NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

National Rural Utilities Cooperative Finance Corporation (“CFC”) is a tax-exempt member-owned cooperative association incorporated under the laws of the District of Columbia in April 1969. CFC’s principal purpose is to provide its members with financing to supplement the loan programs of the Rural Utilities Service (“RUS”) of the United States Department of Agriculture (“USDA”). CFC makes loans to its rural electric members so they can acquire, construct and operate electric distribution systems, electric generation and transmission (“power supply”) systems and related facilities. CFC also provides its members and associates with credit enhancements in the form of letters of credit and guarantees of debt obligations. As a cooperative, CFC is owned by and exclusively serves its membership, which consists of not-for-profit entities or subsidiaries or affiliates of not-for-profit entities.

National Cooperative Services Corporation (“NCSC”), doing business as Utility Capital Solutions, is a taxable cooperative incorporated in 1981 in the District of Columbia as a member-owned cooperative association. NCSC’s principal purpose is to provide financing to its members and associates, which consists oftwo classes: NCSC electric and NCSC telecommunications. NCSC electric members and associates consist of membersof CFC, entities eligible to be members of CFC, government or quasi-government entities that own electric utility systems that meet the Rural Electrification Act definition of “rural,” and the for-profit and not-for-profit entities that are owned, operated or controlled by, or provide significant benefit to, certain members of CFC. NCSC telecommunication (“telecom”) members and associates consist of rural telecommunications members and their affiliates. CFC is the primary source of funding for NCSC and manages NCSC’s business operations under a management agreement that is automatically renewable on an annual basis unless terminated by either party. NCSC pays CFC a fee and, in exchange, CFC reimburses NCSC for loan losses under a guarantee agreement. As a taxable cooperative, NCSC pays income tax based on its reported taxable income and deductions. NCSC is headquartered with CFC in Dulles, Virginia.

Cooperative Securities LLC (“Cooperative Securities”) is a limited liability company organized and incorporated in 2021 in Delaware and a wholly owned subsidiary of NCSC. Cooperative Securities is a broker-dealer registered with the United States Securities and Exchange Commission (“SEC”), and is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Cooperative Securities provides institutional debt placement services, which may include advising, arranging and structuring private debt financing transactions, for NCSC’s members, and for-profit and not-for-profit entities that are owned, operated or controlled by, or provide a significant benefit to, certain rural utility providers.

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and related disclosures during the period. Management’s most significant estimates and assumptions involve determining the allowance for credit losses. These estimates are based on information available as of the date of the consolidated financial statements. While management makes its best judgments, actual amounts or results could differ from these estimates. Certain reclassifications have been made to the presentation of information in prior periods to conform to the current-period presentation. These reclassifications had no effect on prior years’ net income (loss) or equity. Our fiscal year begins on June 1 and ends on May 31. References to “FY2026,” “FY2025” and “FY2024” refer to the fiscal years ended May 31, 2026, 2025 and 2024, respectively.

Principles of Consolidation

These consolidated financial statements include the accounts of CFC and variable interest entities (“VIEs”) where CFC is the primary beneficiary, which are discussed below. All inte rcompany balances and transactions have been eliminated. Unless stated otherwise, references to “we,” “our” or “us” relate to CFC and its consolidated entities.

Variable Interest Entities

A VIE is an entity that has a total equity investment at risk that is not sufficient to finance its activities without additional subordinated financial support provided by another party, or where the group of equity holders does not have (i) the ability to make decisions about the entity’s activities that most significantly impact its economic performance; (ii) the obligation to absorb the entity’s expected losses; or (iii) the right to receive the entity’s expected residual returns. When evaluating an entity for possible consolidation, we must determine whether or not we have a variable interest in the entity. If it is determined that we do not have a variable interest in the entity, no further analysis is required and we do not consolidate the entity. If we have a variable interest in the entity, we must evaluate whether we are the primary beneficiary based on an assessment of quantitative and qualitative factors. We are considered the primary beneficiary holder if we have a controlling financial interest in the VIE that provides (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

NCSC meets the definition of a VIE because it does not have sufficient equity investment at risk to finance its activities without additional financial support. We consolidate the results of NCSC with CFC because CFC is the primary beneficiary.

Cash and Cash Equivalents

Cash, certificates of deposit due from banks and other investments with original maturities of less than 90 days are classified as cash and cash equivalents.

