial paper program. The “A-” long-term issuer credit rating, the stable outlook and the other long-term debt ratings are unchanged as of the date of this Report. On August 25, 2025, Fitch affirmed CFC’s credit ratings and stable outlook. Table 26 displays our credit ratings as of August 31, 2025, which remain unchanged as of the date of this Report.

Table 26: Credit Ratings

August 31, 2025

Moody’s

S&P

Fitch

CFC credit ratings and outlook:

Long-term issuer credit rating(1)

A-

Senior secured debt(2)

A-

A+

Senior unsecured debt(3)

A-

Subordinated debt

BBB

BBB+

Commercial paper

P-1

N/A

Outlook

Stable

Rating agency credit opinion/report date

February 21, 2025

November 14, 2024

September 23, 2025

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(1)Based on our senior unsecured debt rating.

(2)Applies to our collateral trust bonds.

(3)Applies to our medium-term notes.

See “Credit Risk—Counterparty Credit Risk—Derivative Counterparty Credit Exposure” above for information on credit rating provisions related to our derivative contracts.

Financial Ratios

Our debt-to-equity ratio was 11.55 and 11.20 as of August 31, 2025 and May 31, 2025, respectively. The increase in the debt-to-equity ratio during Q1 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 $5 million for Q1 FY2026.

Our adjusted debt-to-equity ratio was 7.50 and 7.39 as of August 31, 2025 and May 31, 2025, respectively. The increase in the adjusted debt-to-equity ratio during Q1 FY2026 was due to an increase in adjusted total debt outstanding 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 due to our adjusted net income of $57 million for Q1 FY2026, partially offset by a decrease in equity of $53 million attributable to the CFC Board of Directors’ authorized patronage capital retirements in July 2025.

We provide a more detailed discussion of the debt-to-equity ratio and adjusted debt-to-equity ratio under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

Debt Covenants

As part of our short-term and long-term borrowing arrangements, we are subject to various financial and operational covenants. If we fail to maintain specified financial ratios, such failure could constitute a default by CFC of certain covenants under our committed bank revolving line of credit agreements and senior debt indentures. We were in compliance with all covenants and conditions under our committed bank revolving line of credit agreements and senior debt indentures as of August 31, 2025.

As discussed above in “Non-GAAP Financial Measures,” the financial covenants set forth in our committed bank revolving line of credit agreements and senior debt indentures are based on adjusted financial measures, including adjusted TIER. We provide a reconciliation of adjusted TIER and other non-GAAP financial measures disclosed in this Report to the most comparable U.S. GAAP financial measures below in “Non-GAAP Financial Measures and Reconciliations.” See “Item 7. MD&A—Non-GAAP Financial Measures and Reconciliations” in our 2025 Form 10-K for a discussion of each of our non-GAAP measures and an explanation of the adjustments to derive these measures.


MARKET RISK

Interest rate risk represents our primary source of market risk, as interest rate-volatility or changes in interest rates can have a significant impact on our earnings and overall financial condition as a financial institution. We are exposed to interest rate risk primarily from the differences in the timing between the maturity or repricing of our loans and the liabilities funding our loans. We seek to generate stable adjusted net interest income on a sustained and long-term basis by minimizing the mismatch between the cash flows from our interest rate-sensitive financial assets and our financial liabilities. We use derivatives as a tool in matching the duration and repricing characteristics of our interest rate-sensitive assets and liabilities. We provide additional information on our management of interest rate risk in our 2025 Form 10-K under “Item 7. MD&A—Market Risk—Interest Rate Risk Management.” Below we discuss how we manage and measure interest rate risk.

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Interest Rate Risk Assessment

Our Asset Liability Management (“ALM”) framework includes the use of analytic tools and capabilities, enabling CFC to generate a comprehensive profile of our interest rate risk exposure. We routinely measure and assess our interest rate risk exposure using various methodologies through the use of ALM models that enable us to accurately measure and monitor our interest rate risk exposure under multiple interest rate scenarios using several different techniques. Below we present two measures used to assess our interest rate risk exposure: (i) the interest rate sensitivity of projected net interest income and adjusted net interest income; and (ii) duration gap.

