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, 2025 (“2025 Form 10-K”) for a comparative discussion of our consolidated results of operations between FY2025 and FY2024.

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 FY2026 and FY2025.

Table 2: Reconciliation of Net Income

FY2026 versus FY2025—Key Highlights

•A shift to gains from losses was recorded on our derivatives portfolio of $88 million, as 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.

•Net interest income increased by $41 million, attributable to 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%.

•We recorded a benefit for credit losses of $10 million and $8 million for FY2026 and FY2025, respectively, primarily driven by decreases in the asset-specific allowance for a nonaccrual CFC power supply loan due to higher-than-expected payments on this loan during both periods.

•Operating and other expenses increased by $9 million for FY2026 compared with FY2025, prima rily driven by higher expenses recorded for salaries and employee benefits, general and administrative, and losses on early extinguishment of debt, partially offset by lower impairment loss, as FY2025 included an $8 million impairment loss 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, including both realized and unrealized gains (losses), and lower balances of debt securities resulting from maturities.

•The increase in TIER for FY2026 compared with FY2025 was primarily driven by higher net income, reflecting changes in the forward value of our derivative portfolio and increased net interest income.

Debt-to-Equity Ratio

The debt-to-equity ratio was 10.85 and 11.20 as of May 31, 2026 and 2025, respectively. The decrease in the debt-to-equity ratio during FY2026 was due to an increase in total equity, partially offset by an increase in debt to fund loan growth. The increase in total equity was primarily due to our reported net income of $263 million for FY2026, partially offset by the CFC Board of Directors’ authorized patronage capital retirement of $53 million in July 2025.

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 2025 Form 10-K for a comparative discussion of our consolidated results of operations between FY2025 and FY2024.

Table 3: Adjusted Net Income and Adjusted TIER

Table 4 below presents a reconciliation of adjusted net income between FY2026 and FY2025.

Table 4: Reconciliation of Adjusted Net Income

FY2026 versus FY2025—Key Highlights

•Adjusted net interest income increased by $6 million for FY2026 compared with 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%.

•We discuss the variances in the other components above under the section “Reported Results—Net Income and TIER—FY2026 versus FY2025—Key Highlights.”

•The slight decrease in adjusted TIER for FY2026 compared with FY2025 was primarily driven by the slight decrease in adjusted net income during FY2026 driven by higher operating expense.

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 7.46 and 7.39 as of May 31, 2026 and 2025, respectively. The increase in the adjusted debt-to-equity ratio during FY2026 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 driven by our adjusted net income of $245 million for FY2026, partially offset by net decreases in members’ subordinated certificates and subordinated deferrable debt, as well as a $53 million reduction in equity resulting from the CFC Board of Directors’ authorized patronage capital retirements in July 2025.

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 $38,422 million as of May 31, 2026, an increase of $1,342 million, or 4%, from May 31, 2025, driven primarily by growth in long-term loans, which increased $1,310 million during FY2026. Our loan portfolio composition remained largely unchanged from May 31, 2025 with 78% of loans outstanding to CFC distribution borrowers, 17% to CFC power supply borrowers, 3% to NCSC electric borrowers and 2% to NCSC telecom borrowers as of May 31, 2026.

The overall credit quality of our loan portfolio remained strong as of May 31, 2026. We recorded an immaterial charge-off of $0.3 million related to a CFC electric power supply loan during FY2026. We had no loan charge-offs during FY2025.

We had one loan that was on nonaccrual status totaling $8 million as of May 31, 2026, which decreased from $26 million as of May 31, 2025, primarily due to loan repayments. Subsequent to FY2026, we received a $3 million payment on this loan, which reduced its outstanding balance to $5 million.

Our allowance for credit losses and allowance coverage ratio decreased to $30 million and 0.08%, respectively, as of May 31, 2026, from $41 million and 0.11%, respectively, as of May 31, 2025, primarily due to a reduction in the asset-specific allowance. We 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.

Financing and Liquidity

Total debt outstanding increased by $1,175 million, or 3%, to $35,944 million as of May 31, 2026, compared with May 31, 2025, primarily due to borrowings to fund the increase in loans to our members. During FY2026, substantially all of our new long-term debt issuances were unsecured as we continued to access diverse funding sources and strengthen our liquidity position, including:

•Issued approximately $4,425 million of long-termu nsecured dealer medium-term notes to institutional investors, $600 million of long-term unsecured subordinated notes in a private placement transaction, and $250 million of secured long-term notes under the Farmer Mac revolving note purchase agreement. Additionally, subsequent to FY2026, we issued $300 million of dealer medium-term notes;

•Redeemed $650 million of high-cost subordinated deferrable debt and recognized $6 million of losses on early extinguishment of debt related to unamortized debt issuance costs in our consolidated statements of operations for FY2026; and

•Expanded committed liquidity by increasing our bank revolving line of credit agreements by $200 million to$3,500 million while also extending maturities by one year and adding a new$450 million committed loan facility with the U.S. Treasury Department’s Federal Financing Bank (“FFB”) under the USDA Guaranteed Underwriter Program (“Guaranteed Underwriter Program”), bringing available capacity under the Guaranteed Underwriter Program to $1,800 million.