Restricted Cash

Restricted cash, which consists primarily of member funds held in escrow for certain specifically designed cooperative programs, totaled $9 million and $8 million as of May 31, 2026 and 2025, respectively.

Investment Securities

Our investment securities portfolio consists of equity and debt securities. We record purchases and sales of securities on a trade-date basis. The accounting and measurement framework for investment securities differs depending on the security type and the classification. Equity securities are reported at fair value on our consolidated balance sheets with unrealized gains and losses recorded as a component of other non-interest income. All of our debt securities were classified as trading as of May 31, 2026 and 2025. Accordingly, we also report our debt securities at fair value on our consolidated balance sheets and record unrealized gains and losses as a component of non-interest income. Interest income is generally recognized over the contractual life of the securities based on the effective yield method.

Loans to Members

We originate loans to members and classify loans as held for investment or held for sale based on management’s intent and ability to sell or hold the loan for the foreseeable future or until maturity or payoff. Loans that we have the ability and intent to hold for the foreseeable future are classified as held for investment and are reported based on the unpaid principal balance, net of principal charge-offs, and deferred loan origination costs. Loans that we intend to sell or for which we do not have the ability and intent to hold for the foreseeable future are classified as held for sale and are recorded atthe lower of cost or fair value. These loan sales aremade at par value, concurrently or within a short period of time with the closing of the loan or participation agreement.

Accrued Interest Receivable

Accrued interest receivable amounts generally represent three months or less of accrued interest on loans outstanding, investments and derivative instruments. As permitted by the Accounting Standards Codification (“ASC”)Topic 326, Financial Instruments—Credit Losses, the current expected credit loss (“CECL”) model, we elected to continue reporting accrued interest on loans separately on our consolidated balance sheets as a component of the line item accrued interest receivable rather than as a component of loans to members. Because our policy is to write off past-due accrued interest receivable in a timely manner, we elected not to measure an allowance for credit losses for accrued interest receivable on loans outstanding, which totaled $240 million and $237 million as of May 31, 2026 and 2025, respectively. We also elected to exclude accrued interest receivable from thecredit quality disclosures required under CECL.

Interest Income

Interest income is accrued and recognized based on the contractual rate of interest. Deferred loan origination costs are amortized using the straight-line method, which approximates the effective interest method into interest income over the life of the loan. Nonrefundable loan fees that meet the definition of loan origination fees are deferred and generally recognized in interest income as yield adjustments over the period to maturity of the loan using the effective interest method.

Placement Agent Fees

Cooperative Securities is compensated through a placement agent fee for private placement of securities, which is recognized as an income at a point in time when the performance obligation is satisfied, typically the closing of the sale of securities of the nonpublic companies. We recognized animmaterial amount of private placement fee income during FY2026, FY2025 and FY2024, which was included in fee and other income in our consolidated statements of operations.

As part of our loss-mitigation efforts, we may provide modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and to avoid the need for exercising remedies. Loan modifications to a borrower experiencing financial difficulty include principal forgiveness, an interest rate reduction, payment deferrals or a term extension. As modifications offered to borrowers experiencing financial difficulty are typically not at market terms, such modifications are generally accounted for as a continuation of the existing loan.

As discussed below under “Allowance for Credit Losses—Loan Portfolio—Asset-Specific Allowance,” loans modified to borrowers experiencing financial difficulty are evaluated on an individual basis in estimating expected credit losses.

If a loan is current at the time of modification, it may remain on accrual status and its performance is monitored for 12 months following the modification. If the borrower fails to perform under the modified terms and applicable nonaccrual criteria are met, the loan is placed on nonaccrual status, although in many cases such loans were already on nonaccrual status prior to modification. The accrual of interest on these loans may be resumed, if the borrower performs under the modified terms and we expect the borrower to continue to perform in accordance with the modified terms.

We place a loan on nonaccrual status when: (i) interest or principal payments on the loan are 90 days or more past due, unless management concludes, based on the borrower's financial condition and other relevant facts, that all contractual principal and interest remain fully collectible; (ii) management determines that collection of interest or principal in accordance with the contractual terms is not reasonably assured; (iii) the borrower has filed for bankruptcy or legal action has been initiated; or (iv) the loan is in foreclosure or other legal proceedings.

