What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-08-05 compared with 2024-08-01 · 431 added, 396 removed, 1354 unchanged (38% of the section changed)

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

As of May 31, 2024, our financial statements included the consolidated accounts of CFC and NCSC.

Our financial statements include the consolidated accounts of CFC and NCSC.

Our principal operations are currently organized for management reporting purposes into two business segments, which ar e based on the accounts of each of the legal entities included in our consolidated financial statements:

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Our key non-GAAP financial measures are adjusted net income, adjusted net interest income, adjusted interest expense, adjusted net interest yield, adjusted TIER, adjusted debt-to-equity ratio and members’ equity.

The most comparable U.S.

The most comparable

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, total liabilities and total equity to exclude the non-cash impact of the accounting for derivative financial instruments;

(iii) adjusting total liabilities to exclude the amount that funds CFC member loans guaranteed by RUS, subordinated deferrable debt and members’ subordinated certificates;

(iv) adjusting total equity to include subordinated deferrable debt and members’ subordinated certificates and exclude cumulative derivative forward value gains and losses and amounts of changes in the fair value included in accumulated other comprehensive income (“AOCI”) related to derivatives;

and (v) adjusting CFC equity to exclude derivative forward value gains and losses and AOCI.

(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.

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Net Income and TIER

The table below shows our net income and TIER for the periods presented and the variance between these periods.

Table 1 below shows our net income 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.” See “Item 7.

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

FY2024 versus FY2023

The increase in net income was primarily driven by:

• An increase in derivative gains of $106 million, primarily from an increase in the net interest rate received on our pay-fixed swaps, which drove the higher derivative cash settlements income for FY2024;

• A favorable shift from losses to gains recorded on our investment securities of $16 million, primarily due to period-to-period market fluctuations in fair value;

• A favorable shift from provision to benefit for credit losses of $6 million .

We recorded a benefit for credit losses of $5 million for FY2024 , resulting primarily from a decrease in the asset-specific allowance, partially offset by an increase in the collective allowance due to loan portfolio growth.

In comparison, we recorded a provision for credit losses of $1 million for FY2023 , driven primarily by an increase in the asset-specific allowance;

• An increase in fee and other income of $5 million;

These were partially offset by:

• A decrease in net interest income of $61 million, attributable to a decrease in the net interest yield of 24 basis points, or 24%, to 0.74%, partially offset by an increase in average interest-earning assets of $2,138 million, or 7%;

• An increase in operating and other expenses of $19 million.

The decrease in TIER for FY2024 compared with FY2023 were primarily driven by increased interest expense during FY2024.

Table 2 below presents a reconciliation of net income betwe en FY2025 and FY2024.

Reconciliation of Net Income

FY2025 versus FY2024— Key Highlights

• A shift to losses from gains was recorded on our derivatives portfolio of $398 million, as we recorded derivative losses of $6 million for FY2025, primarily attributable to decreases in interest rates across the swap curve, with the exception of the 30-year swap rate, which increased slightly during FY2025.

In comparison, we recorded derivative gains of $392 million for FY2024, primarily due to increases in the medium- and longer-term swap interest rates during FY2024.

• Operating and other expenses increased by $21 million for FY2025 compared with FY2024, primarily driven by higher expenses recorded for salaries and employee benefits, general and administrative, and an impairment loss of $8 million on an equity investment.

• Gains recorded on our investment securities decreased by $5 million, primarily due to period-to-period market fluctuations in fair value.

• Net interest income increased by $7 million, attributable to an increase in average interest-earning assets of $1,772 million, or 5%, partially offset by a decrease in the net interest yield of 2 basis points, or 3%, to 0.72%.

• We recorded a benefit for credit losses of $8 million for FY2025, resulting primarily from a decrease in the asset-specific allowance for a nonperforming loan attributable to higher actual than expected payments received on this loan during FY2025.

In comparison, we recorded a benefit for credit losses of $5 million for FY2024, resulting primarily from a decrease in the asset-specific allowance, partially offset by an increase in the collective allowance due to loan portfolio growth.

• The decrease in TIER for FY2025 compared with FY2024 was driven by the combined impact of a decrease in net income primarily attributable to our derivative portfolio forward value change as discussed above and an increase in interest expense during FY2025.

Debt-to-Equity Ratio

Our debt-to-equity ratio decreased to 11.01 as of May 31, 2024, fro m 12.14 as of May 31, 2023, primarily due to an increase in equity res ulting from our reported net income of $554 million for FY2024 , which was partially offset by a decrease in equity of $10 million from CFC ’ s deconsolidation of RTFC and $113 million from the CFC Board of Directors’ authorized patronage capital retirements, of which $72 million was paid to members in September 2023 and $41 million was paid from CFC to RTFC in December 2023 in connection with the RTFC sale transaction, which is discussed further under “Note 1—Summary of Significant Accounting Policies.”

During FY2025 , we refined our methodology for calculating the debt-to-equity ratio to revise from total liabilities divided by total equity to total debt outstanding divided by total equity.

This change was driven by a change in our methodology for calculating the adjusted debt-to-equity ratio, which is discussed in more detail under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

The debt-to-equity ratio under the revised methodology was 11.20 and 10.86 as of May 31, 2025 and 2024, respectively.

The increase in the debt-to-equity ratio during FY2025 was due to an increase in debt to fund loan growth, partially offset by an increase in total equity.

The increase in total equity was primarily driven by our reported net income of $140 million for FY2025 , partially offset by the CFC Board of Directors’ authorized patronage capital retirement of $47 million in July 2024.

Non-GAAP Adjusted Results

Adjusted Net Income and Adjusted TIER

The table below shows our adjusted net income and adjusted TIER for the periods presented and the variance between these periods.

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.

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Adjusted TIER 1.18 1.24 1.25 (0.06) (0.01)

FY2024 versus FY2023

The increase in adjusted net income was primarily driven by:

• An increase in adjusted net interest income of $32 million, driven by the combined impact of an increase in average interest-earning assets of $2,138 million, or 7%, and an increase in the adjusted net interest yield of 3 basis points, or 3%, to 1.11%;

• A favorable shift from losses to gains recorded on our investment securities of $16 million;

• A favorable shift from provision to benefit for credit losses of $6 million;

• An increase in fee and other income of $5 million;

These were partially offset by:

• An increase in operating and other expenses of $19 million.

Table 4 below presents a reconciliation of adjusted net income betwe en FY2025 and FY2024.

Reconciliation of Adjusted Net Income

FY2025 versus FY2024— Key Highlights

• Adjusted net interest income decreased by $21 million for FY2025 compared with FY2024, driven by a decrease in the adjusted net interest yield of 11 basis points, or 10%, to 1.00%, partially offset by an increase in average interest-earning assets of $1,772 million, or 5%.

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

• The decrease in adjusted TIER for FY2025 compared with FY2024 was primarily driven by the increased adjusted interest expense and operating and other expenses during FY2025.

Adjusted Debt-to-Equity Ratio

Our financial goals focus on maintaining an adjusted debt-to-equity ratio at approximately 6-to-1 or below.

The adjusted debt-to-equity ratio increased to 6.24 a s of May 31, 2024 from 6.04 as of May 31, 2023 , due to an increase in adjusted liabilities resulting from additional borrowings to fund growth in our loan portfolio, partially offset by an increase in adjusted equity.

The increase in adjusted equity was primarily due to our adjusted net income of $289 million for FY2024, partially offset by a decrease in equity of $10 million from CFC ’ s deconsolidation of RTFC and $113 million from CFC Board of Directors’ authorized patronage capital retirements , as discussed above.

During FY2025, we refined our methodology for calculating the adjusted debt-to-equity ratio.

Consequently, we revised our internally established adjusted debt-to-equity threshold from 6-to-1 to 8.5-to-1.

The adjusted debt-to-equity ratio under the revised methodology was 7.39 and 7.27 as of May 31, 2025 and 2024, respectively.

The increase in the adjusted debt-to-equity ratio during FY2025 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 a combined impact of our adjusted net income of $245 million for FY2025 and issuances of

subordinated deferrable debt during FY2025, partially offset by a decrease in equity of $47 million attributable to the CFC Board of Directors’ authorized patronage capital retirement in July 2024 , as discussed above.

We provide a more detailed discussion of the revised methodology for calculating the adjusted debt-to-equity ratio and a reconciliation of our non-GAAP adjusted measures to the most directly comparable U.S.

GAAP measures under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

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.

Prior to the RTFC sale transaction on December 1, 2023, NCSC electric and NCSC telecom were referred to as NCSC and RTFC, respectively.

Loans to members totaled $37,080 million as of May 31, 2025, an increase of $2,538 million, or 7%, from May 31, 2024, reflecting net increases in long-term and line of credit loans o f $1,405 million an d $1,130 million, respectively.

Our loan portfolio composition remained largely unchanged from May 31, 2023 with 78% of loans outstanding to CFC distribution borrowers, 16% to CFC power supply borrowers, 3% to NCSC electric borrowers, 2% to NCSC telecom borrowers, and 1% to CFC statewide and associate borrowers as of May 31, 2024 .

We believe the overall credit quality of our loan portfolio remained strong as of May 31, 2024.

We had no loan charge-offs during FY2024.

Of the increase in line of credit loans, 78% was attributable to borrowings under emergency line of credit loans by our members primarily for recovery costs for Hurricane Helene, which impacted the Southeastern United States in September 2024.

The remaining 22% was primarily attributable to funding provided for member working capital and NCSC renewable project financing.

Our loan portfolio composition remained largely unchanged from May 31, 2024 with 79% of loans outstanding to CFC distrib ution borrowers, 16% to CFC power supply borrowers, 3% to NCSC electric borrowers and 2% to NCSC telecom borrowers as of May 31, 2025 .

The overall credit quality of our loan portfolio remained strong as of May 31, 2025.

We had no loan charge-offs during FY2025 and FY2024.

We recorded $1 million in net loan recoveries to previously charged-off loan amounts during FY2024.

In comparison, we experienced net charge-offs totaling $15 million during FY2023, which resulted in an annualized net charge-off rate of 0.05% for FY2023.

We had one loan totaling $49 million classified as nonperforming as of May 31, 2024.

In comparison, we had two loans totaling $89 million classified as nonperforming as of May 31, 2023.

The reduction was due to the receipts of $40 million in payments on nonperforming loans.

We had one loan totaling $26 million and $49 million classified as nonperforming as of May 31, 2025 and 2024, respectively.

The reduction in the nonperforming loan was due to payments received on this loan during FY2025 .

Our allowance for credit losses and allowance coverage ratio decreased to $41 million and 0.11%, respectively, as of May 31, 2025, from $49 million and 0.14%, respectively, as of May 31, 2024.

The $4 million decrease in the allowance for credit losses reflected a reduction in the asset-specific allowance of $8 million, partially offset by an increase in the collective allowance of $4 million.

The $8 million decrease in the allowance for credit losses was attributable to a reduction in the asset-specific allowance due to higher actual than expected payments received on a nonperforming loan during FY2025.

Financing and Liquidity

Total debt outstanding increased by $1,719 million, or 6%, to $32,718 million as of May 31, 2024, primarily due to borrowings to fund the increase in loans to our members .

We issued an aggregate principal amount of long-term dealer medium-term notes totaling $3,750 million during FY2024, of which $3,150 million was at an average fixed interest rate of 5.05% with an average term of four years and $600 million was at floating interest rates with an average term of two years.

We also issued $100 million of 7.125% subordinated deferrable debt due in 2053 during FY2024.

Outstanding dealer commercial paper was $505 million as of May 31, 2024.

During FY2024, Fitch Ratings (“Fitch”), S&P Global Inc.(“S&P”) and Moody’s Investors Service (“Moody’s”) affirmed CFC’s credit ratings and stable outlook.

Our available liquidity consists of cash and cash equivalents, investments in debt securities and availability under committed bank revolving line of credit agreements, committed loan facilities under the USDA Guaranteed Underwriter Program and a revolving note purchase agreement with Farmer Mac.

As of May 31, 2024, our available liquidity totaled $6,695 million and was $314 million below our total scheduled debt obligations over the next 12 months of $7,009 million.

Total debt outstanding increased by $2,051 million, or 6%, to $34,769 million as of May 31, 2025, compared with May 31, 2024, primarily due to borrowings to fund the increase in loans to our members .

During FY2025, we issued:

• U nsecured long-term dealer medium-term notes totaling approximately $2,400 million, of which $1,800 million was at a weighted average fixed interest rate of 4.65% with an average term of four years, and $600 million was at floating interest rates with an average term of two years;

• Secured long-term debt totaling $1,450 million at a weighted average fixed interest rate of 4.94% with an average term of 16 years.

In addition, during FY2025, we issued a total of $44 million of 30-year subordinated deferrable interest notes (“subordinated notes”) under a new subordinated debt program that was launched in November 2024.

Subsequent to FY2025, we issued $525 million of dealer medium-term notes at a floating interest rate with a term of 18 months.

During FY2025, Moody’s Investors Service (“Moody’s”), Fitch Ratings (“Fitch”) and S&P Global Inc.(“S&P”) affirmed CFC’s credit ratings and stable outlook.

