NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

Reported Results

Net Income and TIER

The table 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.”

Table 1: Net Income and TIER

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

Q3 FY2025 versus Q3 FY2024

The increase in net income was primarily driven by:

•A shift to gains from losses recorded on our derivatives portfolio of$59 million, primarily attributable to increases in the longer-term swap interest rates during Q3 FY2025. In comparison, the interest rates across the entire swap curve decreased during Q3 FY2024;

•An increase in net interest income of$2 million, driven primarily by an increase in average interest-earning assets of $1,461 million, or 4%; and

•An increase in fee and other income of$1 million;

•A decrease in gains recorded on our investment securities portfolio of approximately$4 million, primarily due to period-to-period market fluctuations in fair value; and

•An increase in operating and other expenses of$3 million.

We recorded a benefit for credit losses of $6 million for both Q3 FY2025 and Q3 FY2024, primarily attributable to areduction in the asset-specific allowance for a nonperforming CFC power supply loan due to increases in the expected payments on the loan for both periods.

The increase in TIER for Q3 FY2025, compared with Q3 FY2024, was primarily driven by an increase in net income attributable to our derivative portfolio forward value change as discussed above.

YTD FY2025 versus YTD FY2024

The decrease in net income was primarily driven by:

•A shift to losses from gains recorded on our derivatives portfolio of $327 million, primarily attributable to decreases in interest rates across the swap curve, with the exception of the 30-year swap rate which increased slightly during YTD FY2025. In comparison, the medium- and longer-term swap interest rates increased during YTD FY2024;

•An increase in operating and other expenses of $11 million;

•A decrease in gains recorded on our investment securities of $2 million, primarily due to period-to-period market fluctuations in fair value;

•A reduction in the benefit for credit losses of $1 million. The recorded benefit for credit losses of $4 million and $5 million for YTD FY2025 and YTD FY2024, respectively, was primarily due to a decrease in the asset specific allowance for a nonperforming CFC power supply loan attributable to increases in the expected payments on the loan, partially offset by an increase in the collective allowancedue to loan portfolio growth for both periods; and

•A decrease in net interest income of $1 million, driven by a decrease in the net interest yield of 4 basis points, or 5%, to 0.72%, partially offset by an increase in average interest-earning assets of $1,669 million, or 5%;

•An increase in fee and other income of $1 million.

The decrease in TIER for YTD FY2025, compared with YTD 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 increased interest expense during YTD FY2025.

Debt-to-Equity Ratio

The debt-to-equity ratio was 11.31 and 10.86 as of February 28, 2025 and May 31, 2024, respectively. The increase in the debt-to-equity ratio during YTD 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 $67 million for YTD 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. Our financial goals focus on earning an annual minimum adjusted TIER of 1.10. We provide a more detailed discussion of our non-GAAP adjusted results under the section “Consolidated Results of Operations.”

Table 2: Adjusted Net Income and Adjusted TIER

Q3 FY2025 versus Q3 FY2024

The decrease in adjusted net income was primarily driven by:

•A decrease in adjusted net interest income of $16 million, driven by a decrease in the adjusted net interest yield of 21 basis points, or 18%, to 0.97%, partially offset by an increase in average interest-earning assets of $1,461 million, or 4%;

•A decrease in gains recorded on our investment securities portfolio ofapproximately$4 million; and

•An increase in operating and other expenses of approximately $3 million.

•An increase in fee and other income of$1 million.

YTD FY2025 versus YTD FY2024

The decrease in adjusted net income was primarily driven by:

•A decrease in adjusted net interest income of approximately $17 million, driven by a decrease in the adjusted net interest yield of 11 basis points, or 10%, to 1.02%, partially offset by an increase in average interest-earning assets of $1,669 million, or 5%;

•An increase in operating and other expenses of $11 million;

•A decrease in gains recorded on our investment securities of $2 million; and

•A reduction in the benefit for credit losses of $1 million;

•An increase in fee and other income of $1 million.

The decreases in adjusted TIER for Q3 FY2025 and YTD FY2025, compared with Q3 FY2024 and YTD FY2024, were primarily driven by increased adjusted interest expense during both Q3 FY2025 and YTD FY2025.

Adjusted Debt-to-Equity Ratio

Our financial goals focus on maintaining an adjusted debt-to-equity ratio at approximately 8.5-to-1 or below. The adjusted debt-to-equity ratio was 7.37 and 7.27 as of February 28, 2025 and May 31, 2024, respectively. The increase in the adjusted debt-to-equity ratio during YTD 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 our adjusted net income of $195 million for YTD 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 methodology for calculating the adjusted debt-to-equity ratio and a reconciliation of our non-GAAP adjusted measures to the most directly comparable U.S. GAAP measures under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

Lending and Credit Quality

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

Loans to members totaled $36,479 million as of February 28, 2025, an increase of $1,937 million, or 6%, from May 31, 2024, reflecting net increases in long-term and line of credit loans of $774 million and $1,163 million, respectively. Of the increase in line of credit loans, 60% was attributable to borrowings under emergency line of credit loans by our members primarily for recovery cost for Hurricane Helene, which impacted the Southeastern United States in September 2024, and the remaining 40% was primarily attributable to funding provided for member working capital and capital expenditures requirements. Our loan portfolio composition remained largely unchanged from May 31, 2024 with 79% of loans outstanding to CFC distribution borrowers, 16% to CFC power supply borrowers,3%to NCSC electric borrowers, 2% to NCSC telecom borrowers as of February 28, 2025.