A loan is not placed on nonaccrual status solely because it has passed its contractual maturity date where the loan is in the process of renewal or extension, the delay is administrative or attributable to factors other than borrower credit deterioration, and management concludes that collection of all contractual principal and interest is not in doubt.

Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed against earnings. Interest income on nonaccrual loans is subsequently recognized only upon the receipt of cash payments. However, if we believe the ultimate collectability of the loan principal is in doubt, cash received is applied against the principal balance of the loan.

Nonaccrual loans are generally returned to accrual status when the principal and interest have become current; and when repayment of the remaining contractual principal and interest is reasonably assured.

Charge-Offs

We charge off loans or a portion of a loan when we determine that the loan is uncollectible. The charge-off of uncollectible principal amounts results in a reduction to the allowance for credit losses for our loan portfolio. Recoveries of previously charged off principal amounts result in an increase to the allowance.

Allowance for Credit Losses—Loan Portfolio

Allowance Methodology

The allowance for credit losses is determined based on management’s current estimate of expected credit losses over the remaining contractual term, adjusted as appropriate for estimated prepayments, of loans in our loan portfolio as of each balance sheet date. The allowance for credit losses for our loan portfolio is reported on our consolidated balance sheet as a valuation account that is deducted from loans to members to present the net amount we expect to collect over the life of our loans. We immediately recognize an allowance for expected credit losses upon origination of a loan. Adjustments to the allowance each period for changes in our estimate of lifetime expected credit losses are recognized in earnings through the provision for credit losses presented in our consolidated statements of operations.

We estimate our allowance for lifetime expected credit losses for our loan portfolio using a probability of default/loss given default methodology. Our allowance for credit losses consists of a collective allowance and an asset-specific allowance. The collective allowance is established for loans in our portfolio that share similar risk characteristics and are therefore evaluated on a collective, or pool, basis in measuring expected credit losses. The asset-specific allowance is established for loans in our portfolio that do not share similar risk characteristics with other loans in our portfolio and are therefore evaluated on an individual basis in measuring expected credit losses. Expected credit losses are estimated based on historical experience, current conditions and forecasts, if applicable, that affect the collectability of the reported amount.

Since inception in 1969, CFC has experienced limited defaults and losses as the utility sector generally tends to be less sensitive to changes in the economy than other sectors largely due to the essential nature of the service provided. The losses we have incurred were not tied to economic factors, but rather to distinct operating issues related to each borrower. Given that our borrowers’ creditworthiness, and accordingly our loss experience, has not correlated to specific underlying macroeconomic variables, such as U.S. unemployment rates or gross domestic product (“GDP”) growth, we have not made adjustments to our historical loss rates for any economic forecast. We consider the need, however, to adjust our historical loss information for differences in the specific characteristics of our existing loan portfolio based on an evaluation of relative qualitative factors, such as differences in the composition of our loan portfolio, our underwriting standards, problem loan trends, the quality of our credit review function, as well as changes in the regulatory environment and other pertinent external factors that may impact the amount of future credit losses.

Collective Allowance

We employ a quantitative methodology and a qualitative framework to measure the collective component of our allowance for expected credit losses. The first element in our quantitative methodology involves the segmentation of our loan portfolio into loan pools that share similar risk characteristics. We disaggregate our loan portfolio into segments that reflect the member borrower type, which is based on the utility sector of the borrower because the key operational, infrastructure, regulatory, environmental, customer and financial risks of each sector are similar in nature. Our primary member borrower types consist of CFC electric distribution, CFC electric power supply, CFC statewide and associate, NCSC electric and NCSC telecom. Our portfolio segments align with the sectors generally seen in the utilities industry. We further stratify each portfolio into loan pools based on our internal borrower risk ratings, as our borrower risk ratings provide important information on the collecta bility of each of our loan portfolio segments. We then apply loss factors, consisting of the probability of default and loss given default, to the scheduled loan-level amortization amounts over the life of the loans for each of our loan pools. Below we discuss the source and basis for the key inputs, which include borrower risk ratings and the loss factors, in measuring expected credit losses for our loan portfolio.