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 long-term issue ratings are unchanged as of the date of this Report.

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 Guaranteed Underwriter Program of the United

States Department of Agriculture (“USDA”) (the “Guaranteed Underwriter Program”), and a revolving note purchase agreement with Federal Agricultural Mortgage Corporation (“Farmer Mac”).

As of May 31, 2025, our available liquidity totaled $7,612 million and was $1,158 million less than our total scheduled debt obligations over the next 12 months of $8,770 million.

In addition to our existing available liquidity, we expect to re ceive $1,668 million from scheduled long-term loan principal payments over the next 12 months.

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Emerging developments and trends in the electric cooperative sector continue to present opportunities as well as challenges for our electric cooperative members.

These trends include (i) increased federal government programs and policies for

electric utilities;

These trends include (i) changing federal government programs and policies for electric utilities;

(ii) increased electricity demand;

(iii) grid reliability risk;

(iv) increased focus on enhancing electric system resiliency and reliability;

(v) evolving cooperative focus on clean energy supply investments;

and (vi) expanded investments by many electric cooperatives to deploy broadband services.

Increased Federal Government Programs and Policies

The federal government has created various funding opportunities that electric cooperatives may take advantage of when deploying renewable energy and other clean energy technologies.

The 2022 Inflation Reduction Act (“IRA”) included programs such as the USDA Empowering Rural American (“New ERA”) program, the Powering Affordable Clean Energy (“PACE”) program and a direct-pay tax credits for electric cooperatives.

The New ERA program currently provides $9.7 billion specifically for electric cooperatives to build new clean energy systems.

The federal government has also finalized rules on the EPA greenhouse gas emission requirements for new and existing coal and natural gas power plants.

CFC and electric cooperative partners are monitoring the potential impact to cooperatives.

It is highly likely that the rule will be litigated similar to the Obama Administration’s Clean Power Plan.

and (iv) expanded investments by many electric cooperatives to deploy broadband services.

Changing Federal Government Programs and Policies

Following the 2024 election, the new Administration and Congress are changing policies related to the electric utility industry.

Congress previously created various funding opportunities that electric cooperatives may take advantage of when deploying renewable energy and other clean energy technologies through the 2022 Inflation Reduction Act (“IRA”), Congress recently passed the One Big Beautiful Bill Act, which significantly reduces federal incentives for renewable energy development.

These changes are expected to make it more challenging for electric cooperatives to affordably expand renewable energy generation within their portfolios.

In contrast, incentives for technologies such as battery storage and carbon capture remain largely unchanged.

Congress is also attempting to pass permitting reform, which will streamline the permitting process and reduce costs of grid infrastructure improvements.

The federal government is undergoing a deregulatory push that seeks to reduce the amount of federal review and other requirements for grid investments.

For example, the Environmental Protection Agency (“EPA”) is in the process of revising greenhouse gas emission requirements for new and existing coal and natural gas power plants.

This may impact coal plant retirement schedules and provide certainty surrounding building new natural gas plants to meet growing electricity demand.

The Administration is assessing the Federal Emergency Management Agency (“FEMA”), including how to improve efficiencies and the appropriate role of federal and state governments in the allocation and distribution of disaster relief.

Finally, the Administration is in the process of introducing tariffs on imported goods in order to improve the trade deficit and boost domestic manufacturing.

Certain utility assets, such as transformers, solar panels and batteries, are highly sensitive to global supply chain changes.

While tariffs may increase short-term costs and lead times for key assets, they may also catalyze long-term supply chain resilience and encourage domestic manufacturing of utility assets.

CFC and electric cooperative partners are monitoring the potential impact to cooperatives of these evolving changes in federal policy.

Increased Electricity Demand

According to S&P, electricity demand is forecasted to grow substantially in all U.S.

According to S&P Global Inc., electricity demand is f orecasted to grow substantially in all U.S.

regions through 2040.

Demand growth is driven primarily by new data centers and new manufacturing facilities in the coming decade followed by strong electric vehicle growth and beneficial electrification trends.

Demand growth is driven primarily by new data centers and new manufacturing facilities in the coming decade followed by electric vehicle growth and beneficial electrification trends.

The rapid expansion of artificial intelligence and cloud computing technologies is the primary driver of new data center construction, further accelerating electricity demand.

Rural electric cooperatives have become increasingly supportive of beneficial electrification, which refers to the replacement of fossil fuel-powered systems with electrical ones, such as electric vehicles and heat pumps, in a way that reduces overall emissions, while providing benefits to the environment and to households.

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The 2024 Long-Term Reliability Assessment by the North American Electric Reliability Corporation (“NERC”) highlights the key risks to grid reliability.

The report emphasizes challenges such as extreme weather events, including hurricanes, winter storms, and heatwaves, which can strain grid infrastructure and cause widespread outages.

Additionally, the transition to cleaner energy sources presents reliability concerns due to the intermittent nature of renewable generation and its impact on grid stability.

Cybersecurity threats also loom large, with increasing sophistication in attacks targeting critical infrastructure.

Increased Focus on Enhancing Electric System Resiliency and Reliability

We have observed an increase in capital investments by electric cooperatives to proactively strengthen existing electric systems as well as replace systems in the aftermath of damages from weather-related incidents, including hurricanes, winter storms and wildfires.

The report emphasizes challenges such as increased electricity demand and retirements of baseload power plants.

It also highlights the risk of the transition to renewable energy sources, which presents reliability concerns due to their intermittent nature during a period of increased electricity demand.

Other grid reliability risks include extreme weather events, including hurricanes, winter storms and heat waves, which can strain grid infrastructure and cause widespread outages.

The adverse impact on electric systems from weather-related incidents has resulted in a heightened awareness by electric cooperatives of the need to focus attention on making infrastructure upgrades to improve both the resiliency and reliability of electric systems.

Evolving Cooperative Focus on Clean Energy Supply Investments

Many electric power supply and electric distribution cooperatives are increasingly focused on efforts to identify potential opportunities to increase investments in renewable power supply, transmission and storage.

This includes both on-balance sheet construction of renewable generation and off-balance sheet acquisition of renewable power through power purchase agreements.

According to a report pub lished in April 2024 by NRECA, el ectric cooperatives have nearly doubled their

renewable capacity from 8.2 gigawatts to 15.8 gigawatts since 2016, including adding over 1.3 gigawatts of renewable capacity in 2023 alone.

Cybersecurity threats also loom large, with increasing sophistication in attacks targeting critical infrastructure.

Electric cooperatives are investing in operational resilience, including workforce training, cybersecurity preparedness and enhanced situational awareness tools.

Expanded Investments to Deploy Broadband Services

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Some of these electric cooperatives are leveraging these fiber assets to offer access to broadband services to the communities they serve, either directly or by partnering with local telecommunication companies and others.

We are currently aware of 212 broadband projects by different CFC member cooperatives, and we financed or are financing 125 of these 212 broadband projects.

We are currently aware of 216 broadband projects by different CFC member cooperatives, and we have financed or are financing 130 of these 216 broadband projects.

Capital expenditures for the completion of these 216 broadband projects are expected to total approximately $13,680 million.

We believe that the capital expenditures for the completion of the broadband projects that we financed or are financing will total approximately $5,197 million.

We believe that the capital expenditures for the completion of the broadband projects that we have financed or are financing will total approximately $5,537 million.

Our aggregate loans outstanding to CFC electric distribution cooperative members relating to broadband projects, which we started tracking in October 2017, increased to approximately $3,441 million as of May 31, 2025, from approximately $3,103 million as of May 31, 2024.

The three states with the largest CFC loans outstanding for broadband projects were Arkansas, Missouri and Indiana , and broadband loans outstanding for these states totaled $396 million, $337 million and $334 million, respectively, as of May 31, 2024.

The three states with the largest CFC loans outstanding for broadband projects were Arkansas, Indiana and Missouri, and broadband loans outstanding for these states totaled $411 million, $373 million and $356 million, respectively, as of May 31, 2025.

Many of these broadband projects are also financially supported by various states and the federal government through grant programs, which reduces the investment risk for our electric cooperative members.

We expect our member electric cooperatives to continue in their efforts to expand broadband access to unserved and underserved communities.

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 year and is expected to increase at a slower rate.

We believe the above trends and current investment priorities of our electric cooperative members will require funding and may result in an increased demand for capital from CFC.

As further described below in the “Liquidity Risk—Projected Near-Term Sources and Uses of Funds” section, we currently anticipate net long-term loan growth of $1,628 million over th e next 12 months.

We also expect that our variable-rate line of credit loans outstanding will remain at approximately the current level over the same period.

Macroeconomic Outlook

In June 2024, the Federal Open Market Committee (“FOMC”) of the Federal Reserve signaled the expectation of no additional increases in the federal funds rate.

The FOMC expects the U.S.

economy to remain strong in 2024, with the median projected gross domestic product (“GDP”) growth rate at 2.1%, unchanged from its March 2024 projection.

In addition, the Federal Reserve revised higher its inflation expectations again, with the Personal Consumption Expenditures (“PCE”) inf lation for December 2024 now expected at +2.6% (up from +2.4% in March).

The FOMC projection for U.S.

unemployment in 2024 remains unchanged at 4%.

Despite a fairly positive economic outlook and inflation remaining above the 2% long-term target, the FOMC projects 25 basis points of federal funds rate cuts in 2024, bringing the target rate to 5.00% - 5.25% by December 31, 2024, down from 75 basis points in federal funds rate cuts in 2024 that the committee projected in March.

Further, the FOMC projects additional federal funds rate cuts in 2025, bringing the target rate to 4.00% - 4.25% by December 2025.

Consensus market outlook for interest rates indicates declining interest rates across the yield curve in 2024 and 2025.

Although the yield curve is expected to remain inverted throughout calendar year 2024, given the expected drop in short-term interest rates, the yield curve inversion is expected to narrow in 2024 and end in 2025.

Following its meeting held in June 2025, the Federal Open Market Committee (“FOMC”) of the Federal Reserve kept its target for the federal funds rate unchanged at a range of 4.25%–4.50%.

The FOMC reiterated that (i) the U.S.

economy continues to expand at a solid pace, (ii) the unemployment rate remains low and (iii) inflation remains somewhat elevated.

The Federal Reserve ’ s June 2025 median projection for gross domestic product (“GDP”) annual growth rate in 2025 is 1.4%, down from 1.7% in March 2025.

Its median projection for Personal Consumption Expenditures (“PCE”) inflation in 2025 is at 3.0%, up from 2.7% in March 2025, and for U.S.

unemployment in 2025 is 4.5%, up from 4.4% in March 2025.

As of June 2025, federal funds futures markets anticipated three 25 basis point rate cuts:

one in the fourth quarter of 2025,

another in the first quarter of 2026 and a final one in the second quarter of 2026.

This would bring the target rate range to 3.50%–3.75% 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 i ncreases in our reported net in terest income and net interest yield over the next 12 months compared with the 12-month period ended May 31, 2024.

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 May 31, 2025.

See “Market Risk—Interest Rate Risk Assessment” for an additional discussion.

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

• Decreases in our adjusted net interest income and adjusted net interest yield over the next 12 months relative to the 12-month period ended May 31, 2024, primarily due to the current yield curve assumptions and our balance sheet position.

See “Market Risk—Interest Rate Risk Assessment” for an additional discussion.

• Decreases in our adjusted net income and adjusted TIER over the next 12 months, primarily attributable to increased operating expenses and a projected decrease in adjusted net interest income.

• Our adjusted debt-to-equity ratio will remain above our target of 6-to-1, primarily due to the projected increase in total debt outstanding to fund anticipated growth in our loan portfolio.

• An increase in our adjusted net interest income over the next 12 months relative to the 12-month period ended May 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 month s, primarily due to the current shape of the yield curve, 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 debt maturing in the near term will need to be refinanced at a forecasted higher interest rate.

See “Market Risk—Interest Rate Risk Assessment” in this Report for an additional discussion.

• 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, 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 and losses from our non-GAAP financial measures.

As the majority of our swaps are long-term with an average remaining life of approximately 14 years as of May 31, 2024 , the unrealized periodic derivative forward value gains and losses are largely based on future expected changes in l onger-term interest rates, which we are unable to accurately predict for each reporting period over the next 12 months.

As the majority of our swaps are long-term with an average remaining life of approximately 14 years as of May 31, 2025 , the unrealized periodic derivative forward value gains (losses) are largely based on future expected changes in l onger-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.

Projected Loan Portfolio

Based on our current forecast assumptions, we anticipate net loan growth of $2,059 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

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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.

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.

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Collateral trust bonds (5)

6,949,417 275,593 3.97 7,223,988 275,956 3.82 7,366,266 271,247 3.68

Guaranteed Underwriter Program notes payable

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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 3 consist of commercial paper, select notes, daily liquidity fund notes and secured borrowings under repurchase agreemen ts.

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 balances sheets, which are excluded from the calculation of average short-term borrowings presented in Table 5, totaled $451 million, $1,021 million and $367 million as of May 31, 2025, 2024 and 2023, respectively.

(5) Collateral trust bonds represent secured obligations sold to investors in the capital markets including also those issued in a private placement transaction.

(6) 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.