Interest Rate Sensitivity Analysis

We regularly evaluate the sensitivity of our interest-earning assets and the interest-bearing liabilities funding those assets and our net interest income and adjusted net interest income projections under multiple interest rate scenarios. Each month we update our ALM models to reflect our existing balance sheet position and incorporate different assumptions about forecasted changes in our balance sheet position over the next 12 months. Based on the forecasted balance sheet changes, we generate various projections of net interest income and adjusted net interest income over the next 12 months. Management reviews and assesses these projections and underlying assumptions to identify a baseline scenario of projected net interest income and adjusted net interest income over the next 12 months, which reflects what management considers, at the time, as the most likely scenario. As discussed under “Non-GAAP Financial Measures,” we derive adjusted net interest income by adjusting our reported interest expense and net interest income to include the impact of net derivative cash settlement amounts.

Our interest rate sensitivity analyses take into consideration existing interest rate-sensitive assets and liabilities as of the reported balance sheet date and forecasted changes to the balance sheet over the next 12 months under management’s baseline projection. As discussed in the “Executive Summary—Outlook” section, we currently anticipate net loan growth of $2,180 million over the next 12 months and overall, the market expects interest rates to decline, with a steepening yield curve ahead.

Based on our current baseline forecast assumptions, which include a total of 125 basis points of federal funds rate cuts from August 2025 through August 2026, 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 August 31, 2025. We also project an increase in our adjusted net interest income over the next 12 months relative to the 12-month period ended August 31, 2025, primarily driven by projected loan growth. We project a slight decrease in adjusted net interest yield over the next 12 months, primarily due to our baseline interest rate forecast and that our interest-earning assets, primarily lines of credit, are repricing faster than interest-bearing liabilities. Additionally, lower-cost long-term debt maturing in the near term will need to be refinanced at a forecasted higher interest rate and the expected decrease in the variable rate debt cost will be offset by the lower average yield earned on our interest rate swaps derivative cash settlements.

Table 27 presents the estimated percentage impact that a hypothetical instantaneous parallel shift of additional plus or minus 100 basis points in the interest rate yield curve, relative to our base case forecast yield curve that includes 125 basis points of federal funds rate cuts, would have on our projected baseline 12-month net interest income and adjusted net interest income as of August 31, 2025 and May 31, 2025. We also present the estimated percentage impact on our projected baseline 12-month net interest income and adjusted net interest income assuming a hypothetical inverted yield curve under which shorter-term interest rates increase by an instantaneous 75 basis points and longer-term interest rates decrease by an instantaneous 75 basis points.

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Table 27: Interest Rate Sensitivity Analysis


	August 31, 2025						May 31, 2025
Estimated Impact(1)	+ 100 Basis Points		– 100 Basis Points		Inverted		+ 100 Basis Points		– 100 Basis Points		Inverted
Net interest income	(2.05)	%	2.15	%	(6.92)	%	(1.68)	%	1.79	%	(5.07)	%
Derivative cash settlements	11.94	%	(11.93)	%	9.61	%	11.33	%	(11.32)	%	9.12	%
Adjusted net interest income(2)	9.90	%	(9.78)	%	2.69	%	9.65	%	(9.54)	%	4.04	%

____________________________

(1)The actual impact on our reported and adjusted net interest income may differ significantly from the sensitivity analysis presented.

(2)We include net periodic derivative cash settlement interest amounts as a component of interest expense in deriving adjusted net interest income. See the section “Non-GAAP Financial Measures and Reconciliations” for a reconciliation of the non-GAAP financial measures presented in this Report to the most comparable U.S. GAAP financial measures.

The changes in the sensitivity measures between August 31, 2025 and May 31, 2025 are primarily attributable to changes in the size and composition of our forecasted balance sheet, as well as changes in current interest rates and forecasted interest rates. As the interest rate sensitivity simulations displayed in Table 27 indicate, we would expect an unfavorable impact on our projected net interest income over a 12-month horizon as of August 31, 2025, under the hypothetical scenario of an instantaneous parallel shift of plus 100 basis points in the interest rate yield curve and an inverted yield curve. We would expect an unfavorable impact on our adjusted net interest income over a 12-month horizon as of August 31, 2025, under the hypothetical scenario of an instantaneous parallel shift of minus 100 basis points in the interest rate yield curve.