•Borrower Risk Ratings: We evaluate each borrower and loan facility in our loan portfolio and assign internal borrowerand loan facility risk ratings based on consideration of a number of quantitative and qualitative factors. During FY2026, we enhanced our borrower risk rating methodology to increase the weighting of quantitative factors and to refine the qualitative factors framework, resulting in improved consistency and comparability of borrower credit risk assessments across portfolios, while maintaining alignment with evolving industry practices and internal credit risk assessment objectives. Each risk rating is reassessed annually following receipt of the borrower’s audited financial statements; however, interim risk-rating adjustments may occur as a result of updated information affecting a borrower’s ability to fulfill its obligations or other significant developments and trends. Our internally assigned borrower risk ratings are intended to assess the general creditworthiness of the borrower and probability of default. We use our internal borrower risk ratings, which we map to the equivalent credit ratings by external rating agencies, to differentiate risk within each of our portfolio segments and loan pools. We provide additional information on our borrower risk ratings below in “Note 4—Loans.”

•Probability of Default: The probability of default, or default rate, represents the likelihood that a borrower will default over a particular time horizon. Because of our limited default history, we utilize third-party default data for the utility sector as a proxy to estimate default rates for each of our loan pools. The third-party default data provide historical default rates, based on credit ratings and remaining maturities of outstanding bonds, for the utility sector. Based on the mapping and alignment of our internal borrower risk ratings to equivalent credit ratings provided in the third-party utility default table, we apply the corresponding cumulative default rates to the scheduled amortization amounts over the remaining term of the loans in each of our loan pools.

•Loss Given Default: The loss given default, or loss severity, represents the estimated loss, net of recoveries, on a loan that would be realized in the event of a borrower default. While we utilize third-party default data, we utilize our lifetime historical loss experience to estimate loss given default, or the recovery rate, for each of our loan portfolio segments. We believe our internal historical loss severity rates provide a more reliable estimate than third-party loss severity data due to the organizational structure and operating environment of rural utility cooperatives, our lending practice of generally requiring a senior security position on the assets and revenue of borrowers for long-term loans, the investment our member-borrowers have in CFC and the collaborative approach we generally take in working with members in the event that a default occurs.

In addition to the quantitative methodology used in our collective measurement of expected credit losses, management performs a qualitative evaluation and analyses of relevant factors, such as changes in risk-management practices, current and past underwriting standards, specific industry issues and trends and other subjective factors. Based on our assessment, we did not make a qualitative adjustment to the collective allowance for credit losses measured under our quantitative methodology as of May 31, 2026 and 2025.

Asset-Specific Allowance

We generally consider nonaccrual loans as well as loans that have been modified to borrowers experiencing financial difficulty for individual evaluation given the risk characteristics of such loans. Factors we consider in measuring the extent of expected credit loss include the payment status, the collateral value, the borrower’s financial condition, guarantor support, the probability of collecting scheduled principal and interest payments when due. We generally measure the expected credit loss as the difference between the amortized cost basis in the loan and the present value of the expected future cash flows from the borrower, which is generally discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent.

Unadvanced Loan Commitments

Unadvanced commitments represent amounts for which we have approved and executed loan contracts, but the funds have not been advanced. The majority of the unadvanced commitments reported represent amounts that are subject to material adverse change clauses at the time of the loan advance. Prior to making an advance on these facilities, we would confirm there has been no material adverse change in the business or condition, financial or otherwise, of the borrower since the time the loan was approved and confirm the borrower is currently in compliance with loan terms and conditions. The remaining unadvanced commitments relate to line of credit loans that are not subject to a material adverse change clause at the time of each loan advance. As such, we would be required to advance amounts on these committed facilities as long as the borrower is in compliance with the terms and conditions of the loan commitment.

Unadvanced loan commitments related to line of credit loans are typically for periods not to exceed five years and are generally revolving facilities used for working capital and backup liquidity purposes. Historically, we have experienced a very low utilization rate on line of credit loan facilities, whether or not there is a material adverse change clause. Since we generally do not charge a fee on the unadvanced portion of the majority of our loan facilities, our borrowers will typically request long-term facilities to fund construction work plans and other capital expenditures for periods of up tofive years and draw down on the facility over that time. These factors contribute to our expectation that the majority of the unadvanced line of credit loan commitments will expire without being fully drawn upon and that the total unadvanced amount does not represent future cash funding requirements.