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(10) 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 on our consolidated statements of operations as a component of derivative gains (losses).

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 adjusted interest expense for the period divided by total average interest-bearing liabilities during the period.

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$ (21,256) $ 23,048 $ (44,304) $ 32,631 $ 28,191 $ 4,440

____________________________

(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.

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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” for additional information on our adjusted non-GAAP financial measures.

(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 $254 million for FY2024 decreased $61 million, or 19%, from FY2023, driven by a decrease in the net interest yield of 24 basis points, or 24%, to 0.74%, partially offset by an increase in average interest-earning assets of $2,138 million, or 7%.

Reported net interest income of $261 million for FY2025 increased by $7 million, or 3%, from FY2024, driven by an increase in average interest-earning assets of $1,772 million, or 5%, partially offset by a decrease in the net interest yield of 2 basis points, or 3%, to 0.72%.

• Average Interest-Earning Assets :

The increase in average interest-earning assets of 7% during FY2024 was primarily attributable to growth in average total loans of $2,222 million, or 7%, from FY2023, driven primarily by an increase in average long-term fixed-rate loans of $1,686 million and an increase in average line of credit loans of $503 million, as members continued to advance loans to fund capital expenditures and for working capital purposes.

The increase in average interest-earning assets of 5% during FY2025 was primarily attributable to growth in average total loans of $2,082 million, or 6%, partially offset by a decrease of $310 million in our average total investments, which include cash, time deposits and investment securities.

The average loans increase was driven primarily by an increase in average long-term fixed-rate loans of $1,407 million and an increase in average line of credit loans of $624 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 during FY2025 was also attributable to borrowings under emergency line of credit loans by our members primarily for Hurricane Helene recovery costs.

• Net Interest Yield:

The decrease in the net interest yield of 2 basis points, or 3% , was primarily attributable to the combined impact of an increase in our average cost of borrowings of 11 basis points to 4.28%, which was partially offset by an increase in the average yield on interest-earning assets of 7 basis points to 4.71% and an increase in the benefit from non-interest-bearing funding of 2 basis point to 0.29%.

Our average yield on interest-earning assets and average cost of borrowings rose mainly due to the sustained increase in the federal funds rate, which increased 25 basis points since May 31, 2023 .

The increase in average yields on line of credit and variable-rate loans was the primary driver for the increase in the average yield on interest-earning assets.

Meanwhile, our average cost of borrowings increased due to higher interest rates on our short-term and variable-rate borrowings.

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 during FY2025 .

Meanwhile, our average cost of borrowings increased due to the long-term debt issued at higher interest rates after May 31, 2024 .

Adjusted Net Interest Income

Adjusted net interest income of $381 million for FY2024 increased $32 million , or 9%, from FY2023, driven by the combined impact of an increase in average interest-earning assets of $2,138 million, or 7%, and an increase in the adjusted net interest yield of 3 basis points, or 3%, to 1.11%.

Adjusted net interest income of $360 million for FY2025 decreased by $21 million , or 6%, from FY2024, driven by a decrease in the adjusted net interest yield of 11 basis points, or 10%, to 1.00%, partially offset by an increase in average interest-earning assets of $1,772 million, or 5%.

• Average Interest-Earning Assets:

The increase in average interest-earning assets of 7% during FY2024 was driven by the growth in average total loans of $2,222 million, or 7%, from FY2023, primarily attributable to an increase in average long-term fixed-rate and line of credit loans as discussed above.

The increase in average interest-earning assets was driven by the growth in average total loans, as discussed above.

• Adjusted Net Interest Yield:

The increase in the adjusted net interest yield of 3 basis points, or 3%, reflected the combined impact of an increase in the average yield on interest-earning assets of 45 basis points to 4.64% and an increase in the benefit from non-interest bearing funding of 2 basis points to 0.24%, partially offset by an increase in our adjusted average cost of borrowings of 44 basis points to 3.77%.

The increase in both average yield on interest-earning assets and adjusted average cost of borrowings was attributable to the continued high interest-rate environment during FY2024, as discussed above.

The decrease in the adjusted net interest yield of 11 basis points, or 10%, was attributable to an increase in our adjusted average cost of borrowings of 22 basis points to 3.99%, which was partially offset by the combined impact of an increase in the average yield on interest-earning assets of 7 basis points to 4.71% and an increase in the benefit from non-interest-bearing funding of 4 basis points to 0.28%.

The increase in adjusted average cost of borrowings was attributable to the long-term debt issued at higher interest rates after May 31, 2024, and a lower average yield earned on our interest rate swaps as discussed below under the “Derivatives Cash Settlements” section.

We discussed above the primary drivers for the increases in the average yield on interest-earning assets.

Derivative Cash Settlements

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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 $127 million and $34 million for FY2024 and FY2023, respectively, compared with derivative cash settlements expense of $101 million for FY2022.

The increase in derivative cash settlements interest income between FY2024 and FY2023 was due to the higher floating rates in FY2024 , compared with FY2023, respectively.

We recorded net periodic derivative cash settlements interest income of $99 million, $127 million and $34 million for FY2025, FY2024 and FY2023, respectively.

The decrease in derivative cash settlements interest income between FY2025 and FY2024 was due to the lower net interest rates received on our pay-fixed swaps in FY2025 , compared with FY2024, due to the federal funds rate cuts during FY2025 and an $8 million gain related to treasury locks recorded in FY2024.

See “Note 10—Derivative Instruments and Hedging Activities” in this Report for additional information on our treasury locks activity.

See “Non-GAAP Financial Measures and Reconciliations” 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 for Credit Losses

Our p rovision for credit losses 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.

Provision (Benefit) for Credit Losses

Our p rovision (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 and allowance coverage ratio was $41 million and 0.11%, respectively, as of May 31, 2025.

In comparison, our allowance for credit losses and allowance coverage ratio was $49 million and 0.14%, respectively, as of May 31, 2024.

We recorded a benefit for credit losses of $5 million f or FY2024, resulting from a decrease of $8 million in the asset-specific allowance for a nonperforming CFC power supply loan and a recovery of $1 million attributable to additional loan payments received from Brazos Electric Power Cooperative, Inc.

(“Brazos”) and its wholly-owned subsidiary Brazos Sandy Creek Electric Cooperative Inc.

(“Brazos Sandy Creek”), partially offset by an increase in the collective allowance of $4 million.

The increase in the collective allowance was due to the growth in our loan portfolio, a slight decline in the overall credit quality of our loan portfolio and slightly higher expected default rates derived from a third-party utility sector default data used in estimating the allowance for credit losses.

In contrast, we recorded a provision for credit losses of $1 million for FY2023.

The provision for credit losses for FY2023 was driven primarily from an increase in the asset-specific allowance for loans to Brazos, Brazos Sandy Creek and for a nonperforming CFC power supply loan, attributable to a reduction and timing change in the expected payments on this loan.

We recorded a benefit for credit losses of $8 million f or FY2025, resulting from a reduction in the asset-specific allowance for a nonperforming loan attributable to higher actual than expected payments received on this loan during FY2025.

Our collective allowance decreased slightly during FY2025, primarily due to an improved recovery rate on our power supply loan portfolio, partially offset by an increase attributable to loan portfolio growth.

In comparison, we recorded a benefit for credit losses of $5 million for FY2024, resulting from a decrease of $8 million in the asset-specific allowance for a nonperforming CFC power supply loan and a recovery of $1 million attributable to additional loan payments received on the previously charged-off loans, partially offset by an increase of $4 million in the collective allowance.

The increase in the collective allowance for FY2024 was due to the growth in our loan portfolio, a slight decline in the overall credit quality of our loan portfolio and slightly higher expected default rates derived from third-party utility sector default data used in estimating the allowance for credit losses.

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.” 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

Non-interest income 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 consists of both unrealized and realized gains and losses.

Table 5 presents the components of non-interest income (loss) recorded in our consolidated statements of operations.

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

Non-Interest Income

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Fee and other income $ 23,597 $ 22,792 $ 18,134

Derivative gains 392,037 285,844 456,482

Derivative gains (losses)

(5,851) 392,037 285,844

Investment securities gains (losses)

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Total non-interest income $ 23,420 $ 425,601 $ 299,004

The significant variance in non-interest income between fiscal years was primarily attributable to changes in the derivative gains recognized in our consolidated statements of operations.

In addition, we experienced a favorable shift from losses to gains recorded on our debt and equity investment securities of $16 million for FY2024 compared with FY2023.

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 on our consolidated statements of operations.

The significant variance in non-interest income between fiscal years was primarily attributable to changes in the derivative gains (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 $5 million for FY2025 compared with FY2024.

Derivative Gains (Losses)

As of May 31, 2024 and 2023 , our derivatives portfolio included interest rate swap agreements not designated for hedge accounting, composed of pay-fixed swaps and receive-fixed swaps, with the benchmark variable rate for the floating rate payments based on daily compounded Secured Overnight Financing Rate (“SOFR”) as of May 31, 2024 .

As of May 31, 2025 and 2024 , our derivatives portfolio included interest rate swap agreements not designated for hedge accounting, composed of pay-fixed swaps and receive-fixed swaps, with a majority of the benchmark variable rate for the floating-rate payments based on daily compounded Secured Overnight Financing Rate (“SOFR”) as of May 31, 2025 .

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 May 31, 2025 and 2024 .

See “Note 10—Derivative Instruments and Hedging Activities” in this Report for detailed information on our cash flow hedge activities during FY2025, FY2024 and FY2023.

The total notional amount for our interest rate swaps was $7,252 million and $7,366 million as of May 31, 2025 and 2024, respectively.

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Consequently, changes in medium- and longer-term swap rates generally have a more pronounced impact on the net fair value o f our swap portfolio.

A s of both May 31, 2024 and May 31, 2023, the a verage remaining maturity of our pay-fixed and recei ve-fixed swaps was 18 years and two years, respectively.

A s of May 31, 2025, the a verage remaining maturity of our pay-fixed and recei ve-fixed swaps w as 16 years and two years, respectively, compared with 18 years and two years, respectively, as of May 31, 2024 .

Table 8 presents the components of net derivative gains (losses) recorded in our consolidated statements of operations.

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(Dollars in thousands) 2025 2024 2023

Derivative gains attributable to:

Derivative cash settlements interest income (expense) $ 127,166 $ 33,577 $ (101,385)

Derivative forward value gains 264,871 252,267 557,867

Derivative gains $ 392,037 $ 285,844 $ 456,482

We recorded derivative gains of $392 million for FY2024, primarily attributable to increases in the medium- and longer-term swap interest rates during FY2024.

In comparison, we recorded derivative gains of $286 million for FY2023, attributable to increases in interest rates across the entire swap curve during the period.

During FY2023, we executed two Treasury lock agreements with an aggregate notional amount of $300 million to hedge interest rate risk on anticipated debt issuances.

The Treasury locks were designated as a cash flow hedge of a forecasted transaction.

We recorded a settlement gain of $8 million in AOCI upon the termination of the Treasury locks during FY2023.

As the hedged forecasted transaction did not occur in the time period specified in the hedge documentation, we reclassified the $8 million gain from AOCI to earnings as a component of derivative gains (losses) in our consolidated statements of operations during FY2024.

We did not have any derivatives designated as accounting hedges as of May 31, 2024 or May 31, 2023.

Derivative gains (losses) attributable to:

Derivative cash settlements interest income

$ 99,219 $ 127,166 $ 33,577

Derivative forward value gains (losses)

(105,070) 264,871 252,267

Derivative gains (losses)

$ (5,851) $ 392,037 $ 285,844

We recorded derivative losses of $6 million for FY2025, attributable to decreases in interest rates across the swap curve, with the exception of the 30-year swap rate, which increased slightly during FY2025.

In comparison, we recorded derivative gains of $392 million for FY2024, primarily attributable to increases in the medium- and longer-term swap interest rates during FY2024.

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

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Benchmark rates obtained from Bloomberg.

See “Note 1—Summary of Significant Accounting Policies—Derivative Instruments” and “Note 10—Derivative Instruments and Hedging Activities” for additional information on our derivative instruments.

See “Note 1—Summary of Significant Accounting Policies—Derivative Instruments” and “Note 10—Derivative Instruments and Hedging Activities” in this Report for additional information on our derivative instruments.

Also refer to “Note 14—Fair Value Measurement” for information on how we measure the fair value of our derivative instruments.

Non-Interest Expense

Non-interest expense consists of salaries and employee benefit expense, general and administrative expenses, gains and losses on the early extinguishment of debt and other miscellaneous expenses.

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.

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Operating expenses (143,115) (126,371) (109,631)

Losses on early extinguishment of debt (1,025) (117) (754)

Other non-interest expense (9,168) (3,189) (1,604)

Total non-interest expense $ (152,283) $ (129,560) $ (111,235)

Non-interest expense of $130 million for FY2024, increased $18 million, or 16%, from FY2023, primarily attributable to an increase in operating expenses, driven by higher expenses recorded for salaries and benefits, information technology, and

depreciation and amortization expenses.

During FY2024, we redeemed $100 million of our $400 million subordinated deferrable debt due 2043, at par plus accrued interest.

As a result, we recognized $1 million of losses on early extinguishment of debt related to the unamortized debt issuance costs.

