What changed in this filing

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Item 1A. Risk Factors

2026-07-31 compared with 2025-08-05 · 65 added, 51 removed, 159 unchanged (42% of the section changed)

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Our loan portfolio, which represents the largest component of assets on our balance sheet, accounts for the substantial majority of our credit risk exposure.

outstanding to electric utility organizations represented approximately 98% of our total loans outstanding as of May 31, 2025.

Loans outstanding to electric utility organizations represented approximately 98% of our total loans outstanding as of May 31, 2026.

We had 903 borrowers with loans outstanding as of May 31, 2026, and our 20 largest borrowers accounted for 19% of total loans outstanding as of May 31, 2026.

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in the allowance for credit losses;

delinquent, nonperforming and criticized loans;

delinquent, nonaccrual and criticized loans;

net charge-offs;

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Therefore, the deterioration in the financial condition of a borrower may result in a significant increase in our allowance for credit losses and provision for credit losses and may have a material adverse impact on our results of operations, financial condition and liquidity.

In addition, we might underestimate expected credit losses and have credit losses in excess of the established allowance for credit losses if we fail to timely identify a deterioration in a borrower’s financial condition or due to other factors.

These other factors include if the methodology and process we use in assigning borrower risk ratings and making judgments in extending credit to our borrowers does not accurately capture the level of our credit risk exposure or our historical loss experience proves to be not indicative of our expected future losses.

In addition, we might underestimate expected credit losses and have

credit losses in excess of the established allowance for credit losses if we fail to timely identify a deterioration in a borrower’s financial condition or due to other factors.

These other factors may include the possibility that the methodologies and processes we use to assign borrower risk ratings and make judgments in extending credit to our borrowers do not accurately capture the level of our credit risk exposure or our historical loss experience, and therefore proves to be not indicative of our expected future losses.

Adverse changes, developments or uncertainties in the rural electric utility industry could adversely impact the operations or financial performance of our member electric cooperatives, which, in turn, could have an adverse impact on our financial results.

Our focus as a member-owned finance cooperative is on lending to our rural member electric utility cooperatives, which is the primary source of our revenue.

As a result of lending primarily to our members, we have a loan portfolio with single-industry concentration.

As a member‑owned finance cooperative, we lend primarily to our rural electric utility cooperative members, which is the primary source of our revenue.

This results in a loan portfolio with single‑industry concentration;

loans to rural electric utility cooperatives accounted for approximately 98% of our total loans outstanding as of May 31, 2026.

While we historically have experienced limited defaults and very low credit losses in our electric utility loan portfolio, factors that may have a negative impact on the operations of our member rural electric cooperatives include but are not limited to, the price and availability of distributed energy resources;

whether these resources will be sufficient to serve electric demand at its peak;

While we historically have experienced limited defaults and very low credit losses in this portfolio, adverse developments affecting our members could result in risk rating downgrades, an increase in our allowance for credit losses and a decrease in our net income.

Factors that could negatively impact our members’ operations and financial performance include, but are not limited to:

• The price and availability of distributed energy resources, and whether those resources are sufficient to serve peak electric demand;

• The operational reliability and resilience of their power grids;

cyber-related attacks or other breaches of their operating systems and network infrastructure;

regulatory or compliance factors related to managing greenhouse gas em issions (including the potential for stranded assets);

and extreme weather conditions leading to events such as hurricanes, tornadoes and wildfires, including weather conditions related to climate change.

The factors listed above, individually or in combination, could result in declining sales or increased power supply and operating costs and could potentially cause a deterioration in the financial performance of our members and the value of the collateral securing their loans.

This could impair their ability to repay us in accordance with the terms of their loans.

In such cases, it may lead to risk rating downgrades, which may result in an increase in our allowance for credit losses and a decrease in our net income.

The threat of weather-related events or shifts in climate patterns resulting from climate change, including, but not limited to, increases in storm intensity, number of intense storms and temperature extremes in areas in which our member rural electric cooperatives operate, could result in increased power supply and operating costs, adversely impacting our members’ results of operations, liquidity and ability to make payments to us.