Reserve for Credit Losses—Off-Balance Sheet Credit Exposures

We also maintain a reserve for credit losses for our off-balance sheet credit exposures related to unadvanced loan commitments and financial guarantees. Because our business processes and credit risks associated with our off-balance sheet credit exposures are essentially the same as for our loans, we measure expected credit losses for our off-balance sheet exposures, after adjusting for the probability of funding these exposures, consistent with the methodology used for our funded outstanding exposures. We include the reserve for expected credit losses for our off-balance sheet credit exposures as a component of other liabilities on our consolidated balance sheets.

Leases

Our lease program is intended to provide equipment financing for leased assets, such as vehicles, to our members. We determine whether an arrangement is a lease and the lease classification under ASC Topic 842, Leasesat lease inception for all lease transactions with an initial term greater than one year. NCSC began entering into lease agreements (“head lease agreements”) with a third party to lease vehicles in FY2023. At the inception date of the head lease agreements, NCSC also entered into sublease agreements (“sublease agreements”) to sublease these vehicles to its members. Both the head lease and sublease agreements provide our members the option to terminate the lease by buying the vehicle for a terminal rental adjustment clause value at the end of the lease term. In addition, these agreements include a residual value deficiency provision in the event the member does not purchase the vehicle at the end of the lease. The head lease and sublease have the same lease term ranging from three to 10 years. We classified the head leases as finance leases and subleases as sales-type leases.

Lessee Arrangements

For the finance leases in which we are the lessee, right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The lease term is estimated based on the economic life of the vehicles. We use the rate implicit in the lease to determine the present value of the lease payments when the rate is readily determinable or we use our incremental borrowing rate. The lease liabilities are included in theother liabilities line item on the consolidated balance sheets. Interest expense for finance lease liabilities is included in the interest expense in the consolidated statements of operations. Variable lease costs for head leases, including property and sales taxes, are recognized as lease expenses when incurred, and are included in the other non-interest expense line item in the consolidated statements of operations. Total finance lease liability was $7 million as of both May 31, 2026 and 2025. Interest expenses and variable lease cost from the finance leases werenot material for FY2026, FY2025 and FY2024.

Sublessor Arrangements

For the sales-type lease in which we are the sublessor, we derecognize the ROU asset of the head lease and record net investment in leases at the commencement date of the sublease, which is included in the other assets on the consolidated balance sheets. Interest income from the net investment in leases is included in interest income in the consolidated statements of operations. Variable lease payments, including property and sales tax payments reimbursed by the subleasee, are included in fee and other income in the consolidated statements of operations. Total net investment in leases was$7 million as of both May 31, 2026 and 2025. Interest income and variable lease payment income from the sales-type leases werenot material for FY2026, FY2025 and FY2024.

Fixed Assets

Fixed assets are recorded at cost less accumulated depreciation. We recognize depreciation expense for each category of our depreciable fixed assets on a straight-line basis over the estimated useful life, which ranges from three to 40 years. Werecognized depreciation expense of $8 million, $8 million and $7 million in FY2026, FY2025 and FY2024, respectively. We perform a fixed assets impairment assessment annually or more frequently, whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable. Based on our annual impairment assessment for FY2026 and FY2025, management determined that there were no indicators of impairment of our fixed assets as of May 31, 2026 and 2025.

The following table displays the components of our fixed assets. Our headquarters facility in Loudoun County, Virginia, which is owned by CFC, is included as a component of building and building equipment.

Table 1.1: Fixed Assets

Cloud Computing Arrangements—Implementation Costs

Eligible implementation costs associated with cloud computing arrangements that are service contracts are capitalized and amortized over future periods. These costs are recorded at cost less accumulated amortization and are included in other assets on the consolidated balance sheets. We recognize amortization expense for these capitalized implementation costs on a straight-line basis over the term of the hosting arrangements related to the cloud computing service contracts when ready for the intended use, and we include it in other general and administrative expenses in the consolidated statements of operations. We perform an impairment assessment annually or more frequently, whenever events or circumstances indicate that the carrying amount for the capitalized implementation costs for cloud computing service contracts may not be recoverable. Based on our annual impairment assessment for FY2026 and FY2025, management determined that there were no indicators of impairment of our capitalized implementation costs for cloud computing service contracts as of May 31, 2026 and 2025.