Non-interest expense of $152 million for FY2025, increased by $23 million, or 18%, from FY2024, primarily attributable to an increase in operating expenses, driven by higher expenses recorded for salaries and employee benefits, consulting, depreciation and amortization, member relations and board expenses.

In addition, during FY2025, we recorded an $8 million

non-interest expense from an impairment loss on our equity investment in Riesel HoldCo, LLC obtained in FY2023 as part of the Brazos Sandy Creek Electric Cooperative Inc.

bankruptcy filing.

See “Note 4—Loans” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 for a detailed discussion of this equity investment.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income (loss) attributable to noncontrolling interests represents 100% of the results of operations of NCSC and RTFC, as the members of NCSC and RTFC own or control 100% of the interest in their respective companies.

On December 1, 2023, RTFC completed the sale of its business to NCSC and subsequently CFC concluded that it is no longer the primary beneficiary of RTFC and accordingly, deconsolidated RTFC from it s consolidated financial statements.

We recorded a net income attributable to noncontrolling interests of less than $1 million for 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 during FY2025.

In comparison, we recorded a net income attributable to noncontrolling interests of $1 million for FY2024 and less than $1 million for FY2023, which represented 100% of the results of operations of NCSC and RTFC, as the members of NCSC and RTFC own or control 100% of the interest in their respective companies during FY2024 and FY2023.

On December 1, 2023, we completed the RTFC sale transaction and RTFC was subsequently dissolved.

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.

We recorded a net income attributable to noncontrolling interests of $1 million and $3 million for FY2024 and FY2022, respectively.

Our net income attributable to noncontrolling interests was less than $1 million for FY2023.

CONSOLIDATED BALANCE SHEET ANALYSIS

Total assets increased $2,166 million, or 6%, in FY2024 to $36,178 million as of May 31, 2024, primarily due to growth in our loan portfolio.

Total assets increased by $2,147 million, or 6%, in FY2025 to $38,325 million as of May 31, 2025, primarily due to growth in our loan portfolio.

We experienced an increase in total liabilities of $2,056 million, or 6%, to $35,222 million as of May 31, 2025, largely due to issuances of debt to fund the growth in our loan portfolio.

Total equity increased $423 million to $3,012 million as of May 31, 2024, primarily attributable to our reported net income of $554 million for FY2024, which was partially offset by a decrease in equity of $10 million from CFC ’ s deconsolidation of RTFC and $113 million from the CFC Board of Directors’ authorized patronage capital retirements during FY2024.

Total equity increased by $91 million to $3,103 million as of May 31, 2025, primarily attributable to our reported net income of $140 million for FY2025, partially offset by the CFC Board of Directors’ authorized patronage capital retirement of $47 million during FY2025.

Below is a discussion of changes in the major components of our assets and liabilities during FY2025.

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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 segregate our loan portfolio into segments, by legal entity, based on the borrower member class.

We describe and provide additional information on our member classes under “Item 1.

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(1) Represents the unpaid principal balance, net of discounts, charge-offs and recoveries, of loans as of the end of each period.

(2) Deferred loan origination costs are recorded on the books of CFC.

Loans to members totaled $34,542 million and $32,532 million as of May 31, 2024 and 2023, respectively.

Loans to CFC distribution, power supply, and statewide and associate borrowers accounted for 95% and 96% of total loans to members as of May 31, 2024 and 2023, respectively.

(2) Deferred loan origination costs are recorded at CFC segment.

The increase in loans to members of $2,538 million, or 7%, from May 31, 2024, was primarily attributable to net increases in long-term and line of credit loans of $1,405 million and $1,130 million, respectively.

The increase in line of credit loans was primarily attributable to funding provided for higher working capital requirements from our members and bridge loan financing.

We experienced increases in CFC distribution loans, CFC power supply loans, CFC statewide and associate loans and NCSC telecom loans of $1,667 million, $205 million, $37 million and $111 million, respectively, partially offset by a decrease in NCSC electric loans of $11 million.

Long-term loan advances totaled $3,371 million during FY2024 , of which approximately 93% was provided to members for capital expenditures, 1% was provided for the refinancing of loans made by other lenders, and 6% was provided for other purposes, primarily business acquisitions.

In com parison, long-term loan advances totaled $3,297 million during FY2023, of which approximately 95% was provided to members for capital expenditures and 2% was provided for the refinancing of loans made by other lenders .

Of the $3,371 million total long-term loans advanced during FY2024, $3,155 million were fixed-rate loan advances with a weighted average fixed-rate term of 11 years.

Of the increase in line of credit loans, 78% was attributable to borrowings under emergency line of credit loans by our members primarily for Hurricane Helene recovery costs.

The remaining 22% was primarily attributable to funding provided for member working capital and NCSC renewable project financing.

Long-term loan advances totaled $3,109 million during FY2025 , of which approximately 90% was provided to members for capital expenditures, 7% was provided for bridge financing, 2% was provided for the refinancing of loans made by other lenders and 1% was provided for other purposes.

In com parison, long-term loan advances totaled $3,371 million during FY2024, of which approximately 93% was provided to members for capital expenditures, 1% was provided for the refinancing of loans made by other lenders and 6% was provided for other purposes, primarily business acquisitions.

Of the $3,109 million total long-term loans advanced during FY2025, $2,635 million were fixed-rate loan advances with a weighted average fixed-rate term of eight years.

In comparison, of the $3,371 million total long-term loans advanced during FY2024 , $3,155 million were fixed-rate loan advances with a weighted average fixed-rate term of 11 years.

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Business—Loan and Guarantee Programs” and “Note 4—Loans” in this Report for addition information on our loans to members.”

We utilize both 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 funding sources, across products, programs and markets to manage funding concentrations and reduce our liquidity or debt rollover risk.

Our funding sources include a variety of secured and unsecured debt securities in a wide range of maturities to our members, affiliates, the capital markets and other funding sources.

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 Product Types

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Up to 30 years Other noncapital markets Secured

Other notes payable (4)

Up to 3 years Other noncapital markets

Subordinated deferrable debt (4)

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(1) Collateral trust bonds are secured by the pledge of permitted investments and eligibl e mortgage notes from distribution system borrowers in an amount at least equal to the outstanding principal amount of collateral trust bonds.

Collateral trust bonds also include those issued in a private placement transaction.

(2) Represents notes payable under the Guaranteed Underwriter Program, which supports the Rural Economic Development Loan and Grant program.

The Federal Financing Bank provides the financing for these notes, and RUS provides a guarantee of repayment.

The Federal Financing Bank provides the financing for these notes, and Rural Utilities Service (“RUS”) provides a guarantee of repayment.

We are required to pledge eligible mortgage notes from distribution and power supply system borrowers in an amount at least equal to the outstanding principal amount of the notes payable.

(3) We are required to pledge eligible mortgage notes from distribution and power supply system borrowers in an amount at least equal to the outstanding principal amount under the note purchase agreement with Farmer Mac.

(4) Other notes payable consisted of unsecured and secured Clean Renewable Energy Bonds as of May 31, 2023.

We are required to pledge eligible mortgage notes from distribution and power supply system borrowers in an amount at least equal to the outstanding principal amount under the Clean Renewable Energy Bonds Series 2009A note purchase agreement, which matured and was paid off in full during FY2024.

(4) Subordinated deferrable debt is subordinate and junior to senior debt and debt obligations we guarantee, but senior to subordinated certificates.

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Table 13 also displays the composition of our debt based on several additional selected attributes.

Debt—Total Debt Outstanding and Weighted-Average Interest Rates

Debt—Total Debt Outstanding and Weighte d-Average Interest Rates

(Dollars in thousands) Outstanding Amount Weighted-

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Farmer Mac notes payable 3,780,461 4.00 3,863,510 4.34 (83,049)

Other notes payable — — 1,166 2.91 (1,166)

Subordinated deferrable debt 1,329,485 6.36 1,286,861 6.63 42,624

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As such, our debt outstanding generally increases and decreases in response to member loan demand.

Debt outstanding totaled $32,718 million as of May 31, 2024, increased by $1,719 million, or 6%, from May 31, 2023, due to borrowings to fund the increase in loans to members.

Outstanding dealer commercial paper was $505 million as of May 31, 2024.

Debt outstanding totaled $34,769 million as of May 31, 2025, which increased by $2,051 million, or 6%, from May 31, 2024, due to borrowings to fund the increase in loans to members.

W e provide additional information on our financing activities for FY2025 in the below section “Liquidity Risk” of this Report.

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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 15% and 16% of total debt outstanding as of May 31, 2024 and 2023, respectively.

Over the last three fiscal years, our member investments have averaged $5,046 million, calculated based on outstanding member investments as of the end of each fiscal quarter during the period.

Member investm ents accounted for 13% and 15% of total debt outstanding as of May 31, 2025 and 2024, respectively.

The decrease in member investments of $395 million as of May 31, 2025 compared with the prior year, was primarily due to a reduction in member commercial paper investments as our members used funds from these investments to finance capital expenditure programs and operating needs.

Over the last three fiscal years, our member investments, including both short-term and long-term investments, have averaged $4,920 million, calc ulated 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 $4,333 million as of May 31, 2024, from $4,546 million as of May 31, 2023, primarily driven by a decrease in outstanding dealer commercial paper, partially offset by an increase in short-term notes payable advanced under the Farmer Mac revolving purchase agreement and a slight increase in short-term member investments.

Short-term borrowings increased to $5,091 million as of May 31, 2025, from $4,333 million as of May 31, 2024, primarily driven by an increase in outstanding dealer commercial paper of $1,702 million, partially offset by a repayment of $500 million in short-term notes payable under the Farmer Mac revolving note purchase agreement and a decrease in short-term member investments of $444 million during FY2025.

Short-term borrowings accounted for 15% and 13% of total debt outstanding as of May 31, 2025 and 2024, respectively.

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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

members’ subordinated certificates.

Subordinated debt consists of subordinated deferrable debt and 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 $28,386 million as of May 31, 2024, from $26,453 million as of May 31, 2023, primarily due to net increases of $2,828 million in dealer medium-term notes and $214 million in notes payable under the Farmer Mac revolving purchase agreement, partially offset by decreases of $229 million in notes payable under the Guaranteed Underwriter Program and repayments of $855 million of collateral trust bonds during FY2024.

Long-term and subordinated debt increased to $29,678 million as of May 31, 2025, from $28,386 million as of May 31, 2024 , primarily due to net increases of $724 million in dealer and member medium-term notes, $417 million in notes payable under the Farmer Mac revolving note purchase agreement, $156 million in collateral trust bonds, $43 million in subordinated deferrable debt, partially offset by decreases of $35 million in notes payable under the Guaranteed Underwriter Program and $13 million in members’ subordinated certificates during FY2025.

Long-term and subordinated debt accounted for 85% and 87% of total debt outstanding as of May 31, 2025 and 2024, respectively.

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606,215 342,624 263,591

Current fiscal year derivative forward value gains (1)

Fiscal year derivative forward value gains (losses) (1)

(104,552) 263,591 (368,143)

Current fiscal year-end cumulative derivative forward value gains (1)

Fiscal year-end cumulative derivative forward value gains (1)

501,663 606,215 (104,552)

Other unallocated net loss

(709) (709) —

Unallocated net income 500,954 605,506 (104,552)

CFC retained equity 3,084,713 2,992,878 91,835

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

(2,236) (1,416) (820)

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We present the consolidated total derivative forward value gains (losses) in Table 36 in the “Non-GAAP Financial Measures and Reconciliations” section below.

Also, see “Note 16—Business Segments” for the statements of operations for CFC.

The increase in total equity of $423 million to $3,012 million as of May 31, 2024 was attributable to our reported net income of $554 million for FY2024, which was partially offset by a decrease in equity of $10 million from CFC ’ s deconsolidation of RTFC and $113 million from the CFC Board of Directors’ authorized patronage capital retirements, as discussed above under “Executive Summary.”

Also, see “Note 16—Business Segments” in this Report for the statements of operations for CFC.

The increase in total equity of $91 million to $3,103 million as of May 31, 2025 compared with May 31, 2024 was attributable to our reported net income of $140 million for FY2025, partially offset by the CFC Board of Directors’ authorized patronage capital retirements of $47 million during FY2025.

Allocation and Retirement of Patronage Capital

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The remaining portion of the patronage capital allocation for FY2025 will be retained by CFC for 25 years pursuant to the guidelines adopted by the CFC Board of Directors in June 2009.

In connection with the RTFC sale transaction, the CFC Board of Directors approved the early retirement of $66 million of allocated but unretired CFC patronage capital to RTFC at a discounted amount of $41 million , which was paid from CFC to RTFC in December 2023, and the remaining $25 million was allocated to the CFC members’ capital reserve during FY2024 .

We provide additional information on the RTFC sale transaction under “Note 1—Summary of Significant Accounting Policies.”

In May 2024, the CFC Board of Directors authorized the allocation of $1 million of net earnings for FY2024 to the cooperative educational fund.

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The remaining portion of the patronage capital allocation for FY2024 will be retained by CFC for 25 years pursuant to the guidelines adopted by the CFC Board of Directors in June 2009.