Duration Gap

The duration gap, which represents the difference between the estimated duration of our interest-earning assets and the estimated duration of our interest-bearing liabilities, summarizes the extent to which the cash flows for assets and liabilities are matched over time. We use derivatives in managing the differences in timing between the maturities or repricing of our interest earning assets and the debt funding those assets. A positive duration gap indicates that the duration of our interest-earning assets is greater than the duration of our debt and derivatives, and therefore denotes an increased exposure to rising interest rates over the long term. Conversely, a negative duration gap indicates that the duration of our interest-earning assets is less than the duration of our debt and derivatives, and therefore denotes an increased exposure to declining interest rates over the long term. While the duration gap provides a relatively concise and simple measure of the interest rate risk inherent on our consolidated balance sheet as of the reported date, it does not incorporate projected changes on our consolidated balance sheets.

The duration gap widened to positive 1.06 months as of August 31, 2025, from positive 0.27 months as of May 31, 2025 and was within the risk limits and guidelines established by CFC’s Asset Liability Committee as of each respective date. The widening of the positive duration gap is primarily due to shorter duration liabilities funding interest-earning assets.

Limitations of Interest Rate Risk Measures

While we believe that the interest income sensitivities and duration gap measures provided are useful tools in assessing our interest rate risk exposure, there are inherent limitations in any methodology used to estimate the exposure to changes in market interest rates. These measures should be understood as estimates rather than as precise measurements. The interest rate sensitivity analyses only contemplate certain hypothetical movements in interest rates and are performed at a particular point in time based on the existing balance sheet and, in some cases, expected future business growth and funding mix assumptions. The strategic actions that management may take to manage our balance sheet may differ significantly from our projections, which could cause our actual interest income to differ substantially from the above sensitivity analysis. Moreover, as discussed above, we use various other methodologies to measure and monitor our interest rate risk under multiple interest rate scenarios, which, together, provide a comprehensive profile of our interest rate risk.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our consolidated financial statements. Understanding our accounting policies and the extent to which we use management’s judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a discussion of our significant accounting policies in “Note 1—Summary of Significant Accounting Policies” in our 2025 Form 10-K.

Certain accounting estimates are considered critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. The determination of the allowance for expected credit losses over the remaining expected life of the loans in our loan portfolio involves a significant degree of management judgment and level of estimation uncertainty. As such, we have identified our accounting policy governing the estimation of the allowance for credit losses as a critical accounting estimate. We describe our allowance methodology and process for estimating the allowance for credit losses under “Note 1—Summary of Significant Accounting Policies—Allowance for Credit Losses–Loan Portfolio” in our 2025 Form 10-K.

We identify the key inputs used in determining the allowance for credit losses, discuss the assumptions that require the most significant management judgment and contribute to the estimation uncertainty and disclose the sensitivity of our allowance to hypothetical changes in the assumptions underlying the calculation of our reported allowance for credit losses under “Item 7. MD&A—Critical Accounting Estimates” in our 2025 Form 10-K. Management established policies and control procedures intended to ensure that the methodology used for determining our allowance for credit losses, including any judgments and assumptions made as part of such method, are well-controlled and applied consistently from period to period. We regularly evaluate the key inputs and assumptions used in determining the allowance for credit losses and update them, as necessary, to better reflect present conditions, including current trends in credit performance and borrower risk profile, portfolio concentration risk, changes in risk-management practices, changes in the regulatory environment and other factors relevant to our loan portfolio segments. We did not change our allowance methodology or the nature of the underlying key inputs and assumptions used in measuring our allowance for credit losses during the current quarter.

We discuss the risks and uncertainties related to management’s judgments and estimates in applying accounting policies that have been identified as critical accounting estimates under “Item 1A. Risk Factors—Regulatory and Compliance Risks” in our 2025 Form 10-K. We provide additional information on the allowance for credit losses under the sections “Credit Risk—Allowance for Credit Losses” and “Note 5—Allowance for Credit Losses” in this Report.


RECENT ACCOUNTING CHANGES AND OTHER DEVELOPMENTS

Recent Accounting Changes

We provide information on recently adopted accounting standards and the adoption impact on CFC’s consolidated financial statements and recently issued accounting standards not yet required to be adopted and the expected adoption impact in “Note 1—Summary of Significant Accounting Policies.” To the extent we believe the adoption of new accounting standards has had or will have a material impact on our consolidated results of operations, financial condition or liquidity, we discuss the impact in the applicable section(s) of this MD&A.


NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

As discussed above in the section “Non-GAAP Financial Measures,” in addition to financial measures determined in accordance with U.S. GAAP, management evaluates performance based on certain non-GAAP financial measures, which we refer to as “adjusted” financial measures. Below we provide a reconciliation of our adjusted financial measures presented in this Report to the most comparable U.S. GAAP financial measures. See “Item 7. MD&A—Non-GAAP Financial

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Measures and Reconciliations” in our 2025 Form 10-K for a discussion of each of these non-GAAP financial measures and an explanation of the adjustments to derive these measures.

Net Income and Adjusted Net Income

Table 28 provides a reconciliation of adjusted interest expense, adjusted net interest income, and adjusted net income to the comparable U.S. GAAP financial measures. These adjusted financial measures are used in the calculation of our adjusted net interest yield and adjusted TIER.

Table 28: Adjusted Net Income



(Dollars in thousands)	Q1 FY2026		Q1 FY2025
Adjusted net interest income:
Interest income	$	447,446	$	418,119
Interest expense	(376,469)		(356,460)
Include: Derivative cash settlements interest income(1)	20,267		32,061
Adjusted interest expense	(356,202)		(324,399)
Adjusted net interest income	$	91,244	$	93,720

Adjusted net income:
Net income (loss)	$	4,682	$	(164,326)
Exclude: Derivative forward value losses(2)	(52,471)		(230,386)
Adjusted net income	$	57,153	$	66,060

____________________________

(1)Represents the net periodic contractual interest income amount on our interest rate swaps during the reporting period.

(2)Represents the change in fair value of our interest rate swaps during the reporting period due to changes in expected future interest rates over the remaining life of our derivative contracts.

We primarily fund our loan portfolio through the issuance of debt. However, we use derivatives as economic hedges as part of our strategy to manage the interest rate risk associated with funding our loan portfolio. We therefore consider the interest income and expense incurred on our derivatives to be part of our funding cost in addition to the interest expense on our debt. As such, we add net periodic derivative cash settlements interest income and expense amounts to our reported interest expense to derive our adjusted interest expense and adjusted net interest income. We exclude unrealized derivative forward value gains (losses) from our adjusted net income.

TIER and Adjusted TIER

Table 29 displays the calculation of our TIER and adjusted TIER.

Table 29: TIER and Adjusted TIER



	Q1 FY2026	Q1 FY2025
TIER(1)	1.01	0.54

Adjusted TIER(2)	1.16	1.20

____________________________

(1)TIER is calculated based on our net income (loss) plus interest expense for the period divided by interest expense for the period.

(2)Adjusted TIER is calculated based on adjusted net income (loss) plus adjusted interest expense for the period divided by adjusted interest expense for the period.

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Debt Outstanding and Equity and Adjusted Debt Outstanding and Equity

Table 30 provides a reconciliation between our total debt outstanding and equity and the adjusted amounts used in the calculation of our adjusted debt-to-equity ratio as of August 31, 2025 and May 31, 2025.

Table 30: Adjusted Total Debt Outstanding and Equity


(Dollars in thousands)	August 31, 2025		May 31, 2025
Adjusted total debt outstanding:
Total debt outstanding(1)	$	35,281,415	$	34,769,316
Exclude:


50% of Subordinated deferrable debt	666,370		664,743
Members’ subordinated certificates	1,182,478		1,184,714
Adjusted total debt outstanding	$	33,432,567	$	32,919,859

Adjusted total equity:
Total equity	$	3,054,736	$	3,103,466
Exclude:
Prior fiscal year-end cumulative derivative forward value gains(2)	502,899		607,969
Year-to-date derivative forward value losses(2)	(52,471)		(105,070)
Period-end cumulative derivative forward value gains(2)	450,428		502,899
Accumulated other comprehensive loss	(2,235)		(2,236)
Subtotal	448,193		500,663
Include:
50% of Subordinated deferrable debt	666,370		664,743
Members’ subordinated certificates	1,182,478		1,184,714
Subtotal	1,848,848		1,849,457
Adjusted total equity	$	4,455,391	$	4,452,260

____________________________

(1)Total debt outstanding includes our interest-bearing debt and excludes non-interest bearing liabilities, such as derivative liabilities.

(2)Represents consolidated total derivative forward value gains (losses).

Debt-to-Equity and Adjusted Debt-to-Equity Ratios

Table 31 displays the calculations of our debt-to-equity and adjusted debt-to-equity ratios as of August 31, 2025 and May 31, 2025.