During FY2026, Moody’s, Fitch and S&P each affirmed CFC’s credit ratings and stable outlook.

As of May 31, 2026, available liquidity totaled $8,161 million. While this was $1,601 million less than our $9,762 million of scheduled debt obligations over the next 12 months, 29% of those obligations, or $2,821 million, represented member short-term investments, which historically remained stable and are expected to be reinvested with CFC. Excluding member short-term investments, available liquidity exceeded by $1,220 million, or 1.2 times, our scheduled 12-month debt obligations. We also expect to receive $2,184 million of scheduled long-term loan principal payments over the next 12 months. We provide additional information on our available liquidity and financing activities under “Liquidity Risk” in this Report.

Industry Trends Affecting Outlook

Emerging developments and trends in the electric cooperative sector continue to present both opportunities and challenges for our electric cooperative members and influence the demand for capital and credit products we provide. Key trends include the changing federal regulatory and financing landscape, increased electricity demand and large-load development, significant generation and transmission capital investment, supply chain and equipment constraints, and continued focus on grid reliability and resiliency.

These trends may affect the timing, size and type of financing our members require. Federal financing programs, including traditional RUS electric loan programs and the New ERA and PACE programs, remain important sources of capital for electric cooperatives; however, timing gaps between award, approval and disbursement are expected to continue to generate demand for interim and bridge financing from CFC. In addition, continued investment in generation, transmission, system hardening and grid modernization may increase demand for capital from CFC. Management does not believe data center-related development has, to date, materially contributed to recent loan growth, although successful large-load project development could drive significant future infrastructure investment and corresponding demand for capital from CFC. For a more detailed discussion of these industry trends, see“Item 1. Business—Industry—Electric Cooperative Industry Trends and Developments.”

Outlook

Macroeconomic Outlook

Geopolitical tensions, including the ongoing conflict with Iran, have contributed to uncertainty in the broader macroeconomic environment, including volatility in energy markets and continued concerns regarding inflation and interest rates. Although CFC has not identified a material direct impact of these developments on its financial condition, results of operations or liquidity as of the date of this report, a prolonged period of geopolitical instability could contribute to higher borrowing costs, increased operating and capital costs for CFC’s members, and broader market volatility. CFC continues to monitor these developments and the potential effects on the interest rate environment, capital markets and member operating conditions.

Following its meeting held in June 2026, the Federal Open Market Committee of the Federal Reserve held the federal funds rate range unchanged at 3.50% to 3.75% and reaffirmed its commitment to maintaining an ample-reserves operating regime. The Committee characterized economic activity as expanding at a solid pace, although uncertainty remained elevated. Job gains have kept pace with labor force growth, and the unemployment rate has changed little. Inflation remained elevated, reflecting, in part, supply shocks in certain sectors, including energy. The Committee also cited developments in the Middle East as contributing to elevated uncertainty regarding the economic outlook.

The Federal Reserve’s June 2026 median projection for real gross domestic product (“GDP”) growth in 2026 is 2.2%, down from 2.4% in its March 2026 projection. The median projection for Personal Consumption Expenditures inflation in 2026 increased to 3.6% from 2.7% in its March 2026 projection. The U.S. unemployment rate in 2026 is projected to average 4.3%, down slightly from 4.4% in its March 2026 projection. The median projection for the federal funds rate at the end of 2026 is 3.8%.

In June 2026, fed funds futures no longer implied an easing path and instead market pricing implied a roughly flat to modestly higher rate trajectory. Therefore, futures contracts implied the likelihood of a 25-basis-point increase in the federal funds rate over the following 12 months. Overall, implied market forecasts point to an increase in short-term interest rates, while consensus forecasts indicate a slight decline in long-term interest rates through the first half of calendar year 2027.

Projected Reported Results

Based on our current forecast assumptions, including the interest rates 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, 2026. 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 and a slight decline in the adjusted net interest yield over the next 12 months relative to the 12-month period ended May 31, 2026. The projected increase in adjusted net interest income is primarily driven by an increase in interest-earning assets due to projected loan growth. The projected slight decline in adjusted net interest yield is primarily due to the higher projected adjusted average cost of funding, attributable to changes in funding mix and the refinancing of maturing lower-cost long-term debt at forecasted higher interest rates, as well as lower expected interest rate swaps derivative cash settlement interest income. 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 driven by higher projected operating expenses.

•A decrease in adjusted TIER over the next 12 months, primarily attributable to projected higher operating expenses.

•Adjusted debt-to-equity to remain near current levels, as the projected increase in total debt outstanding to fund anticipated growth in our loan portfolio is offset by the projected increase in adjusted equity attributable to the forecasted adjusted net income over the next 12 months.

As stated above, we exclude the impact of unrealized derivative forward fair value gains (losses) from our non-GAAP financial measures. As the majority of our swaps are long-term with an average remaining life of approximately 15 years as of May 31, 2026, 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 growthof $1,253 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.