The CFC Board of Directors is required to make annual allocations of adjusted net income, if any.

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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 the Federal Emergency Management Agency (“FEMA”) and states to help recover from major disasters or emergencies.

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.

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Line of credit loans are generally unsecured.

In addition to the collateral

pledged to secure our loans, distribution and power supply borrowers also are required to set rates charged to customers to achieve certain specified financial ratios.

In addition to the collateral pledged to secure our loans, distribution and power supply borrowers also are required to set rates charged to customers to

achieve certain specified financial ratios.

Table 16 presents, by legal entity and member class and by loan type, secured and unsecured loans in our loan portfolio as of May 31, 2025 and 2024.

Of our total loans outstanding, 92% were secured as of both May 31, 2024 and 2023.

Of our total loans outstanding, 89% and 92% were secured as of May 31, 2025 and 2024, respectively.

Loans—Loan Portfolio Security Profile

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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 $33,930 million and $32,032 million as of May 31, 2024 and 2023, respectively, and represented approximately 98% and 99% of our total loans outstanding as of each respective date.

Loans outstanding to electric utility organizations totaled $36,488 million and $33,930 million as of May 31, 2025 and 2024, respectively, and represented approximately 98% of our total loans outstanding as of both the dates.

Our credit exposure is partially mitigated by long-term loans guaranteed by RUS, which totaled $105 million and $114 million as of May 31, 2025 and 2024, respectively.

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Table 17 displays the outstanding loan exposure for our 20 largest borrowers, by legal entity and member class, as of May 31, 2025 and 2024.

Our 20 largest borrowers consisted of 13 distribution systems and seven power supply systems as of May 31, 2024, compared with 10 distribution systems and 10 power supply systems as of May 31, 2023.

The largest total exposure to a single borrower or controlled group represented approximately 1% of total loans outstanding as of both May 31, 2024 and 2023.

Our 20 largest borrowers consisted of 14 distribution systems and six po wer supply systems as of May 31, 2025, compared with 13 distribution systems and seven power supply systems as of May 31, 2024.

The largest total exposure to a single borrower or controlled group represented approximat ely 1% of tot al loans outstanding as of both May 31, 2025 and 2024.

Loans—Loan Exposure to 20 Largest Borrowers

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The aggregate unpaid principal balance of designated and Farmer Mac approved loans was $346 million and $370 million as of May 31, 2025 and 2024, respectively.

Loan exposure to our 20 largest borrowers covered under the Farmer Mac agreement totaled $226 million and $267 million as of May 31, 2024 and 2023, respectively, which reduced our exposure to the 20 largest borrowers to 19% of our total loans outstanding as of each respective date.

Loan exposure to our 20 largest borrowers covered under the Farm er Mac agreement tota led $155 million and $226 million as of May 31, 2025 and 2024, respectively, which reduced our exposure to the 20 largest borrowers to $6,994 million and $6,625 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.

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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 885 and 884 as of May 31, 2024 and 2023, respectively, located in 49 states and the District of Columbia.

Of the 885 and 884 borrowers with loans outstanding as of May 31, 2024 and 2023, respectively, 50 and 52 were electric power supply borrowers as of each respective date .

The consolidated number of borrowers with loans outstanding totaled 899, located in 49 states as of May 31, 2025, compared with 885 borrowers , located in 49 states and the District of Columbia as of May 31, 2024 .

Of the 899 and 885 borrowers with loans outstanding as of May 31, 2025 and

2024, respectively, 50 were electric power supply borrowers as of both May 31, 2025 and 2024 .

Electric power supply borrowers generally require significantly more capital than electric distribution and telecommunications borrowers.

Texas, which had 68 and 67 borrowers with loans outstanding as of May 31, 2025 and 2024, respectively, 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 $5,768 million and $5,529 million as of May 31, 2024 and 2023, respectively, and accounted for approximately 17% of total loans outstanding as of each respective date.

Loans outstanding to Texas-based borrowers totaled $6,105 million and $5,768 million as of May 31, 2025 and 2024, respectively, and accounted for approx imately 16% a nd 17% of total loans outstanding as of each respective date.

Of the loans outstanding to Texas-based borrowers, $118 million and $126 million as of May 31, 2025 and 2024 , respectively, were covered by the Farmer Mac standby repurchase agreement, which reduced our credit risk exposure to Texas-based borrowers to $5,987 million and $5,642 million as of each respective date.

See “Note 4—Loans” for information on the Texas-based number of borrowers and loans outstanding by legal entity and member class.

Table 18 provides a breakdown, by state or U.S.

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L oan Modifications to Borrowers Experiencing Financial Difficulty

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

We had one loan modification to an NCSC telecom borrower experiencing financial difficulty during FY2024.

This loan received a term extension and had an amortized cost of $3 million as of May 31, 2024, representing 1% of the NCSC telecom loan portfolio.

Loans modified to borrowers experiencing financial difficulty totaled $3 million as of May 31, 2024, consisting of one NCSC telecom loan as discussed above, which was performing in accordance with the terms of the loan agreement.

There were no unadvanced loan commitments related to this loan.

Prior to the Adoption of ASU 2022-02 , Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings ( “ TDR ” ) and Vintage Disclosures , and as of May 31, 2023, we had loans outstandin g to two borrowers totaling $8 million classified as performing TDR loans and on accrual status, and loans outstanding to Brazos totaling $23 million classified as nonperforming TDR loans which were on non-accrual status.

During FY2024, we received the remaining payment of Brazos’ loans outstanding of $23 million in accordance with the provisions of Brazos’ plan of reorganization to repay its loans in full.

Prior to the Brazos loan restructuring, we had not had any loan modifications that were required to be accounted for as TDRs since fiscal year 2016.

See “Note 4—Loans” for additional information on loan modifications to borrowers experiencing financial difficulty and TDR loans prior to the adoption of ASU 2022-02.

Also refer to “Note 1—Summary of Significant Accounting Policies” for information on the adoption of ASU 2022-02.

This loan received a term extension and had an amortized cost of $3 million, representing 1% of the NCSC telecom loan portfolio as of May 31, 2024.

The loan has been performing in accordance with the terms of the loan agreement after the modification.

Nonperforming Loans

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Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against earnings.

Table 17 presents the outstanding balance of nonperforming loans, by member class, as of May 31, 2024 and 2023.

Loans—Nonperforming Loans

(Dollars in thousands) Number of Borrowers Outstanding Amount (1)

% of Total Loans Outstanding Number of Borrowers Outstanding Amount (1)

% of Total Loans Outstanding

Nonperforming loans:

CFC—Power supply

1 $ 48,669 0.14 % 2 $ 89,334 0.27 %

Total nonperforming loans 1 $ 48,669 0.14 % 2 $ 89,334 0.27 %

____________________________

(1) Represents the unpaid principal balance net of charge-offs and recoveries as of the end of each period.

Nonperforming loan s totaled $49 million as of May 31, 2024, a decrease of $40 million from May 31, 2023, due to the receipts of $4 million in loan payments from Brazos Sandy Creek to pay off its nonperforming loan outstanding and a $36 million payment on the outstanding nonperforming loan during FY2024 .

We had a loan to one CFC electric power supply borrower of $26 million and $49 million classified as nonperforming, which represented 0.07% and 0.14% of total loans outstanding as of May 31, 2025 and 2024, respectively.

The reduction in the nonperforming loan was due to payments received on this nonperforming loan during FY2025.

Net Charge-Offs

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We report charge-offs net of amounts recovered on previously charged-off loans.

We had no charge-offs during FY2024.

We recorded $1 million in net loan recoveries to previously charged-off loan amounts during FY2024.

We received a total of $28 million in loan payments from Brazos and Brazos Sandy Creek to repay their $27 million of total loans outstanding in full during FY2024.

The additional payments received totaling $1 million were recorded as net loan recoveries on the Brazos and Brazos Sandy Creek previously charged-off loan amounts during FY2024.

In comparison, we experienced net charge-offs totaling $15 million for the CFC electric power supply loan portfolio related to Brazos and Brazos Sandy Creek nonperforming loans during FY2023, which resulted in an annualized net charge-off rate of 0.05% for FY2023.

Prior to Brazos’ and Brazos Sandy Creek’s bankruptcy filings, we had not experienced any defaults or charge-offs in our electric utility and telecommunications loan portfolios since fiscal years 2013 and 2017, respectively.

We had no charge-offs during FY2025 and FY2024.

We recorded $1 million in net loan recoveries to previously charged-off loan amounts related to two CFC electric power supply loans during FY2024.

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 and telecommunications loan portfolios since fiscal years 2013 and 2017, respectively.

In our 56-year history, we have experienced only 18 defaults in our electric utility loan portfolio.

Of the 18 defaults, one remains unreso lved with an expected ultimate resolution date in calendar year 2025;

Of the 18 defaults, one remains unresolved with an expected ultimate resolution date in calendar year 2025;

nine resulted in no loss;

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Our internally assigned borrower risk ratings, which we map to equivalent credit ratings by external credit rating agencies, serve as the primary credit quality indicator for our loan portfolio.

Criticized loans totaled $249 million and $323 million as of May 31, 2024 and 2023, respectively, and represented approximately 1% of total loans outstanding as of each respective date.

The decrease of $74 million in criticized loans was due primarily to loan payments received from Brazos, Brazos Sandy Creek and one CFC electric power supply borrower in the doubtful category, and a decrease in loans outstanding for one CFC electric distribution borrower in the special mention category during FY2024.

Each of the borrowers with loans outst anding in the criticized category was current with regard to

all principal and interest amounts due to us as of May 31, 2024.

In contrast, each of the borrowers with loans outstanding in the criticized category, with the exception of Brazos Sandy Creek, was current with regard to all principal and interest amounts due to us as of May 31, 2023.

Criticized loans totaled $219 million and $249 million as of May 31, 2025 and 2024, respectively, and represented approximatel y 1% of total loans outstanding as of each respective date.

The decrease of $30 million in criticized loans was due primarily to $23 million of payments received from a CFC electric power supply borrower in the doubtful category and a $4 million decrease in loans outstanding to one CFC electric distribution borrower in the special mention category.

Each of the borrowers with loans outst anding in the criticized category was current with regard to all principal and interest amounts due to us as of May 31, 2025 and 2024.

We provide additional information on our borrower risk rating classifications, including the amount of loans outstanding in each of the criticized loan categories of special mention, substandard and doubtful, in “Note 1—Summary of Significant Accounting Policies” and “Note 4—Loans” in this Report.

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The allowance for credit losses and allowance coverage ratio decreased to $41 million and 0.11%, respectively, as of May 31, 2025, from $49 million and 0.14%, respectively, as of May 31, 2024.

The $4 million decrease in the allowance for credit losses reflected a reduction in the asset-specific allowance of $8 million, partially offset by an increase in collective allowance of $4 million.

The decrease in the asset-specific allowance was primarily attributable to an increase in the actual and expected payments on a nonperforming CFC power supply loan.

The increase in the collective allowance was primarily due to loan portfolio growth, a slight decline in the overall credit quality of our loan portfolio, and slightly higher expected default rates derived from a third-party utility sector default data used in estimating the allowance for credit losses.

Th e $8 million dec rease in the allowance for credit losses was attributable to a reduction in the asset-specific allowanc e due to higher actual than expected payments received on a nonperforming loan during FY2025.

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 the below section “Critical Accounting Estimates” of this Report.

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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 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 $280 million and $318 million, respectively, as of May 31, 2024.

The primary credit exposure associated with investments held in our investments portfolio is that issuers will not repay principal and interest in accordance with the contractual terms.

Our cash and cash equivalents and investment securities t otaled $135 million and $125 million , respectively, as of May 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.

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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 May 31, 2024 and 2023, and fro m AA- to BBB+ and AA- to A- by S&P as of May 31, 2024 and 2023, respectively.

We had 12 active derivative counterparties with credit ratings ranging from Aa1 to Baa1 by Moody’s as of both May 31, 2025 and 2024, and fro m AA- to BBB+ by S&P as of both May 31, 2025 and 2024.

The total outstanding notional amount of derivatives with these counterparties was $7,252 million and $7,366 million as of May 31, 2025 and 2024, respectively.

The highest single

derivative counterparty concentration, by outstanding notional amount, accounted for approximately 24% and 23% of the total outstanding notional amount of our derivatives as of May 31, 2024 and 2023, respectively.

The highest single derivative counterparty concentration, by outstanding notional amount, accounted for approximately 25% and 24% of the total outstanding notional amount of our derivatives as of May 31, 2025 and 2024, respectively.

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.

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We provide information on the impact of netting provisions under our master swap agreements and collateral pledged, if any, in “Note 10—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 $506 million and $611 million as of May 31, 2025 and 2024, 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 10—Derivative Instruments and Hedging Activities.”

See “Item 1A.

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(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 $2 million as of both May 31, 2024 and 2023, relates to letters of credit issued pursuant to the four-year revolving line of credit agreement.

The accessed amount of $7 million and $2 million as of May 31, 2025 and 2024, respectively, 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.

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

(4) Member short-term investments include commercial paper sold directly to members, selected notes, daily liquidity fund note and short-term medium-term notes sold to members.