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Table 31: Debt-to-Equity Ratio and Adjusted Debt-to-Equity Ratio


(Dollars in thousands)	August 31, 2025		May 31, 2025
Debt-to equity ratio:
Total debt outstanding	$	35,281,415	$	34,769,316
Total equity	3,054,736		3,103,466
Debt-to-equity ratio(1)	11.55		11.20

Adjusted debt-to-equity ratio:
Adjusted total debt outstanding(2)	$	33,432,567	$	32,919,859
Adjusted total equity(2)	4,455,391		4,452,260
Adjusted debt-to-equity ratio(3)	7.50		7.39

____________________________

(1)Calculated based on total debt outstanding at period end divided by total equity at period end.

(2)See Table 30 above for details on the calculation of these non-GAAP financial measures and the reconciliation to the most comparable U.S. GAAP financial measures.

(3)Calculated based on adjusted total debt outstanding at period end divided by adjusted total equity at period end.

Total CFC Equity and Members’ Equity

Members’ equity excludes the noncash impact of derivative forward value gains (losses) and foreign currency adjustments recorded in net income and amounts recorded in AOCI. Because these amounts generally have not been realized, they are not available to members and are excluded by the CFC Board of Directors in determining the annual allocation of adjusted net income to patronage capital, to the members’ capital reserve and to other member funds. Table 32 provides a reconciliation of members’ equity to total CFC equity as of August 31, 2025 and May 31, 2025. We present the components of AOCI in “Note 10—Equity.”

Table 32: Members’ Equity


(Dollars in thousands)	August 31, 2025		May 31, 2025
Members’ equity:
Total CFC equity	$	3,033,833	$	3,082,477
Exclude:
Accumulated other comprehensive loss	(2,235)		(2,236)
Period-end cumulative derivative forward value gains attributable to CFC(1)	449,387		501,663
Subtotal	447,152		499,427
Members’ equity	$	2,586,681	$	2,583,050

____________________________

(1)Represents period-end cumulative derivative forward value gains for CFC only, as total CFC equity does not include the noncontrolling interest of the variable interest entity, which we are required to consolidate. We report the separate results of operations for CFC in “Note 14—Business Segments.” The period-end cumulative derivative forward value total gain amounts as of August 31, 2025 and May 31, 2025 are presented above in Table 30.

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Item 1. Financial Statements


									Page
			Consolidated Statements of Operations (Unaudited)						45
			Consolidated Statements of Comprehensive Income (Loss) (Unaudited)						46
			Consolidated Balance Sheets (Unaudited)						47
			Consolidated Statements of Changes in Equity (Unaudited)						48
			Consolidated Statements of Cash Flows (Unaudited)						49
			Notes to Consolidated Financial Statements (Unaudited)						50
			Note 1 — Summary of Significant Accounting Policies						50
			Note 2 — Interest Income and Interest Expense						52
			Note 3 — Investment Securities						53
			Note 4 — Loans						54
			Note 5 — Allowance for Credit Losses						64
			Note 6 — Short-Term Borrowings						66
			Note 7 — Long-Term Debt						68
			Note 8 — Subordinated Deferrable Debt						70
			Note 9 — Derivative Instruments and Hedging Activities						70
			Note 10 — Equity						74
			Note 11 — Guarantees						75
			Note 12 — Fair Value Measurement						77
			Note 13 — Variable Interest Entities						79
			Note 14 — Business Segments						80

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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


(Dollars in thousands)	Q1 FY2026		Q1 FY2025
Interest income	$	447,446	$	418,119
Interest expense	(376,469)		(356,460)
Net interest income	70,977		61,659
Provision for credit losses	(1,587)		(953)
Net interest income after provision for credit losses	69,390		60,706
Non-interest income (loss):
Fee and other income	7,075		5,668
Derivative losses	(32,204)		(198,325)
Investment securities gains	1,445		4,131
Total non-interest loss	(23,684)		(188,526)
Non-interest expense:
Salaries and employee benefits	(19,976)		(17,188)
Other general and administrative expenses	(20,793)		(19,104)

Other non-interest expense	(275)		(318)
Total non-interest expense	(41,044)		(36,610)
Income (loss) before income taxes	4,662		(164,430)
Income tax benefit	20		104
Net income (loss)	4,682		(164,326)
Less: Net loss attributable to noncontrolling interests	84		482
Net income (loss) attributable to CFC	$	4,766	$	(163,844)

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these statements.

