NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

This section provides a comparative discussion of our consolidated results of operations between Q3 FY2026 and Q3 FY2025, and between YTD FY2026 and YTD FY2025. Following this section, we provide a discussion and analysis of material changes between amounts reported on our consolidated balance sheets as of February 28, 2026 and May 31, 2025. You should read these sections together with our “Executive Summary—Outlook” in this Report where we discuss trends and other factors that we expect will affect our future results of operations.

Net Interest Income

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

Table 7 presents average balances for Q3 FY2026, Q3 FY2025, YTD FY2026 and YTD FY2025, and for each major category of our interest-earning assets and interest-bearing liabilities, the interest income earned or interest expense incurred, and the average yield or cost. Table 7 also presents non-GAAP adjusted interest expense, adjusted net interest income and adjusted net interest yield, which reflect the inclusion of net accrued periodic derivative cash settlements income (expense) in interest expense. We provide reconciliations of our non-GAAP financial measures to the most comparable U.S. GAAP financial measures under the section “Non-GAAP Financial Measures and Reconciliations” in this Report.

Table 7: Average Balances, Interest Income/Interest Expense and Average Yield/Cost

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

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

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

(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 7 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 are reported in the respective category for presentation purposes in Table 7. The period-end amounts reported as short-term borrowings on our consolidated balance sheets, which are excluded from the calculation of average short-term borrowings presented in Table 7, totaled $367 million and $449 million as of February 28, 2026 and February 28, 2025, respectively.

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

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

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

(8)Includes other liabilities and equity.

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

(10)Represents the impact of net periodic contractual interest amounts on our interest rate swaps during the period. This amount is added to interest expense to derive non-GAAP adjusted interest expense. The average (benefit)/cost associated with derivatives is calculated based on the annualized net periodic swap settlement interest amount during the period divided by the average outstanding notional amount of derivatives during the period. The average outstanding notional amount of interest rate swaps was$6,469 million and$7,141 million for Q3 FY2026 and Q3 FY2025, respectively. The average outstanding notional amount of interest rate swaps was$6,927 million and$7,269 millionfor YTD FY2026 and YTD FY2025, respectively.

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

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

Table 8 displays the change in net interest income between periods and the extent to which the variance for each category of interest-earning assets and interest-bearing liabilities is attributable to (i) changes in volume, which represents the change in the average balances of our interest-earning assets and interest-bearing liabilities or volume, and (ii) changes in the rate, which represents the change in the average interest rates of these assets and liabilities. The table also presents the change in adjusted net interest income between periods.

Table 8: Rate/Volume Analysis of Changes in Interest Income/Interest Expense

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

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

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

Reported Net Interest Income

Reported net interest income of $80 million for Q3 FY2026 increased $13 million from Q3 FY2025, driven by the combined impact of an increase in the net interest yield of 10 basis points, or 14%, to 0.84%, and an increase in average interest-earning assets of $1,831 million, or 5%.

•Average Interest-Earning Assets: The increase in average interest-earning assets of $1,831 million, or 5%, was attributable to a growth in average total loans of $1,964 million, or 5%, partially offset by a decrease of $133 million in our average total investments, which include cash and investment securities. The average loans increase was driven by increases in average long-term fixed-rate loans of $1,005 million, average long-term variable-rate loans of $485 million and average line of credit loans of $474 million as members continued to advance loans to fund capital expenditures and for working capital purposes. In addition, the increase in line of credit loans between Q3 FY2026 and Q3 FY2025 was also attributable to borrowings under emergency line of credit loans by our members, primarily for recovery costs related to the Michigan ice storm in March 2025.

•Net Interest Yield: The increase in the net interest yield of 10 basis points, or 14%, was primarily attributable to a decrease in our average cost of borrowings of 11 basis points to 4.19%, partially offset by a decrease in the average yield on interest-earning assets of 1 basis point to 4.74%. The benefit from non-interest bearing funding remained unchanged at 0.29%. The decrease in our average cost of borrowings was driven by lower average cost of short-term borrowings and variable-rate long-term debt due to the federal funds rate cuts since February 28, 2025, as well as fixed-rate long-term debt issued at lower interest rates since February 28, 2025. The decrease in average yields on interest-earning asset was primarily driven by the lower interest rates for variable-rate and line of credit loans due to the federal funds rate cuts since February 28, 2025.

Reported net interest income of $223 million for YTD FY2026 increased $29 million from YTD FY2025, driven by the combined impact of an increase in the net interest yield of 6 basis points, or 8%, to 0.78%, and an increase in average interest-earning assets of $2,055 million, or 6%.

•Average Interest-Earning Assets: The increase in average interest-earning assets of $2,055 million, or 6%, was attributable to a growth in average total loans of $2,239 million, or 6%, partially offset by a decrease of $184 million in our average total investments, which include cash and investment securities. The average loans increase was driven by increases in average long-term fixed-rate loans of $942 million, average line of credit loans of $897 million and average long-term variable-rate loans of $400 million as members continued to advance loans to fund capital expenditures and for working capital purposes. In addition, the increase in line of credit loans between YTD FY2026 and YTD FY2025 was also attributable to borrowings under emergency line of credit loans by our members, primarily for recovery costs related to the Michigan ice storm in March 2025.