(4) 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 23:

Short-Term Borrowings—Outstanding Amount and Weighted-Average Interest Rates below for additional information.

As presented in Table 20 above, our available liquidity of $6,695 million as of May 31, 2024 was $314 million below our total scheduled debt obligations over the next 12 months of $7,009 million, consisting of short-term borrowings and long-term and subordinated debt.

The short-term borrowings scheduled maturity amount consists of member investments of $3,328 million, dealer commercial paper of $505 million and Farmer Mac notes payable of $500 million.

As presented in Table 21 above, our available liquidity of $7,612 million as of May 31, 2025 was $1,158 million less than our total scheduled debt obligations over the next 12 months of $8,770 million, consisting of short-term borrowings and long-term and subordinated debt.

The short-term borrowings scheduled maturity amount consists of member investments of $2,885 million and dealer commercial paper of $2,206 million.

The long-term and subordinated scheduled debt obligations over the next 12 months of $3,679 million consist of debt maturities and scheduled debt payment amounts, of whic h, $206 million was from member investments.

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As mentioned above , our members historically have maintained a relatively stable level of short-term investments in CFC.

Member short-te rm investments in CFC have averaged $3,530 million over the last 12 fiscal quarter-end reporting periods.

Our available liquidity as of May 31, 2024 was $3,014 million in excess of, or 1.8 times over, our total scheduled debt obligations, excluding member short-term investments, over the next 12 months of $3,681 million.

In addition, we expect to re ceive $1,552 million from scheduled long-term loan principal payments over the next 12 months.

Member short-te rm investments in CFC have aver aged $3,363 million ov er the last 12 fiscal quarter-end reporting periods.

Our avai lable liquidity as of May 31, 2025 was $1,727 million in excess of, or 1.3 times over, our total $5,885 million scheduled debt obligations over the next 12 months, excluding member short-term investments.

In addition, we expect to receive $1,668 million from scheduled long-term loan principal payments over the next 12 months.

While our available liquidity increased by $917 million, or 14% as of May 31, 2025 compared to the prior year, the decline in the liquidity coverage ratio was primarily driven by an increase in debt scheduled to mature over the next 12 months.

This was largely due to increased dealer commercial paper issuances to support substantial growth in line of credit loans activity, as well as higher volume of upcoming long-term debt maturities 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.

Although the intra-quarter amount of dealer commercial paper outstanding may fluctuate based on our liquidity requirements, our intent is to manage our short-term wholesale funding risk by maintaining the dealer commercial paper outstanding at each quarter-end within a range of $1,000 million to $1,500 million.

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 dealer

or member 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 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.

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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.

Our debt securities investment portfolio is intended to serve as an additional source of liquidity.

Our debt securities investment portfolio totaled $114 million and $281 million as of May 31, 2025 and 2024, respectively, and is intended to serve as an additional source of liquidity.

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.

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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 $37 million and $35 million as of May 31, 2024 and 2023 , respectively, consisting primarily of preferred stock securities that are not as readily redeemable;

Our investment portfolio also included equity securities with a fair value of $11 million as of May 31, 2025, consisting of common stock, and $37 million as of May 31, 2024, c onsisting primarily of preferred stock securities that are not as readily

therefore, we excluded the equity securities from our available liquidity.

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

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

Borrowing Capacity Under Various Credit Facilities

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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 member and dealer commercial paper.

On November 20, 2023, we amended the three-year and four-year committed bank revolving line of credit agreements to extend the maturity dates to November 28, 2026 and November 28, 2027, respectively, and to include a $100 million swingline facility under each agreement.

In connection with the amendments to the revolving line of credit agreements, commitments from the existing banks increased by $100 million under each of the three-year and four-year revolving credit agreements.

Commitments of $150 million under each agreement will expire at the prior maturity dates of November 28, 2025 and November 28, 2026.

The total commitment amount under the three-year facility and the four-year facility was $1,345 million and $1,455 million, respectively, resulting in a combined total commitment amount under the two facilities of $2,800 million.

however, we generally rely on them as a backup source of liquidity for our commercial paper.

On December 5, 2024, we amended our three-year and four-year committed bank revolving line of credit agreements to extend the maturity dates to November 28, 2027 and November 28, 2028, respectively, and to increase commitments by $250 million (excluding the $150 million commitment termination described below) under each of the three-year and four-year revolving credit agreements.

Commitments of $150 million that were scheduled to mature on November 28, 2025 were terminated under the three-year revolving credit agreement and commitments of $150 million will continue to expire at the prior maturity date of November 28, 2026 under the four-year revolving credit agreement.

As of May 31, 2025, t he 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.

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Bank revolving agreements:

3-year agreement $ 150 $ — $ 150 November 28, 2025 7.5 bps

3-year agreement 1,195 — 1,195 November 28, 2026 7.5 bps

3-year agreement

$ 1,595 $ — $ 1,595 November 28, 2027 7.5 bps

Total 3-year agreement

4-year agreement 150 — 150 November 28, 2026 10.0 bps

4-year agreement 1,305 2 1,303 November 28, 2027 10.0 bps

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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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 dealer or member commercial paper that cannot be rolled over.

As such, we could draw on these facilities to repay commercial paper that cannot be rolled over.

Guaranteed Underwriter Program Committed Facilities—Secured

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Each advance is subject to quarterly amortization and a final maturity not longer than 30 years from the date of the advance.

On December 19, 2023, we closed on a $450 million Series U committed loan facility from the FFB under the Guaranteed Underwriter Program.

On December 18, 2024, we closed on a $450 million Series V committed loan facility from the FFB under the Guaranteed Underwriter Program.

Pursuant to this facility, we may borrow any time before July 15, 2029.

Each advance is subject to quarterly amortization and a final maturity not longer than 30 years from the date of the advance.

The closing of this facility increased our total committed borrowing amount under the Guaranteed Underwriter Program to $9,923 million as of May 31, 2024, from $9,473 million as of May 31, 2023.

As displayed in Table 20, we had accessed $9,023 million under the Guaranteed Underwriter Program and up to $1,350 million was available for borrowing as of May 31, 2025.

Of the $1,200 million available borrowing amount, $750 million is available for advance through July 15, 2027 and $450 million is available for advance through July 15, 2028.

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 $6,457 million as of May 31, 2025.

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Farmer Mac Revolving Note Purchase Agreement—Secured

We have a revolving note purchase agreement with Farmer Mac, under which we can borrow up to $6,000 million from Farmer Mac, at any time, subject to market conditions through June 30, 2027.

The agreement has successive automatic one-year renewals beginning June 30, 2026, unless Farmer Mac provides 425 days’ written notice of nonrenewal.

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 that the outstanding principal amount at any time does not exceed the total available under the agreement.

Each borrowing under the revolving note purchase agreement is evidenced by a pricing agreement setting forth the interest rate, maturity date and other related terms as we may negotiate with Farmer Mac at the time of each such borrowing.

We may select a fixed rate or variable rate at the time of each advance with a maturity as determined in the applicable pricing agreeme nt.

We have a revolving note purchase agreement with Farmer Mac that allows us to borrow, repay and re-borrow funds at any time through maturity, provided the outstanding principal does not exceed the agreement limit.

On January 14, 2025, we amended the revolving note purchase agreement with Farmer Mac to increase the maximum borrowing availability to $6,500 million from $6,000 million, and extend the draw period from June 30, 2027 to January 14, 2030, with successive one-year renewals upon 60 days’ notice by CFC, subject to approval by Farmer Mac and Farmer Mac Mortgage Securities Corporation.

Under this agreement, we had outstanding secured notes payable totaling $3,780 million and $3,864 million as of May 31, 2025 and 2024, respectively.

We borrowed $500 million in short-term notes payable and $300 million in long-term notes payable under this note purchase agreement with Farmer Mac during FY2024.

We borrowed $500 million in long-term notes payable, and repaid $500 million in short-term and $83 million in long-term notes payable under this note purchase agreement with Farmer Mac during FY2025.

As displayed in Table 20, the amount available for borrowing under this agreement was $2,720 million as of May 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 agr eement.

Subsequent to the fiscal year ended May 31, 2024, we borrowed $200 million in long-term notes payable under the Farmer Mac note purchase agreement.

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

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(1) Advanced under the revolving purchase agreement with Farmer Mac dated March 24, 2011.

See “Note 7—Long-Term Debt” for additional information on this revolving note purchase agreement with Farmer Mac.

Short-term borrowings decreased by $213 million to $4,333 million as of May 31, 2024, from $4,546 million as of May 31, 2023, and accounted for 13% and 15% of total debt outstanding as of each respective date.

The weighted-average cost of our outstanding short-term borrowings increased to 5.34% as of May 31, 2024, from 4.96% as of May 31, 2023.

The weighted-average maturity of our short-term borrowings increased to 49 days as of May 31, 2024, from 44 days as of May 31, 2023.

Member investments have historically been our primary source of short-term borrowings.

(1) Advanced under the revolving note purchase agreement with Farmer Mac dated March 24, 2011.

See “Note 7—Long-Term Debt” in this Report for additional information on this revolving note purchase agreement with Farmer Mac.

Short-term borrowings increased by $758 million to $5,091 million as of May 31, 2025, from $4,333 million as of May 31, 2024, and accounted for 15% and 13% of total debt outstanding as of each respective date.

The weighted-average cost of our outstanding short-term borrowings decreased to 4.30% as of May 31, 2025, from 5.34% as of May 31, 2024 due to the federal funds rate cuts during FY2025.

The weighted-average maturity of our short-term borrowings decreased to 41 days as of May 31, 2025, from 49 days as of May 31, 2024.

Table 24 displays the composition, by funding source, of our short-term borrowings as of May 31, 2025 and 2024.

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$ 5,091,416 100 % $ 4,332,690 100 %

Our intent is to manage our short-term wholesale funding risk by maintaining the dealer commercial paper outstanding at each quarter-end wit hin a range of $1,000 million to $1,500 million, although the intra-period amount of dealer commercial paper outstanding may fluctuate based on our liquidity requireme nts.

Dealer commercial paper outstanding was $505 million and $1,293 million as of May 31, 2024 and 2023, respectively.

See “Note 6—Short-Term Borrowing” for additional information on our short-term borrowings.

Member investments have historically been our primary source of short-term borrowings.

The decrease in short-term member investments of $443 million as of May 31, 2025 compared with the prior year, was primarily due to a reduction in member commercial paper investments as our members used funds from these investments to finance capital expenditure programs and operating needs.

Dealer commercial paper outstanding increased to $2,206 million as of May 31, 2025 from $505 million as of May 31, 2024, due to issuances to fund our loan portfolio growth.

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 $28,386 million and $26,453 million as of May 31, 2024 and 2023, respectively, and accounted for 87% and 85% of total debt outstanding as of each respective date.

Long-term and subordinated debt, which represents the most significant source of our funding, totaled $29,678 million and $28,386 million as of May 31, 2025 and 2024, respectively, and accounted for 85% and 87% of total debt outstanding as of

each respective date.

See Table 25 below for a summary of our long-term and subordinated debt issuances and repayments during FY2025.

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.

In addition to access to private debt facilities, we also issue debt in the public capital markets.

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 U.S.

Securities and Exchange Commission (“SEC”), we may offer and issue the following debt securities:

Subsequent to FY2025, we issued $525 million of dealer medium-term notes at a floating interest rate with a term of 18 months.

On November 1, 2024, we entered into an agency agreement with InspereX LLC, Citigroup Global Markets Inc., RBC Capital Markets, LLC and Wells Fargo Clearing Services, LLC, as agents, to launch a program through which we may offer and sell, from time to time, an unlimited aggregate principal amount of our subordinated deferrable interest notes.

On November 1, 2024, we filed a prospectus supplement with the U.S.

Securities and Exchange Commission (“SEC”) related to these subordinated notes, which are issued under our effective shelf registration statement filed with the SEC in October 2023.

These subordinated notes are unsecured and rank subordinate in right of payment to all of our current and future senior indebtedness.

The subordinated notes are senior to our members’ subordinated certificates and rank equal in right of payment and upon liquidation to our outstanding subordinated deferrable debt and any other equally ranked subordinated notes we may issue.

During FY2025, we issued an aggregate principal amount of $44 million in subordinated notes that mature in 30 years under this new program.

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;

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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.

In January 2025, we settled $300 million of collateral trust bonds at a fixed rate of 5.23% with a weighted average term of 13.3 years in a private placement transaction, which is an unregistered debt offering.

Long-Term Debt and Subordinated Debt—Issuances and Repayments

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Collateral trust bonds (2)

$ 650,000 $ 505,000

Guaranteed Underwriter Program notes payable 300,000 334,962

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Medium-term notes sold to dealers 2,410,147 1,753,083

Other notes payable — 1,169

Subordinated deferrable debt

100,000 100,000

Members’ subordinated certificates 12 12,949

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

We provide additional information on our financing activities under the above section “Consolidated Balance Sheet Analysis—Debt” and on the weighted-average interest rates on our long-term debt and subordinated certificates in “Note 7—Long-Term Debt,” “Note 8—Subordinated Deferrable Debt” and “Note 9—Members’ Subordinated Certificates” of this Report.