The overall credit quality of our loan portfolio remained strong as of February 28, 2025. We had no loan charge-offs during YTD FY2025 and YTD FY2024. We recorded $1 million in net loan recoveries to previously charged-off loan amounts during YTD FY2024.

We had one loan totaling $42 million and$49 million classified as nonperforming as of February 28, 2025 and May 31, 2024, respectively. In March 2025, we received a $16 million payment on this nonperforming loan which reduced its outstanding balance to $26 million as of the date of this Report.

Our allowance for credit losses and allowance coverage ratio was approximately $44 million and 0.12%, respectively, as of February 28, 2025, compared with $49 million and 0.14%, respectively, as of May 31, 2024. The decrease in the allowance for credit losses reflected a reduction in the asset-specific allowance of $7 million attributable to an increase in the expected payments on a nonperforming CFC power supply loan, partially offset by an increase in the collective allowance of $3 million during YTD FY2025 primarily due to loan portfolio growth.

Financing and Liquidity

Total debt outstanding increased $1,559 million, or 5%, to $34,278 million as of February 28, 2025, primarily due to borrowings to fund the increase in loans to members. During YTD FY2025, we issued:

•Unsecured 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; and

•Secured long-term debt totaling $1,150 million at a weighted average fixed interest rate of 4.87% with an average term of 16 years.

In addition, during YTD FY2025, we also settled $300 million collateral trust bonds at a fixed rate of 5.23% with weighted average term of 13.3 years in a private placement transaction and issued a total of $35 million of 30-year subordinated deferrable interest notes (“subordinated notes”) under a new subordinated debt program that was launched in November 2024. Outstanding dealer commercial paper was $1,258 million as of February 28, 2025.

During YTD 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.

Our available liquidity consists of cash and cash equivalents, investments in debt securities, availability under committed bank revolving line of credit agreements, committed loan facilities under the USDA Guaranteed Underwriter Program (“Guaranteed Underwriter Program”), and a revolving note purchase agreement with the Federal Agricultural Mortgage Corporation (“Farmer Mac”). As of February 28, 2025, our available liquidity totaled $7,737 million and was $414 million in excess of our total scheduled debt obligations over the next 12 months of $7,323 million. In addition to our existing available liquidity, we expect to receive $1,672 million from scheduled long-term loan principal payments over the next 12 months.

We believe we can continue to roll over our member short-term investments of $2,978 million based on our expectation that our members will continue to reinvest their excess cash primarily in short-term investment products offered by CFC. Our members historically have maintained a relatively stable level of short-term investments in CFC. Member short-term investments in CFC have averaged $3,452 million over the last 12 fiscal quarter-end reporting periods. Our available liquidity as of February 28, 2025 was $3,392 million in excess of, or 1.8 times over, our total $4,345 million scheduled debt obligations over the next 12 months, excluding member short-term investments.

Outlook

Macroeconomic Outlook

Following its meeting held in March 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 has stabilized at a low level, and (iii) inflation remains somewhat elevated. The Federal Reserve’s current median projection for gross domestic product (“GDP”) annual growth rate in 2025 is 1.7%. Its median projection for Personal Consumption Expenditures (“PCE”) inflation in 2025 is at 2.7%, and for U.S. unemployment in 2025 is 4.4%. While the FOMC has signaled that further rate cuts remain on the table, it continues to emphasize a cautious approach, closely monitoring labor market conditions and inflation trends. In March 2025, federal funds futures markets anticipated two additional rate cuts in 2025, totaling 50 basis points, which would bring the target rate range to 3.75% - 4.00% by the end of 2025. Market expectations for interest rates continue to trend lower across the yield curve, with shorter-term rates expected to decline faster than longer-term rates, and for long-term rates to remain largely elevated. The U.S Treasury yield curve remains normalized overall and is expected to further steepen throughout 2025, though the curve is again inverted for tenors shorter than 2-years.

Projected Reported Results

Based on our current forecast assumptions, including the yield curve forecast noted above, we project increases in our reported net interest income and net interest yield over the next 12 months compared with the 12-month period ended February 28, 2025. See “Market Risk—Interest Rate Risk Assessment” in this Report for an additional discussion.

Projected Non-GAAP Adjusted Results

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

•An increase in our adjusted net interest income over the next 12 months relative to the 12-month period ended February 28, 2025, primarily driven by an increase in interest-earning assets due to projected loan growth.

•A decrease in adjusted net interest yield over the next 12 months, primarily due to the current yield curve assumptions and our interest-earning assets, primarily lines of credit, repricing faster than our interest-bearing liabilities combined with the impact of lower cost debt maturing in the near term, which will need to be refinanced at a relatively higher interest rate. See “Market Risk—Interest Rate Risk Assessment” in this Report for an additional discussion.

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

•Our adjusted debt-to-equity ratio is expected to stay slightly above our current level of 7.37 as of February 28, 2025, 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 February 28, 2025, the unrealized periodic derivative forward value gains and losses are largely based on future expected changes in longer-term interest rates, which we are unable to accurately predict for each reporting period over the next 12 months. Due to the difficulty in predicting these unrealized amounts, we are unable to provide without unreasonable effort a reconciliation of our forward-looking adjusted financial measures to the most directly comparable GAAP financial measures.

Projected Loan Portfolio

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 $1,508 million over the next 12 months. We also expect that our variable-rate line of credit loans outstanding will increase over the same period.