NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

Reported Results

Net Income and TIER

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. MD&A—Consolidated Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024 (“2024 Form 10-K”) for a comparative discussion of our consolidated results of operations between FY2024 and FY2023.

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.

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

Table 2: 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

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 byour 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

Table 3 below shows our adjusted net income and adjusted TIER for the periods presented and the variance between these periods. Our financial goals focus on earning an annual minimum adjusted TIER of 1.10. We provide a more detailed discussion of our non-GAAP adjusted results under the section “Consolidated Results of Operations.” See “Item 7. MD&A—Consolidated Results of Operations” in our 2024 Form 10-K for a comparative discussion of our consolidated results of operations between FY2024 and FY2023.

Table 3: Adjusted Net Income and Adjusted TIER

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

Table 4: 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

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.

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 of $1,405 million and $1,130 million, respectively. Of the increase in line of credit loans, 78% was attributable to borrowings under emergency line of credit loans by our members primarily for recovery costs for Hurricane Helene, which impacted the Southeastern United States in September 2024. The remaining 22% was primarily attributable to funding provided for member working capitaland 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.

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 $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 $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:

•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 $1,450 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 ofdealer 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 andwas $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 receive $1,668 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 $2,885 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 $3,363 million over the last 12 fiscal quarter-end reporting periods. Our available liquidity as of May 31, 2025 was $1,727 million in excess of, or 1.3 times, our total scheduled debt obligations, excluding member short-term investments, over the next 12 months of $5,885 million.

Electric Cooperative Industry Trends and Developments

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) changing federal government programs and policies for electric utilities; (ii) increased electricity demand; (iii) grid reliability risk; 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 Global Inc., electricity demand is forecasted 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 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. The increased support among electric cooperatives reflects an expectation that beneficial electrification will result in increased sales, while also saving money for members and reducing carbon emissions.

Certain areas of the country will experience more growth than others, but we can expect significant investments in new power supply, transmission and other related infrastructure in order to meet this expected demand.

Grid Reliability Risk

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 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. 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 damage from weather-related incidents. 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. 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

Many rural electric distribution cooperatives have made or are making infrastructure investments that include building fiber optic lines to improve electric grid system reliability, efficiency and cost savings, as fiber operations offer enhanced communication to monitor electric systems, identify outages and speed restoration. 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 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 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, 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. 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.

Outlook

Macroeconomic Outlook

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 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.

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 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 months, 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, 2025, the unrealized periodic derivative forward value gains (losses) are largely based on future expected changes in longer-term interest rates, which we are unable to accurately predict for each reporting period over the next 12 months. Due to the difficulty in predicting these unrealized amounts, we are unable to provide without unreasonable effort a reconciliation of our forward-looking adjusted financial measures to the most directly comparable GAAP financial measures.

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.