(2) Amount also includes the collateral trust bonds issued in a private placement transaction.

Pledged Collateral

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In comparison, of our total debt outstanding of $32,718 million as of May 31, 2024, $17,095 million, or 52%, was secured by pledged loans totaling $21,403 million.

Following is additional information on the collateral pledging requirements for our secured borrowing agreements.

The following provides additional information on the collateral pledging requirements for our secured borrowing agreements.

Secured Borrowing Agreements—Pledged Loan Requirements

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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 indentures, the Guaranteed Underwriter Program or the Farmer Mac note purchase agreements.

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 indentures, the Guaranteed Underwriter Program or the Farmer Mac note purchase agreements as of May 31, 2025.

Table 26 displays the collateral coverage ratios pursuant to these secured borrowing agreements as of May 31, 2025 and 2024.

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Collateral trust bonds 1994 indenture (2)

100 % N/A 146 % 128 %

Collateral trust bonds 2007 indenture 100 150 116 129

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Farmer Mac notes payable 100 150 123 115

Clean Renewable Energy Bonds Series 2009A (2)

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

(2) Collateral includes cash pledged.

Clean renewable energy bonds series 2009A matured and was paid off in full as of May 31, 2024.

(2) In December 2024, our committed bank revolving line of credit agreements were amended to exclude collateral pledged under the collateral trust bonds 1994 indenture from the maximum coverage ratio required under the agreements.

The required maximum coverage ratio was 150% prior to the amendments.

Table 27 displays the unpaid principal balance of loans pledged for secured debt, the excess collateral pledged and unencumbered loans as of May 31, 2025 and 2024.

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Total pledged loans

(20,516,018) (21,403,086)

Unencumbered loans $ 16,547,530 $ 13,125,098

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(2) Reflects unpaid principal balance of pledged loans.

(3) Excludes cash collateral pledged to secure debt.

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.

(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 27, we had excess loans pledged as collateral totaling $3,196 million and $4,110 million as of May 31, 2025 and 2024, respectively.

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Projected Near-Term Sources and Uses of Funds

Table 29 below displays a projection of our primary long-term sources and uses of funds, by quarter, over each of the next six fisc al quarters.

Table 30 below displays a projection of our primary long-term sources and uses of funds as of May 31, 2025 , by quarter, over each of the next six fisc al quarters.

Our projection is based on the following, which includes several assumptions:

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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.

Liquidity —Projected Long-Term Sources and Uses of Funds (1)

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

Projected Long-Term Sources of Funds Projected Long-Term Uses of Funds

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Loan Advances Total Projected Long-Term

1Q FY 2026 (2)

$ 1,525 $ 405 $ 1,930 $ 440 $ 661 $ 1,101

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(1) The dates presented represent the end of each quarterly period through the quarter ended November 30, 2026.

(2) The projected long-term debt issuance for the period includes $525 million of dealer medium-term notes issued in June 2025.

(3) 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 medium-term notes with an original maturity of one year or less and expected early redemptions of debt.

(4) 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 $145 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 30, we currently project long-term advances of $3,141 million over the next 12 months, which we project will exceed anticipated long-term loan repayments over the same period of $1,668 million , resulting in net long-term loan growth of approximately $1,473 million over the next 12 months.

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During FY2025, Moody’s, S&P and Fitch affirmed CFC’s credit ratings and stable outlook.

Table 30 displays our credit ratings as of May 31, 2024, which remain unchanged as of the date of this Report.

Table 31 displays our credit ratings as of May 31, 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 long-term issue ratings are unchanged as of the date of this Report.

Credit Ratings

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Ratings and outlook confirmation date February 21, 2025

December 7, 2023

November 14, 2024

September 19, 2024

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Financial Ratios

Our debt-to-equity ratio decreased to 11.01 as of May 31, 2024, from 12.14 as of May 31, 2023, primarily due to an increase in equity from our reported net income of $554 million for FY2024, which was partially offset by a decrease in equity of $10 million from CFC ’ s deconsolidation of RTFC and $113 million from the CFC Board of Directors’ authorized patronage capital retirements during FY2024.

While our goal is to maintain an adjusted debt-to-equity ratio of approximately 6-to-1, the adjusted debt-to-equity ratio increased to 6.24 as of May 31, 2024, from 6.04 as of May 31, 2023, due to an increase in adjusted liabilities resulting from additional borrowings to fund growth in our loan portfolio, partially offset by an increase in adjusted equity.

The increase in adjusted equity was primarily due to our adjusted net income of $289 million for FY2024, partially offset by a decrease in equity of $10 million from CFC’s deconsolidation of RTFC and $113 million from the CFC Board of Directors’ authorized patronage capital retirements during FY2024 .

During FY2024 , CFC Board of Directors approved a change in the allocation of net earnings that would allow us to retain additional earnings and help in effectively managing our adjusted debt-to-equity ratio.

As a result of this change, we retained 79% of adjusted net income for FY2024 in members’ capital reserve, compared with 56% for FY2023.

During FY2025, we refined our methodology for calculating the debt-to-equity ratio and adjusted debt-to-equity ratio.

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

Our debt-to-equity ratio under the revised methodology was 11.20 and 10.86 as of May 31, 2025 and 2024, respectively.

The increase in the debt-to-equity ratio during FY2025 was due to an increase in debt to fund loan growth, partially offset by an increase in total equity.

The increase in total equity was primarily due to our reported net income of $140 million for FY2025, partially offset by the CFC Board of Directors’ authorized patronage capital retirement of $47 million in July 2024.

Our adjusted debt-to-equity ratio under the revised methodology w as 7.39 and 7.27 as of May 31, 2025 and 2024, respectively.

The increase in adjusted total equity was primarily due to a combined impact of our adjusted net income of $245 million for FY2025 and issuances of subordinated deferrable debt during FY2025, partially offset by a decrease in equity of $47 million from CFC Board of Directors’ authorized patronage capital retirements in July 2024.

Debt Covenants

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GAAP financial measures below in “Non-GAAP Financial Measures and Reconciliations.”

Interest rate risk represents our primary source of market risk, as interest rate volatility can have a significant impact on the earnings and overall financial condition of a financial institution.

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.

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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.

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:

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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 settlements 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 p rojection.

As discussed in the “Executive Summary—Outlook” section, we currently anticipate net long-term loan growth of $1,628 million over the next 12 months.

We also expect that our variable-rate line of credit loans outstanding will remain at approximately the current level over the same period.

Based on our current forecast assumptions, which includes three federal funds rate cuts of 25 basis point each during the fiscal year ended May 31, 2025, we project increases in our reported net interest income and reported net interest yield over the next 12 months compared to the 12-month period ended May 31, 2024.

We also project decreases in our adjusted net interest income and adjusted net interest yield over the next 12 months relative to the 12-month period ended May 31, 2024, primarily due to the current yield curve assumptions and our balance sheet position.

Table 31 presents the estimated percentage impact that a hypothetical instantaneous parallel shift of plus or minus 100 basis points in the interest rate yield curve, relative to our base case forecast yield curve, would have on our projected baseline 12-month net interest income and adjusted net interest income as of May 31, 2024 and 2023.

In instances where the hypothetical instantaneous interest rate shift of minus 100 basis points results in a negative interest rate, we assume an interest rate floor rate of 0% in a negative interest rate.

As discussed in the “Executive Summary—Outlook” section, we currently anticipate net loan growth of $2,059 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 75 basis points of federal funds rate cuts from May 2025 through May 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 May 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 May 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 the current shape of the yield curve, 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 debt maturing in the near term will need to be refinanced at a forecasted higher interest rate.

Table 32 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 75 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 May 31, 2025 and 2024.

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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The changes in the sensitivity measures between May 31, 2025 and 2024 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 31 indicate, we would expect an unfavorable impact on our projected net interest income over a 12-month horizon as of May 31, 2024, under the hypothetical scenario of an instantaneous parallel shift of plus 100 basis points in the interest rate yield curve and a further inverted yield curve.

However, we would expect an unfavorable impact on our adjusted net interest income over a 12-month horizon as of May 31, 2024, under the hypothetical scenario of an instantaneous parallel shift of minus 100 basis points in the interest rate yield curve.

As the interest rate sensitivity simulations displayed in Table 32 indicate, we would expect an unfavorable impact on our projected net interest income over a 12-month horizon as of May 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 May 31, 2025, under the hypothetical scenario of an instantaneous parallel shift of minus 100 basis points in the interest rate yield curve.

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.

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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 in our consolidated balance sheet as of the reported date, it does not incorporate projected changes in our consolidated balance sheet.

The duration gap narrowed slightly to negative 1.13 months as of May 31, 2024, from negative 1.34 months as of May 31, 2023 and was within the risk limits and guidelines established by CFC’s Asset Liability Committee as of each respective date.

The narrowing of the duration gap is primarily due to slightly shorter duration liabilities funding interest earning assets.

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 in our consolidated balance sheet.

The duration gap narrowed to positive 0.27 months as of May 31, 2025, from negative 1.13 months as of May 31, 2024 and was within the risk limits and guidelines established by CFC’s Asset Liability Committee as of each respective date.

The shift to a positive duration gap is primarily due to shorter duration liabilities funding interest-earning assets.

Limitations of Interest Rate Risk Measures

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Furthermore, third-party risk is another important component of our operational risk focus requiring identification, assessment and mitigation of critical risks arising from relationships with third-party vendors, suppliers, partners, service providers and contractors.

Not having a set of practices to increase the visibility of third-party risk, including performing due diligence on current and new vendors through standardized

questionnaires and forms, creating a risk register for recorded risks and implementing risk prioritization, would potentially expose CFC to externally generated operational risks that could disrupt our standard operating environment.

Operational risk is inherent in all business activities.

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Each of our de partments is require d to develop, exercise, test and maintain business resumption plans for the recovery of business functions and processing resources to minimize disruption for our members and other parties with whom we do business.

We conduct disaster recovery exercises periodically that include both the Business Technology Services Group and business areas.

We conduct disaster recovery exercises

periodically that include both the Business Technology Services Group and business areas.

The business resumption plans are based on a risk assessment that considers potential losses due to unavailability of service versus the cost of resumption.

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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.”

We provide a discussion of our significant accounting policies in “Note 1—Summary of Significant Accounting Policies” in this Report.

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 estim ate.

As such, we have identified our accounting policy governing the estimation of the allowance for credit losses as a critical accounting estim ate.

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.

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We perform an annual comprehensive review of each of our borrowers, following the receipt of the borrower’s annual audited financial statements, to reassess the borrower’s risk rating.

In addition, interim risk-rating adjustments may occur as a result of updated information affecting a borrower’s ability to fulfill its obligations or other significant developments and trends.

In addition, interim risk-rating adjustments may occur as a result of

updated information affecting a borrower’s ability to fulfill its obligations or other significant developments and trends.

Our Enterprise Risk Group and Corporate Credit Committee review and provide rigorous oversight and governance around our internally assigned risk ratings to ensure the ratings process is consistent.

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and management’s consideration of qualitative factors that may cause estimated credit losses associated with our existing loan portfolio to differ from our historical loss experience.

As discussed in “Credit Risk—Loan Portfolio Credit Risk,” CFC has experienced only 18 defaults in its 55-year history, and prior to Brazos and Brazos Sandy Creek we had no defaults in our electric utility loan portfolio since fiscal year 2013.

As discussed in “Credit Risk—Loan Portfolio Credit Risk,” CFC has experienced only 18 defaults in its 56-year history, and prior to the two CFC electric power supply loan defaults in fiscal years 2021 and 2022, we had no defaults in our electric utility loan portfolio since fiscal year 2013.

As such, we have a limited history of defaults to develop reasonable and supportable estimated probability of default rates for our existing loan portfolio.

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However, we utilize our internal historical loss experience to estimate loss given default, or the recovery rate, for each of our loan portfolio segments.

We believe our internal historical loss experience serves as a more reliable estimate of loss severity than third-party data due to the organizational structure and operating environment of rural utility cooperatives, our lending practice of generally requiring a senior security position on the assets and revenue of borrowers for long-term loans, the approach we take in working with borrowers that may be experiencing operational or financial issues and other factors discussed in “Credit Risk—Loan Portfolio Credit Risk.”

We believe our internal historical loss experience serves as a more reliable estimate of loss severity than third-party data due to the organizational structure and operating environment of rural utility cooperatives, our lending practice of generally requiring a senior security position on the assets and revenue of borrowers for long-term loans, the approach we take in working w ith borrowers that may be experiencing operational or financial issues and other factors discussed in “Credit Risk—Loan Portfolio Credit Risk.”

We generally consider nonperforming loans as well as loans that have been modified with borrowers experiencing financial difficulty for individual evaluation given the risk characteristics of such loans and establish an asset-specific allowan ce for these loans.

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As noted above, our allowance for credit losses is sensitive to a variety of factors.

While management uses its best judgment to assess loss data and other factors to determine the allowance for credit losses, changes in our loss assumptions, adjustments to assigned borrower risk ratings, the use of alternate external data sources or other factors could affect our estimate of probable credit losses inherent in the portfolio as of each balance sheet date, which would also impact the related provision for credit losses recognized in our consolidated statements of operations.

provision for credit losses recognized in our consolidated statements of operations.