While our members have traditionally largely been reimbursed by Federal Emergency Management Agency (“FEMA”) relief programs for eligible storm-related damages, in January 2025, an executive order established the FEMA Review Council with the intent of implementing significant reforms to FEMA and

its reimbursement programs.

Ongoing organizational and policy reforms at FEMA, including leadership changes, staffing reductions and evolving federal and state roles, may present a risk to the eligibility and timing of disaster cost reimbursements.

As a result, the programs on which our members have relied upon may not be implemented in their current forms or payments may not be received on a timely basis.

Further, FEMA does not provide relief for events caused by human error and, as a result, the majority of wildfires may not be covered events.

For increased power costs, although we believe our members have the ability to pass through increased costs to their members, in some cases it may be difficult to pass through the entire costs on a timely basis if they are significant.

To the extent CFC makes bridge loans to members as they wait for FEMA payments, changes to FEMA programs or delays in payments from FEMA could adversely impact the quality of our loan portfolio and our financial condition.

Additionally, our member rural electric cooperatives are subject to evolving local, state and federal laws, regulations and expectations regarding the environment.

These requirements and expectations may i ncrease the time and costs of efforts to monitor and comply with such obligations and expose them to liability.

The impacts of climate change present nota ble risks, including damage to the assets of our members, which could adversely impact the quality of our loan portfolio and our financial condition.

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

Advances in technology could reduce demand for power supply systems and distribution services.

• Cyber‑related incidents or other breaches of their operating systems and network infrastructure;

• Evolving local, state and federal environmental laws, regulations and expectations, including those related to managing greenhouse gas emissions (with the potential for stranded assets), which may increase compliance costs and expose our members to liability;

• Extreme weather events, such as hurricanes, tornadoes and wildfires, including conditions associated with climate change, that damage member assets and increase power supply and operating costs.

Individually or in combination, these factors could result in declining sales, higher operating costs and deterioration in the financial performance of our members and the value of the collateral securing their loans, impairing their ability to repay us.

Although we believe our members generally have the ability to pass through increased costs to their end‑use consumers, in some cases it may be difficult to do so on a timely basis if the increases are significant.

Our members have traditionally been reimbursed by the FEMA for eligible storm‑related damages.

In January 2025, an executive order established the FEMA Review Council to implement significant reforms to FEMA and its reimbursement programs.

Ongoing organizational and policy changes at FEMA, including leadership changes, staffing reductions and evolving federal and state roles, may affect the eligibility, scope and timing of disaster cost reimbursements.

In addition, FEMA generally does not provide relief for events caused by human error, and, as a result, the majority of wildfires may not be covered.

More broadly, the current administration is implementing significant changes to federal agencies and programs, including executive actions to eliminate or modify agency and program funding, reduce the federal workforce and change agency oversight.

Federal programs on which our members rely have been, and may continue to be, disrupted or eliminated, may not be implemented in their current forms, or may not fund payments on a timely basis.

To the extent we make bridge loans to members awaiting FEMA payments, changes to FEMA programs or delays in FEMA payments could adversely impact the quality of our loan portfolio and our financial condition.

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

Advancements in alternative energy technology could reduce demand for power supply systems and distribution services.

The development of alternative technologies that produce electricity, including solar cells, wind power and microturbines, has expanded and could ultimately provide affordable alternative sources of electricity and permit end users to adopt distributed generation systems that would allow them to generate electricity for their own use.

As these and other technologies, including energy conservation measures, are created, developed and improved, the quantity and frequency of electricity usage by rural customers could decli ne.

As these and other technologies, including energy conservation measures, are created, developed and improved, the quantity and frequency of

electricity usage by rural customers could decli ne.

As with any internet service provider, rural electric cooperatives may face the risk of being outpaced by technological advancements.

While fiber broadband is currently a leading technology, the rise of 5G satellite internet, and other emerging technology, could potentially disrupt the broadband market.

Advan ces in technology and conservation that cause our electric system members’ power supply, transmission and/or distribution facilities to become obsolete prior to the maturity of loans secured by these assets could have an adverse impact on the ability of our members to repay such loans, which could result in an increase in nonperforming or restructured loans.