•Net Interest Yield: The increase in the net interest yield of 6 basis points, or 8%, was primarily attributable to a decrease in our average cost of borrowings of 5 basis points to 4.24% and an increase in the average yield on interest-earning assets of 1 basis point to 4.73%. The benefit from non-interest bearing funding remained unchanged at 0.29%. The decrease in our average cost of borrowings was driven by the lower average cost of short-term borrowings and variable-rate long-term debt due to the federal funds rate cuts since February 28, 2025. The increase in average yields on long-term fixed-rate loans was the primary driver for the increase in the average yield on interest-earning assets, while the interest rates for variable-rate and line of credit loans decreased due to the federal funds rate cuts since February 28, 2025.

Adjusted Net Interest Income

Adjusted net interest incomeof$92 million for Q3 FY2026 increased $5 million from Q3 FY2025, driven primarily by an increase in average interest-earning assets of $1,831 million, or 5%.

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

•Adjusted Net Interest Yield: The adjusted net interest yield was 0.97% for Q3 FY2026, unchanged from Q3 FY2025, as the decrease in the average yield on interest-earning assets of 1 basis point to 4.74% was offset by a decrease in our adjusted average cost of borrowings of 1 basis point to 4.05%. The benefit from non-interest bearing funding remained unchanged at 0.28%. We discussed above the primary drivers for the increase in the average yield on interest-earning assets. The 1 basis point decrease in the adjusted average cost of borrowings was driven by lower average cost of short-term borrowings and variable-rate long-term debt resulting from the federal funds rate cuts since February 28, 2025, as well as fixed-rate long-term debt issued at lower rates since February 28, 2025. These decreases were largely offset by lower average yield earned on our interest rate swaps derivative cash settlements in Q3 FY2026 compared with Q3 FY2025, as discussed below.

Adjusted net interest income was $273 million for YTD FY2026, a slight increase from YTD FY2025, as the increase in average interest-earning assets of $2,055 million, or 6%, was largely offset by a decrease in the adjusted net interest yield of 6 basis points, or 6%, to 0.96%.

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

•Adjusted Net Interest Yield: The decrease in the adjusted net interest yield of 6 basis points, or 6%, was attributable to an increase in our adjusted average cost of borrowings of 7 basis points to 4.05%, partially offset by an increase in the average yield on interest-earning assets of 1 basis point to 4.73%. The benefit from non-interest bearing funding remained unchanged at 0.28%. We discussed above the primary drivers for the increase in the average yield on interest-earning assets and the decreasein the average cost of borrowings. However, the primary driver of the increase in adjusted average cost of borrowings in YTD FY2026 compared with YTD FY2025 wasthe lower average yield earned on our interest rate swaps derivative cash settlements in YTD FY2026, as discussed below.

Derivative Cash Settlements

We include the net periodic derivative cash settlements interest income (expense) amounts on our interest rate swaps in the calculation of our adjusted average cost of borrowings, which, as a result, also impacts the calculation of adjusted net interest income and adjusted net interest yield. Because our derivative portfolio consists of a higher proportion of pay-fixed swaps than receive-fixed swaps, the net periodic derivative cash settlements interest income (expense) amounts generally change based on changes in the floating interest rates, as the benchmark variable rate for the floating rate payments is based on daily compounded Secured Overnight Financing Rate (“SOFR”). 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 $13 million for Q3 FY2026 compared with $20 million for Q3 FY2025, and net periodic derivative cash settlements interest income of $50 million for YTD FY2026 compared with $79 million for YTD FY2025. The decreases for both the quarterly and year-to-date periods primarily reflected lower net interest rates received on our pay-fixed swaps during the current periods compared to the prior-year periods, due to the federal funds rate cuts since February 28, 2025.

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

Provision (Benefit) for Credit Losses

Our provision (benefit) for credit losses for each period is driven by changes in our measurement of lifetime expected credit losses for our loan portfolio recorded in the allowance for credit losses. Our allowance for credit losses and allowance coverage ratio decreased to $36 million and 0.09%, respectively, as of February 28, 2026, compared with $41 million and 0.11%, respectively, as of May 31, 2025.

We recorded a benefit for credit losses of $7 million and $6 million for Q3 FY2026 and Q3 FY2025, respectively, primarily driven bydecreases in theasset-specific allowance for a nonperforming and nonaccrual CFC power supply loan due to higher actual and expected payments on this loan during both periods.

We recordeda benefit for credit losses of $5 million and $4 million for YTD FY2026 and YTD FY2025, respectively. The $5 million benefit for credit losses for YTD FY2026 wasprimarily driven by a $9 million decrease in theasset-specific allowance resulting from higher-than-expected payments received on a nonperforming and nonaccrual CFC power supply loan, partially offset by a $4 million increase in the collective allowance attributable to growth in our loan portfolio. The $4 million benefit for credit losses for YTD FY2025 was primarily from a decrease of $7 million in the asset specific allowance for a nonperforming and nonaccrual CFC power supply loan attributable to an increase in the expected payments on the loan, partially offset by a $3 million increase in the collective allowance due to loan portfolio growth.

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

Non-Interest Income (Loss)

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

Table 9 presents the components of non-interest income (loss) recorded in our consolidated statements of operations.

Table 9: Non-Interest Income (Loss)

The variances in non-interest income (loss) were primarily attributable to changes in the derivative gains (losses) recognized in our consolidated statements of operations. In addition, we experienced a shift from gains to losses recorded on our debt and equity investment securities of$1 million for Q3 FY2026, compared with Q3 FY2025, and a decrease in gains on these investment securities of$7 million for YTD FY2026, compared with YTD FY2025. The variances for the quarterly and year-to-date periods were driven by period-to-period market fluctuations in fair value, including both realized and unrealized gains (loss), and lower debt security balance due to maturities.

Derivative Gains (Losses)

As of February 28, 2026 and May 31, 2025, our derivatives portfolio included interest rate swap agreements not designated for hedge accounting, composed of pay-fixed swaps and receive-fixed swaps, with benchmark variable rate for the floating rate payments based on daily compounded SOFR. Additionally, treasury locks may be used to manage the interest rate risk assoc iated 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 February 28, 2026 and May 31, 2025.

The total notional amount for our interest rate swaps was $6,257 million and $7,252 million as of February 28, 2026 and May 31, 2025, respectively. The portfolio was primarily composed of longer-dated pay-fixed swaps, which accounted for approximately 86% and 80% of the outstanding notional amount as of February 28, 2026 and May 31, 2025, respectively. Consequently, changes in medium- and longer-term swap rates generally have a more pronounced impact on the net fair value of our swap portfolio. As of February 28, 2026, the average remaining maturity of our pay-fixed and receive-fixed swaps was 17 years and one year, respectively, compared with 16 years and two years, respectively, as of May 31, 2025.

Table 10 presents the components of net derivative gains (losses) recorded in our consolidated statements of operations. Derivative cash settlements interest income (expense) represents the net periodic contractual interest amount for our interest rate swaps during the reporting period. Derivative forward value gains (losses) represent the change in fair value of our interest rate swaps during the applicable reporting period due to changes in expected future interest rates over the remaining life of our derivative contracts.

Table 10: Derivative Gains (Losses)

(1) During YTD FY2026, in connection with the redemption of the 2043 Notes, we terminated $300 million in notional amount of our pay-fixed interest rate swaps hedging the 2043 Notes. The termination resulted in an immaterial amount of settlement gains recorded in derivative gains (losses) in our consolidated statements of operations. See “Note 8—Subordinated Deferrable Debt” for details on the redemption of the 2043 Notes.

We recorded derivative losses of$32 millionfor Q3 FY2026, driven by declines in interest rates across the entire swap curve during Q3 FY2026. In comparison, we recorded derivative gains of$40 million for Q3 FY2025, primarily attributable to increases in the longer-term swap interest rates during Q3 FY2025.

We recorded derivative losses of $83 million for YTD FY2026, driven by declines in interest rates across the entire swap curve. In comparison, we recorded derivative losses of $49 million for YTD FY2025, driven by declines in interest rates across the swap curve, with the exception of the 30-year swap rate, which increased slightly during YTD FY2025.

We present comparative swap curves, which depict the relationship between swap rates at varying maturities, for our reported periods in Table 11 below.

Comparative Swap Curves

Table 11 provides comparative swap curves as of February 28, 2026, November 30, 2025, May 31, 2025, February 28, 2025, November 30, 2024 and May 31, 2024.

Table 11: Comparative Swap Curves

Benchmark rates obtained from Bloomberg.

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

Non-Interest Expense

Non-interest expense consists of salaries and employee benefit expense, general and administrative expenses and other miscellaneous expenses. Table 12 presents the components of non-interest expense recorded in our consolidated statements of operations.

Table 12: Non-Interest Expense

Non-interest expense increased $5 million for Q3 FY2026, or 14%, from Q3 FY2025, primarily attributable to an increase in operating expenses, driven by higher salaries and employee benefits, and an increase in other non-interest expense, attributable to losses on early extinguishment of oursubordinated deferrable debt in Q3 FY2026. See “Note 8—Subordinated Deferrable Debt” in this Report for more information.

Non-interest expense increased $11 million for YTD FY2026, or 11%, from YTD FY2025, reflecting increases in operating expenses and other non-interest expense. The increase in operating expenses was primarily driven by higher expenses for salaries and employee benefits, member relations, information technology, and depreciation and amortization, partially offset by lower consulting expense. The increase in other non-interest expense was attributable to losses on early extinguishment of oursubordinated deferrable debt, as discussed above.

Net Income (Loss) Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests was less than $1 million for each of Q3 FY2026, Q3 FY2025, YTD FY2026, and YTD FY2025. The net income attributable to noncontrolling interests represented 100% of the results of operations of NCSC, as the members of NCSC own or control 100% of the interest in its company. The fluctuations in net income (loss) attributable to noncontrolling interests are primarily due to changes in the fair value of NCSC’s derivative instruments recognized in NCSC’s earnings.