For example, changes in the inputs below, without taking into consideration the impact of other potential offsetting or correlated inputs, would have the following effect on our allowance for credit losses as of May 31, 2025.

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NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

Below we discuss each of the non-GAAP financial measures and provide a reconciliation of our non-GAAP financial measures to the most comparable U.S.

GAAP financial measures.

We believe our non-GAAP financial measures, which are not a substitute for U.S.

GAAP and may not be consistent with similarly titled non-GAAP financial measures used by other companies, provide meaningful information and are useful to investors because management evaluates performance based on these metrics for purposes of (i) establishing performance goals;

As discussed above in the section “Non-GAAP Financial Measures,” in addition to financial measures determined in accordance with U.S.

GAAP, we believe our non-GAAP financial measures, which are not a substitute for U.S.

(ii) budgeting and forecasting;

(iii) comparing period-to-period operating results, analyzing changes in results and identifying potential trends;

and (iv) making compensation decisions.

(iv) monitoring our overall leverage and credit ratings;

and (v) 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.

Below we discuss each of the non-GAAP financial measures and provide a reconciliation of our non-GAAP financial measures to the most comparable U.S.

GAAP financial measures.

During FY2025, we have refined our methodology for calculating the adjusted debt-to-equity ratio, which we explain in more detail below.

Statements of Operations Non-GAAP Financial Measures

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TIER is calculated by adding the interest expense to net income and dividing that total by the interest expense.

We adjust the TIER calculation to add the derivative cash settlements income (expense) to the interest expense and to remove the derivative forward value gains (losses) and foreign currency adjustments from total net income.

We adjust the TIER calculation to add the derivative cash settlements income (expense) to the interest

expense and to remove the derivative forward value gains (losses) and foreign currency adjustments from total net income.

Adding the cash settlements income (expense) back to interest expense also has a corresponding effect on our adjusted net interest income.

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Net Income and Adjusted Net Income

Table 32 provides a reconciliation of adjusted interest expense, adjusted net interest income, adjusted total revenue and adjusted net income to the comparable U.S.

Table 33 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 for the periods presented.

These adjusted financial measures are used in the calculation of our adjusted net interest yield and adjusted TIER.

Adjusted Net Income

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Interest expense (1,442,279) (1,339,088) (1,036,508)

Derivative cash settlements interest income (expense) (1)

Derivative cash settlements interest income (1)

99,219 127,166 33,577

3 unchanged sentences

$ 140,014 $ 554,316 $ 501,587

Derivative forward value gains (2)

Derivative forward value gains (losses) (2)

(105,070) 264,871 252,267

1 unchanged sentence

____________________________

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

(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.

3 unchanged sentences

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 and losses from our adjusted total revenue and adjusted net income.

We exclude unrealized derivative forward value gains (losses) from our adjusted net income.

TIER and Adjusted TIER

Table 33 displays the calculation of our TIER and adjusted TIER for the periods presented.

Table 34 displays the calculation of our TIER and adjusted TIER.

TIER and Adjusted TIER

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(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.

Liabilities and Equity and Adjusted Liabilities and Equity

Management relies on the adjusted debt-to-equity ratio as a key measure in managing our business.

Debt Outstanding and Equity and Adjusted Debt Outstanding and Equity

Adjusted debt-to-equity ratio is one of the key measures in managing our business and is used for:

(i) establishing corporate goals;

(ii) budgeting and forecasting;

and (iii) monitoring our overall leverage and credit ratings.

We therefore believe that this adjusted financial measure, in combination with the comparable U.S.

GAAP financial measure, is useful to investors in evaluating our financial condition.

We adjust the comparable U.S.

GAAP financial measure to:

• exclude debt used to fund loans that are guaranteed by RUS from total liabilities;

• exclude from total liabilities, and add to total equity, debt with equity characteristics issued to our members and in the capital markets;

• exclude the noncash impact of derivative financial instruments and foreign currency adjustments from total liabilities and total equity.

We are an eligible lender under an RUS loan guarantee program.

Loans issued under this program carry the U.S.

government’s guarantee of all interest and principal payments.

We have little or no risk associated with the collection of principal and interest payments on these loans.

Therefore, we believe there is little or no risk related to the repayment of the liabilities used to fund RUS-guaranteed loans, and we subtract such liabilities from total liabilities to calculate our adjusted debt-to-equity ratio.

Members may be required to purchase subordinated certificates as a condition of membership and as a condition to obtaining a loan or guarantee.

The subordinated certificates are accounted for as debt under U.S.

The subordinated certificates have long-dated maturities and pay no interest or pay interest that is below market, and under certain conditions we are prohibited from making interest payments to members on the subordinated certificates.

For computing our adjusted debt-to-equity ratio we subtract members’ subordinated certificates from total liabilities and add members’ subordinated certificates to total equity.

We also sell subordinated deferrable debt in the capital markets with maturities of up to 30 years and the option to defer interest payments.

The characteristics of subordination, deferrable interest and long-dated maturity are all equity characteristics.

In calculating our adjusted debt-to-equity ratio, we subtract subordinated deferrable debt from total liabilities and add it to total equity.

Our total equity includes the noncash impact of derivative forward value gains (losses) and foreign currency adjustments recorded in net income.

It also includes a component of AOCI the impact of changes in the fair value of derivatives designated as cash flow hedges as well as the remaining transition adjustment recorded when we adopted the accounting guidance that required all derivatives be recorded on the balance sheet at fair value.

In evaluating our debt-to-equity ratio, we make adjustments to equity similar to the adjustments made in calculating TIER.

We exclude from total equity the cumulative impact of changes in derivative forward value gains (losses) and foreign currency adjustments and amounts of changes in the fair value included in AOCI related to derivatives designated for cash flow hedge accounting and the remaining derivative transition adjustment to derive non-GAAP adjusted equity.

We record derivative instruments at fair value on our consolidated balance sheets.

For computing our adjusted debt-to-equity ratio, we exclude the noncash impact of our derivative accounting from liabilities and equity.

Also, for computing our adjusted debt-to-equity ratio, we exclude the impact of foreign currency valuation adjustments from liabilities and equity.

The debt-to-equity ratio adjusted to exclude the noncash impact of our derivative accounting and the effect of foreign currency translation reflects management’s perspective on our operations and, therefore, we believe is a useful financial measure for investors.

Table 34 provides a reconciliation between our total liabilities and total equity and the adjusted amounts used in the calculation of our adjusted debt-to-equity ratio a s of May 31, 2024 and 2023.

As indicated in Table 34, subordinated debt is treated in the same manner as equity in calculating our adjusted debt-to-equity ratio.

Adjusted Liabilities and Equity

(Dollars in thousands) 2024 2023

During FY2025, we refined our methodology for calculating the adjusted debt-to-equity ratio and revised our internally established adjusted debt-to-equity threshold from 6-to-1 to 8.5-to-1.

These changes aim to provide a more accurate representation of our financial condition given the continued growth in our loan portfolio, align our methodology more closely with rating agency methodologies and provide a ratio that is consistent with our business objectives.

We will continue to assess the appropriateness of our non-GAAP financial measures, which could be subject to change for a variety of reasons, including changes to our strategy or business operations.

Key changes to our methodology included replacing total liabilities with total debt outstanding, which includes our interest-bearing debt and excludes non-interest-bearing liabilities, and reducing equity credit for subordinated deferrable debt from 100% to 50%.

Table 35 summarizes our prior methodology and revised methodology.

Adjusted Total Debt Outstanding and Equity—Prior Versus Revised Methodology

Prior Methodology

Revised Methodology

Adjusted total liabilities:

Total liabilities $ 33,165,645 $ 31,422,811

Adjusted total debt outstanding:

Total liabilities Total debt outstanding (1)

Derivative liabilities —

Debt used to fund loans guaranteed by RUS —

Subordinated deferrable debt 1,286,861 1,283,436

Subordinated certificates 1,197,651 1,223,126

Adjusted total liabilities $ 30,486,255 $ 28,678,302

100% of Subordinated deferrable debt

50% of Subordinated deferrable debt

Members’ subordinated certificates

Adjusted total liabilities Adjusted total debt outstanding

Adjusted total equity:

Total equity Total equity

Period-end cumulative derivative forward value gains

AOCI attributable to derivatives

100% of Subordinated deferrable debt

50% of Subordinated deferrable debt

Members’ subordinated certificates Members’ subordinated certificates

Adjusted total equity Adjusted total equity

____________________________

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

The most directly comparable financial measure calculated and presented in accordance with U.S.

GAAP was also revised from total liabilities divided by total equity to total debt outstanding divided by total equity.

Prior-period amounts have been recast to reflect the updated presentation for both adjusted debt-to-equity and debt-to-equity ratios.

Members’ subordinated certificates are accounted for as debt under U.S.

These subordinated certificates are held only by our members and are subordinated to all senior and non-member subordinated indebtedness of CFC.

The members’ subordinated certificates have long-dated maturities and in certain cases pay no interest or pay interest that is below market.

Under certain conditions we are prohibited from making interest payments to members on the subordinated certificates.

Given the subordinated certificates’ equity-like characteristics, we subtract 100% of members’ subordinated certificates from total debt outstanding and add them to total equity when calculating our adjusted debt-to-equity ratio.

We issue subordinated deferrable debt in the capital markets with maturities of up to 45 years including the option to defer interest payments.

The characteristics of subordination, deferrable interest and long-dated maturity are all equity-like characteristics.

Since the subordinated deferrable debt is issued in the capital markets and not just to members of CFC and it ranks higher in subordination compared with members’ subordinated certificates, we subtract 50% of our subordinated deferrable debt from total debt outstanding and add it to total equity.

This approach more closely aligns with the rating agencies’ methodology for calculating the adjusted debt-to-equity ratio.

We record derivative instruments at fair value on our consolidated balance sheets.

Our total equity includes the noncash impact of derivative forward value gains (losses) and foreign currency translation adjustments recorded in net income.

It also includes as a component of AOCI the impact of changes in the fair value of derivatives designated as cash flow hedges as well as the unrealized losses on the defined benefit pension plan.

In evaluating our adjusted debt-to-equity ratio, we make adjustments to equity similar to the adjustments made in calculating TIER.

We exclude from total equity the noncash cumulative impact of changes in derivative forward value gains (losses) and foreign currency translation adjustments, and the amounts of AOCI, which reflects management’s perspective on our operations and, therefore, we believe, is a useful financial measure for investors.

Table 36 provides a reconciliation between our total debt outstanding and total equity and the adjusted amounts used in the calculation of our adjusted debt-to-equity ratio a s of May 31, 2025 and 2024.

Adjusted Total Debt Outstanding and Equity

(Dollars in thousands) 2025 2024

Adjusted total debt outstanding:

Total debt outstanding (1)

$ 34,769,316 $ 32,718,367

50% of Subordinated deferrable debt

664,743 643,431

Members’ subordinated certificates

1,184,714 1,197,651

Adjusted total debt outstanding

$ 32,919,859 $ 30,877,285

Adjusted total equity:

Total equity $ 3,103,466 $ 3,012,169

1 unchanged sentence

607,969 343,098

Current fiscal year derivative forward value gains (1)

Current fiscal year derivative forward value gains (losses) (2)

(105,070) 264,871

1 unchanged sentence

502,899 607,969

AOCI attributable to derivatives (2)

Accumulated other comprehensive loss

(2,236) (1,416)

Subtotal 500,663 606,553

Subordinated deferrable debt 1,286,861 1,283,436

Subordinated certificates 1,197,651 1,223,126

50% of Subordinated deferrable debt

664,743 643,431

Members’ subordinated certificates

1,184,714 1,197,651

Subtotal 1,849,457 1,841,082

1 unchanged sentence

____________________________

(1) Represents consolidated total derivative forward value gains.

(2) Represents the AOCI amount related to derivatives.

See “Note 11—Equity” for the additional components of AOCI.

(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

3 unchanged sentences

Debt-to-equity ratio:

Total liabilities $ 33,165,645 $ 31,422,811

Total debt outstanding

$ 34,769,316 $ 32,718,367

Total equity 3,103,466 3,012,169

1 unchanged sentence

Adjusted debt-to-equity ratio:

Adjusted total liabilities (2)

Adjusted total debt outstanding (2)

$ 32,919,859 $ 30,877,285

3 unchanged sentences

____________________________

(1) Calculated based on total liabilities at period-end divided by total equity at period-end.

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

(2) See Table 36 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 liabilities at period-end divided by adjusted total equity at period-end.

(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

7 unchanged sentences

Total CFC equity $ 3,082,477 $ 2,991,462

Accumulated other comprehensive income (1,416) 8,343

Accumulated other comprehensive loss

(2,236) (1,416)

Period-end cumulative derivative forward value gains attributable to CFC (1)

3 unchanged sentences

____________________________

(1) Represents period-end cumulative derivative forward value gains for CFC only, as total CFC equity does not include the noncontrolling interests of the variable interest entities, which we are required to consolidate.

(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 16—Business Segments.” The period-end cumulative derivative forward value total gain amounts as of May 31, 2025 and 2024 are presented above in Table 36.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis