NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

This section provides a comparative discussion of our consolidated results of operations between FY2026 and FY2025. Following this section, we provide a discussion and analysis of material changes between amounts reported on our consolidated balance sheet as of May 31, 2026 and 2025. You should read these sections together with our “Executive Summary—Outlook” where we discuss trends and other factors that we expect will affect our future results of operations. See “Item 7. MD&A—Consolidated Results of Operations” in our 2025 Form 10-K for a comparative discussion of our consolidated results of operations between FY2025 and FY2024.

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 5 presents average balances for FY2026, FY2025 and FY2024, 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 5 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.”

Table 5: 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 5 consist of commercial paper, select notes and daily liquidity fund notes. Short-term borrowings presented on our consolidated balance sheets related to medium-term notes, Farmer Mac notes payable and other notes payable are reported in the respective category for presentation purposes in Table 5. The period-end amounts reported as short-term borrowings on our consolidated balance sheets, which are excluded from the calculation of average short-term borrowings presented in Table 5, totaled $324 million, $451 million and $1,021 million as of May 31, 2026, 2025 and 2024, 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 includes the average balance of lease liabilities and the interest expense for our finance leases.

(7)Subordinated deferrable debt represents unsecured obligation issued to investors in the capital markets, including those issued through both public offerings and private placement transactions.

(8)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.

(9)Includes other liabilities and equity.

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

(11)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 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 $6,761 million, $7,274 million and $7,597 million for FY2026, FY2025 and FY2024, respectively.

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

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

Table 6 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 6: 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 $302 million for FY2026 increased by $41 million, or 16%, from FY2025, driven by a combined impact of an increase in average interest-earning assets of $1,960 million, or 5%, and an increase in the net interest yield of 7 basis points, or 10%, to 0.79%.

•Average Interest-Earning Assets: The increase in average interest-earning assets of $1,960 million, or 5%, during FY2026 was primarily attributable to growth in average total loans of $2,111 million, or 6%, partially offset by a decrease of $150 million in our average total investments, which include cash and investment securities. The increase in average loans was driven by increases in average long‑term fixed‑rate loans, line of credit loans, and long-term variable-rate loans of $998 million, $743 million, and $370 million, respectively, as members continued to advance loans to fund capital expenditures and for working capital purposes. In addition, the increase in average line of credit loans was also attributable to higher average borrowings under emergency line of credit loans by our members in FY2026 compared with FY2025.

•Net Interest Yield: The increase in the net interest yield of 7 basis points, or 10%, was primarily attributable to a decrease in our average cost of borrowings of 6 basis points to 4.22% andan increase in the benefit from non-interest-bearing funding of 1 basis point to 0.30%. 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 during FY2026. The average yield on our interest-earning assets remained unchanged at 4.71%, as higher average yields on long‑term fixed‑rate loans were offset by lower interest rates on variable‑rate and line‑of‑credit loans, reflecting federal funds rate cuts during FY2026.

Adjusted Net Interest Income

Adjusted net interest income of $366 million for FY2026 increased by$6 million, or 2%, from FY2025, driven by an increase in average interest-earning assets of $1,960 million, or 5%, partially offset by a decrease in the adjusted net interest yield of 4 basis points, or 4%, to 0.96%.

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

•Adjusted Net Interest Yield: The decrease in the adjusted net interest yield of 4 basis points, or 4%, was attributable to an increase in our adjusted average cost of borrowings of 5 basis points to 4.04%, partially offset by an increase in the benefit from non-interest-bearing funding of 1 basis point to 0.29%. The average yield on our interest-earning assets remained unchanged at 4.71%, as discussed above. Also, we discussed above the primary drivers for the decrease in the average cost of borrowings. However, the primary driver of the increase in adjusted average cost of borrowings in FY2026 compared with FY2025 was the lower average yield earned on our interest rate swaps derivative cash settlements in 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 the 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 $64 million, $99 million and $127 million for FY2026, FY2025 and FY2024, respectively. The decrease inderivative cash settlements interest income between FY2026 and FY2025 was due to the lower net interest rates received on our pay-fixed swapsin FY2026, compared with FY2025, due to the federal funds rate cuts during FY2026. See “Note 10—Derivative Instruments and Hedging Activities” in this Report for additional information on our treasury locks activity.

See “Non-GAAP Financial Measures and Reconciliations” 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 $30 million and 0.08%, respectively, as of May 31, 2026, compared with $41 million and 0.11%, respectively, as of May 31, 2025.

We recorded a benefit for credit lossesof$10 million for FY2026, driven by a $9 million reduction in the asset-specific allowance resulting from higher-than-expected payments received on a nonaccrual CFC power supply loan, and an approximately$2 million decrease in collective allowance, primarily reflecting improved borrower credit quality and refinements to our borrower risk rating methodology in FY2026. In comparison, we recorded a benefit for credit losses of $8 million for FY2025, resulting from a reduction in the asset specific allowance for a nonaccrual CFC power supply loan attributable to higher-than-expected payments received on the loan. Our collective allowance decreased slightly during FY2025, primarily due to an improved recovery rate on our power supply loan portfolio, partially offset by an increase attributable to loan portfolio growth.

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

Non-Interest Income (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 7 presents the components of non-interest income (loss) recorded in our consolidated statements of operations.

Table 7: Non-Interest Income (Loss)

The variance in non-interest income (loss) between fiscal years was primarily attributable to changes in the derivative gains (losses) recognized in our consolidated statements of operations. In addition, we experienced a decrease in gains recorded on our debt and equity investment securities of $5 million for FY2026 compared with FY2025, driven by period-to-period market fluctuations in fair value, including both realized and unrealized gains (losses), and lower balances of debt securities resulting from maturities.

Derivative Gains (Losses)

As of May 31, 2026 and 2025, our derivatives portfolio included interest rate swap agreements not designated for hedge accounting, composed of pay-fixed swaps and receive-fixed swaps, with the benchmark variable rate for the floating-rate payments based on daily compounded SOFR as of May 31, 2026. Additionally, treasury locks may be used to manage the interest rate risk associated with future debt issuance or repricing and are typically designated as cash flow hedges. We did not have any derivatives designated as accounting hedges as of May 31, 2026 and 2025. See “Note 10—Derivative

Instruments and Hedging Activities” in this Report for detailed information on our cash flow hedge activities during FY2026, FY2025 and FY2024.

The total notional amount for our interest rate swaps was $6,566 million and $7,252 million as of May 31, 2026 and 2025, respectively. The portfolio was primarily composed of longer-dated pay-fixed swaps, which accounted for approximately 82% and 80% of the outstanding notional amount as of May 31, 2026 and 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 May 31, 2026, the average remaining maturity of our pay-fixed and receive-fixed swaps was 17 years and four years, respectively, compared with 16 years and two years, respectively, as of May 31, 2025.

Table 8 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 8: Derivative Gains (Losses)

(1)During FY2026, in connection with the redemption of our subordinated deferrable debt due 2043 (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 gains of $82 million for FY2026, primarily attributable to increases in the medium- and longer-term swap interest rates during FY2026. In comparison, we recorded derivative losses of $6 million for FY2025, attributable to decreases in interest rates across the swap curve, with the exception of the 30-year swap rate, which increased slightly during FY2025.

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

Comparative Swap Curves

Table 9 provides comparative swap curves as of May 31, 2026, 2025, 2024 and 2023.

Table 9: Comparative Swap Curves

Benchmark rates obtained from Bloomberg.

See “Note 1—Summary of Significant Accounting Policies—Derivative Instruments” and “Note 10—Derivative Instruments and Hedging Activities” in this Report for additional information on our derivative instruments. Also refer to “Note 14—Fair Value Measurement” for information on how we measure the fair value of our derivative instruments.

Non-Interest Expense

Non-interest expense consists of salaries and employee benefit expense, general and administrative expenses and other miscellaneous expenses.

Table 10 presents the components of non-interest expense recorded in our consolidated statements of operations.

Table 10: Non-Interest Expense

Non-interest expense of $161 million for FY2026 increased by $9 million, or 6%, from FY2025, primarily due to higher operating expenses, partially offset by lower 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. We recorded $7 million of other non-interest expense in FY2026, including $6 million of losses on early extinguishment of our subordinated deferrable debt. In comparison, we recorded $9 million of other non-interest expense in FY2025, including an $8 million impairment loss on our equity investment in Riesel HoldCo, LLC obtained in the fiscal year ended May 31, 2023 as part of the Brazos Sandy Creek Electric Cooperative Inc. bankruptcy filing. See “Note 4—Loans” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 for a detailed discussion of this equity investment.

Net Income (Loss) Attributable to Noncontrolling Interests

We recorded a net income attributable to noncontrolling interests of $1 million and less than $1 million for FY2026 and FY2025, respectively, which represented 100% of the results of operations of NCSC, as the members of NCSC owned or controlled 100% of the interest in the company during FY2026 and FY2025. We recorded a net income attributable to noncontrolling interests of $1 million for FY2024, which represented 100% of the results of operations of NCSC and Rural Telephone Finance Cooperative (“RTFC”), as the members of NCSC and RTFC owned or controlled 100% of the interest in their respective companies during FY2024. RTFC was consolidated into our financial statements prior to the sale of its business to NCSC in December 2023 and was subsequently dissolved. The fluctuations in net income (loss) attributable to noncontrolling interests are primarily due to changes in the fair value of NCSC’s derivative instruments recognized in NCSC’s earnings.