These conditions could negatively impact the credit quality of our loan portfolio and financial results.

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In particular, the value of the foreclosed assets or entities may deteriorate and have a negative impact on our results of operations.

We assess foreclosed assets, if any, for impairment periodically as required under generally accepted accounting principles in the U.S.

We assess foreclosed assets, if any, for impairment periodically as required under generally accepted accounting principles in the United States (“U.S.

Impairment charges, if required, represent a reduction to earnings in the period of the charge.

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If we are unable to access the capital markets or other external sources for funding, our liquidity position may be negatively affected and we may not have sufficient funds to meet all of our financial obligations as they become due.

We depend on access to the capital markets and other sources of financing, such as bank revolving credit agreements, investments from our members, private debt issuances through Farmer Mac and the Guaranteed Underwriter Program, to fund new loan advances, refinance our long- and short-term debt and, if necessary, to fulfill our obligations under our guarantee and repurchase agreements.

Prolonged market disruptions, downgrades to our long-term and/or short-term debt ratings, adverse changes in our business or performance, downturns in the electric industry and other events over which we have no control may deny or limit our access to the capital markets and/or subject us to higher costs for such funding.

Our access to other sources of funding also could be limited by the same factors, by adverse changes in the business or performance of our members, by the banks committed to our revolving credit agreements or Farmer Mac, or by changes in federal law or the Guaranteed Underwriter Program.

have no control may deny or limit our access to the capital markets and/or subject us to higher costs for such funding.

Our access to other sources of funding could also be limited by the same factors, by adverse changes in the business or performance of our members, by the banks committed to our revolving credit agreements or Farmer Mac, or by changes in federal law or the Guaranteed Underwriter Program.

Our funding needs are determined primarily by scheduled short- and long-term debt maturities and the amount of our loan advances to our borrowers relative to the scheduled payment amortization of loans previously made by us.

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Our revolving credit agreements also require that we earn a minimum annual adjusted TIER of 1.05 in order to retire patronage capital to members.

MD&A—Non-GAAP Financial Measures and Reconciliations” for additional

information on our non-GAAP financial measures and a reconciliation to the most comparable U.S.

MD&A—Non-GAAP Financial Measures and Reconciliations” for additional information on our non-GAAP financial measures and a reconciliation to the most comparable U.S.

GAAP financial measures.

Pursuant to our collateral trust bond indentures, we are required to maintain eligible pledged collateral at least equal to 100% of the principal amount of the bonds issued under the indenture.

Pursuant to our collateral trust bond indentures, we are required to maintain eligible pledged collateral at least equal to 100% of the principal amount of the bonds issued under the respective indenture.

Pursuant to one of our collateral trust bond indentures and our medium-term note indenture, we are required to limit senior indebtedness to 20 times the sum of our members’ equity, subordinated deferrable debt and members’ subordinated certificates.

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This risk continues to increase and cyberattack methods continue to evolve in sophistication, velocity and frequency.

The use of new and emerging technologies through artificial intelligence and machine learning may intensify this risk as adversaries may leverage artificial intelligence to craft more sophisticated phishing schemes, automate social engineering attacks or generate malware with increased speed.

The use of new and developing technologies such as AI and machine learning and quantum computing may intensify this risk.

Adversaries may leverage AI to craft more sophisticated phishing schemes, automate social engineering attacks, generate malware with increased speed, create deepfakes of company personnel or conduct AI-orchestrated cyberattacks with minimal human involvement, potentially increasing both the frequency and sophistication of attacks.

Cybersecurity incidents may occur from a variety of sources, such as foreign governments, hackers or other well-financed entities, and may originate from less regulated and remote areas of the world.

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We have limited control and visibility over third-party systems that we rely on for our business.

The occurrence of a cybersecurity incident could result in damage to our third parties’ operations.

The occurrence of a cybersecurity

incident could result in damage to our third parties’ operations.