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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


(Dollars in thousands)	Q1 FY2026		Q1 FY2025
Net income (loss)	$	4,682	$	(164,326)
Other comprehensive income (loss):

Changes in unrealized gains on derivative cash flow hedges	—		803
Reclassification to earnings of realized gains on derivatives	(118)		(167)
Defined benefit plan adjustments	119		96
Other comprehensive income	1		732
Total comprehensive income (loss)	4,683		(163,594)
Less: Total comprehensive loss attributable to non-controlling interests	84		482
Total comprehensive income (loss) attributable to CFC	$	4,767	$	(163,112)

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these statements.

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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(Dollars in thousands)	August 31, 2025		May 31, 2025
Assets:
Cash and cash equivalents	$	257,145	$	134,712
Restricted cash	8,470		8,410
Total cash, cash equivalents and restricted cash	265,615		143,122

Investment securities:
Debt securities trading, at fair value	75,459		113,663
Equity securities, at fair value	11,981		11,252
Total investment securities, at fair value	87,440		124,915
Loans to members	37,569,601		37,079,978
Less: Allowance for credit losses	(42,202)		(40,615)
Loans to members, net	37,527,399		37,039,363
Accrued interest receivable	273,939		270,222
Other receivables	23,407		24,377
Fixed assets, net of accumulated depreciation of $93,194 and $91,211 as of August 31, 2025 and May 31, 2025, respectively	80,069		81,667

Derivative assets	499,988		555,855
Other assets	90,861		85,528
Total assets	$	38,848,718	$	38,325,049

Liabilities:
Accrued interest payable	$	314,922	$	294,917
Debt outstanding:
Short-term borrowings	4,836,703		5,091,416
Long-term debt	27,929,495		27,163,701
Subordinated deferrable debt	1,332,739		1,329,485
Members’ subordinated certificates:
Membership subordinated certificates	628,637		628,637
Loan and guarantee subordinated certificates	307,678		309,914
Member capital securities	246,163		246,163
Total members’ subordinated certificates	1,182,478		1,184,714
Total debt outstanding	35,281,415		34,769,316
Patronage capital retirement payable	52,978		—
Deferred income	31,461		31,596
Derivative liabilities	47,971		51,368
Other liabilities	65,235		74,386
Total liabilities	35,793,982		35,221,583

Equity:
CFC equity:
Retained equity	3,036,068		3,084,713
Accumulated other comprehensive loss	(2,235)		(2,236)
Total CFC equity	3,033,833		3,082,477
Noncontrolling interests	20,903		20,989
Total equity	3,054,736		3,103,466
Total liabilities and equity	$	38,848,718	$	38,325,049

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these statements.

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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)


	Q1 FY2026
(Dollars in thousands)	Membership Fees and Educational Fund		Patronage Capital Allocated		Members’ Capital Reserve		Unallocated Net Income		CFC Retained Equity		Accumulated Other Comprehensive Income (Loss)		Total CFC Equity		Non-controlling Interests		Total Equity











Balance as of May 31, 2025	$	3,624	$	948,526	$	1,631,609	$	500,954	$	3,084,713	$	(2,236)	$	3,082,477	$	20,989	$	3,103,466


Net income	—		—		—		4,766		4,766		—		4,766		(84)		4,682
Other comprehensive income	—		—		—		—		—		1		1		—		1
Patronage capital retirement	—		(52,978)		—		—		(52,978)		—		(52,978)		—		(52,978)
Other	(433)		—		—		—		(433)		—		(433)		(2)		(435)
Balance as of August 31, 2025	$	3,191	$	895,548	$	1,631,609	$	505,720	$	3,036,068	$	(2,235)	$	3,033,833	$	20,903	$	3,054,736



	Q1 FY2025
(Dollars in thousands)	Membership Fees and Educational Fund		Patronage Capital Allocated		Members’ Capital Reserve		Unallocated Net Income		CFC Retained Equity		Accumulated Other Comprehensive Income (Loss)		Total CFC Equity		Non-controlling Interests		Total Equity









Balance as of May 31, 2024	$	3,576	$	928,232	$	1,455,564	$	605,506	$	2,992,878	$	(1,416)	$	2,991,462	$	20,707	$	3,012,169


Net loss	—		—		—		(163,844)		(163,844)		—		(163,844)		(482)		(164,326)
Other comprehensive income	—		—		—		—		—		732		732		—		732

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/ 10-Q