The failure of third parties to provide services agreed upon through service-level agreements, whether as a result of the occurrence of a cybersecurity incident or other event, could result in the loss of access to our data, the loss of integrity of our data, disruptions to our corporate functions, loss of business opportunities or reputational damage, or otherwise adversely impact our financial results and cause significant costs and liabilities.

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Our failure to comply with applicable laws, regulations or standards regarding data security and privacy could result in fines, sanctions and litigation.

Additionally, new or increased laws, regulations, enforcement activity and regulatory guidance in the areas of data security and privacy may increase our costs and our members’ costs, limit our ability to grow our business or otherwise harm our business.

Additionally, legislators and regulators are continually adopting or revising privacy, data protection and information and cybersecurity laws at both the federal and state level, creating a complex regulatory patchwork.

New or increased laws, regulations, enforcement activity and regulatory guidance in the areas of data security and privacy may increase our costs and our members’ costs, limit our ability to grow our business or otherwise harm our business.

The development and use of AI, including by third parties, presents risks and challenges that may adversely impact our business.

We use, and our competitors and third-party service providers may develop or incorporate, AI technology in certain business processes, services or products.

The development and use of AI presents a number of risks and challenges to our business in addition to the cybersecurity concerns addressed above.

The legal and regulatory environment relating to AI is uncertain and rapidly evolving, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection and other laws applicable to the use of AI.

Recent federal executive actions have signaled a shift in the regulatory landscape for AI in the United States, including efforts to promote a unified national approach to AI oversight.

These evolving laws and regulations could require changes in our, our members’ or our third-party service providers’ consideration and implementation of AI technology and increase compliance costs and the risk of noncompliance.

AI tools may produce output or take actions that are incorrect, that result in the release of private, confidential or proprietary information, that reflect biases included in the data on which they are trained, that could infringe on intellectual property rights or that are otherwise harmful.

AI systems often rely on large volumes of data, including sensitive or proprietary information, and the use, storage and processing of such data could increase our, our members’ or our third-party service providers’ exposure to cybersecurity, privacy and data protection risks.

We are dependent in part on the manner in which third parties develop, train and deploy their models, including risks arising from the inclusion of any unauthorized material in the training data for their models, a matter over which we may have limited visibility.

Failure to properly safeguard data used in AI systems and oversee the functioning and output of AI tools could result in unauthorized access, data compromises, regulatory actions or reputational harm.

Finally, failure on our part to fully take advantage of AI may have an adverse impact on our competitive position.

If we are unable to keep pace with our competitors’ implementation of AI tools, we could be placed at a considerable competitive disadvantage, which may adversely affect our business, financial condition or results of operations.

Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business.

Our elected directors also serve as officers or directors of certain of our individual member cooperatives, which may result in a potential conflict of interest with respect to loans, guarantees and extensions of credit that we may make to or on behalf of such member cooperatives.

In accordance with our charter documents and the purpose for which we were formed, we lend only to our members and associates.

CFC’s directors are elected or appointed from our membership, with 10 director positions filled by directors of members, 10 director positions filled by general managers or chief executive officers of members, two positions appointed by NRECA until June 2027 and one at-large position that must, among other things, be a director, financial officer, general manager or chief executive of one of our members.

manager or chief executive of one of our members.

Upon the termination of the two positions appointed by NRECA in June 2027, two at-large positions will be filled by an executive staff member of our Class B members and a director of our Class D members.

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See “Item 13.

Certain Relationships and Related Transactions, and Director Independence—

Review and Approval of Transactions with Related Persons” for a description of our policies with regard to approval of loans to members affiliated with CFC directors.

Certain Relationships and Related Transactions, and Director Independence—Review and Approval of Transactions with Related Persons” for a description of our policies with regard to approval of loans to members affiliated with CFC directors.

Natural or man-made disasters, including widespread health emergencies, or other external events beyond our control such as acts of terrorism or war, could disrupt our business and adversely affect our results of operations and financial condition.

Our operations may be subject to disruption due to the occurrence of natural disasters, acts of terrorism or war, public health emergencies, or other unexpected or disastrous conditions, events or emergencies beyond our control, some of which may be intensified by the effects of a government response to the event, or climate change.

Labor shortages and supply chain complications exacerbated by, among other things, the invasion of Ukraine by Russia and subsequent sanctions and export controls against Russia and increased geopolitical tensions between the United States and Canada, China and Mexico, has contributed to continuing inflationary pressures.

Labor shortages and supply chain complications exacerbated by, among other things, the invasion of Ukraine by Russia and subsequent sanctions and export controls against Russia, the ongoing conflict with Iran and increased geopolitical tensions between the United States and Canada, China and Mexico, have contributed to continuing inflationary pressures.

While general inflation in the United States has decreased from peak levels in 2022, it remains at levels not experienced in recent decades.

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We compete with other lenders for the portion of the rural utility loan demand for which RUS will not lend and for loans to members that have elected not to borrow from RUS.

The primary competition for the non-RUS loan volume is from CoBank, ACB, a federally chartered instrumentality of the U.S.

that is a member of the Farm Credit System.

The primary competition for the non-RUS loan volume is from CoBank, ACB, a federally chartered instrumentality of the United States that is a member of the Farm Credit System.

As a government-sponsored enterprise, CoBank, ACB has the benefit of an implied government guarantee with respect to its funding.

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Further, the marketplace for skilled employees is becoming more competitive, which means the cost of hiring, incentivizing and retaining skilled employees may continue to increase.

The failure to attract, retain or motivate skilled employees, along with the increased costs, could impair our ability to achieve our performance targets and otherwise have a material adverse effect on our business, financial condition and results of operations.

The failure to attract, retain or motivate skilled employees, along with the increased costs, could impair our ability

to achieve our performance targets and otherwise have a material adverse effect on our business, financial condition and results of operations.

Regulatory and Compliance Risks

Loss of our tax-exempt status could adversely affect our earnings.

CFC has been recognized by the Internal Revenue Service as an organization for which income is exempt from federal taxation under Section 501(c)(4) of the Internal Revenue Code (other than any income from an unrelated trade or business).

CFC has been recognized by the Internal Revenue Service as an organization for which income is exempt from federal taxation (other than any income from an unrelated trade or business) under Section 501(c)(4) of the Internal Revenue Code.

In order to maintain CFC’s tax-exempt status, it must continue to operate exclusively for the promotion of social welfare by operating on a cooperative basis for the benefit of its members by providing them cost-based financial products and services consistent with sound financial management, and no part of CFC’s net earnings may inure to the benefit of any private shareholder or individual other than the allocation or return of net earnings or capital to its members in accordance with CFC’s bylaws and incorporating statute in effect in 1996.

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Because we are not under the purview of such regulation, we could engage in activities that could expose us to greater credit, market and liquidity risk, reduce our safety and soundness and adversely affect our financial results.

Financial institutions subject to regulations, oversight and monitoring by U.S.

Financial institutions that are subject to regulations, oversight and monitoring by U.S.

financial regulators are required to maintain specified levels of capital and may be restricted from engaging in certain lending-related and other activities that could adversely affect the safety and soundness of the financial institution or are considered conflicts of interest.

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The use of reasonably different estimates and assumptions could have a material impact on our financial statements or if the assumptions, estimates or judgments were incorrectly made, we could be required to correct and restate prior-period financial statements.

In addition, from time to time, the Financial Accounting Standards Board (“FASB”) and the SEC change the accounting and reporting standards that govern the preparation of our financial statements.

These changes can be hard to predict and can materially impact how CFC records and reports its financial condition and results of operations.

We could be required to apply a new or revised standard retroactively or apply an existing standard differently, on a retroactive basis, in each case potentially resulting in restating prior-period financial statements.

In addition, from time to time, the Financial Accounting Standards Board (“FASB”) and the SEC may change the accounting and reporting standards that govern the preparation of our financial statements.

These changes can be difficult to predict and can have a material impact on how CFC records and reports its financial condition and results of operations.

We could be required to retroactively apply a new or revised standard or apply an existing standard differently, in each case potentially resulting in restating prior-period financial statements.

For information on what we consider to be our most critical accounting estimates and recent accounting changes, see “Item 7.

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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 1A. Risk Factors