We had $51 million of net unamortized capitalized implementation costs for cloud computing service contracts, which are net of accumulated amortization of $15 million related to these costs as of May 31, 2026. In comparison, we had $48 million of net unamortized capitalized implementation costs for cloud computing service contracts, which are net of accumulated amortization of $9 million related to these costs as of May 31, 2025. We recognized amortization expense of $6 million, $5 million and $3 millionin FY2026, FY2025 and FY2024, respectively, for the capitalized implementation costs for cloud computing service contracts.

Debt

We report debt at cost net of unamortized issuance costs and discounts or premiums. Issuance costs, discounts and premiums are deferred and amortized into interest expense using the effective interest method or a method approximating the effective interest method over the legal maturity of each bond issue. Short-term borrowings consist of borrowings with an original contractual maturity of one year or less and do not include the current portion of long-term debt. Borrowings with an original contractual maturity of greater than one year are classified as long-term debt.

Derivative Instruments

We are an end user of derivative financial instruments and do not engage in derivative trading. We use derivatives, primarily interest rate swaps and Treasury rate locks, to manage interest rate risk. Derivatives may be privately negotiated contracts, which are often referred to as over-the-counter (“OTC”) derivatives, or they may be listed and traded on an exchange. We generally engage in OTC derivative transactions.

In accordance with the accounting standards for derivatives and hedging activities, we record derivative instruments at fair value as either a derivative asset or derivative liability on our consolidated balance sheets. We report derivative asset and liability amounts on a gross basis based on individual contracts, which does not take into consideration the effects of master netting agreements or collateral netting. Derivatives in a gain position are reported as derivative assets on our consolidated balance sheets, while derivatives in a loss position are reported as derivative liabilities. Accrued interest related to derivatives is reported on our consolidated balance sheets as a component of either accrued interest receivable or accrued interest payable.

If we do not elect hedge accounting treatment, changes in the fair value of derivative instruments, which consist of net accrued periodic derivative cash settlements income or expense and derivative forward value amounts, are recognized in our consolidated statements of operations under derivative gains (losses). If we elect hedge accounting treatment for derivatives, we formally document, designate and assess the effectiveness of the hedge relationship. Changes in the fair value of derivatives designated as qualifying cash flow hedges are recorded as a component of other comprehensive income (“OCI”) and reclassified from accumulated other comprehensive income (“AOCI”) into earnings in the same period or periods in which the hedged transaction affects earnings.

We generally do not designate interest rate swaps, which represent the substantial majority of our derivatives, for hedge accounting. Accordingly, changes in the fair value of interest rate swaps are reported in our consolidated statements of operations under derivative gains (losses). Net periodic cash settlements expense related to interest rate swaps are classified as an operating activity in our consolidated statements of cash flows.

We typically designate treasury rate locks as cash flow hedges of forecasted debt issuances or repricings.

Guarantee Liability

We maintain a guarantee liability that represents our contingent and noncontingent exposure related to guarantees and standby liquidity obligations associated with our members’ debt. The guarantee liability is included in the other liabilities line item on the consolidated balance sheet, and the provision for guarantee liability is reported in non-interest expense as a separate line item on the consolidated statements of operations.

The contingent portion of the guarantee liability represents management’s estimate of our exposure to losses within the guarantee portfolio. The methodology used to estimate the contingent guarantee liability is consistent with the methodology used to determine the allowance for credit losses under the CECL model.

We record a noncontingent guarantee liability for all new or modified guarantees. Our noncontingent guarantee liability represents our obligation to stand ready to perform over the term of our guarantees and liquidity obligations that we have entered into or modified. Our noncontingent obligation is estimated based on guarantee and liquidity fees charged for guarantees issued and represents management’s estimate of the fair value of our obligation to stand ready to perform. The fees are deferred and amortized using the straight-line method into fee and other income over the term of the guarantee.

Fair Value Valuation Processes

We present certain financial instruments at fair value, including equity and debt securities, and derivatives. Fair value is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (also referred to as an exit price). We consider observable prices in the principal market in our valuations where possible. Fair value estimates were developed at the reporting date and may not necessarily be indicative of amounts that could ultimately be realized in a market transaction at a future date. With the exception of redeeming debt under early redemption provisions, terminating derivative instruments under early-termination provisions and allowing borrowers to prepay their loans, we held and intend to hold all financial instruments to maturity, excluding common stock investments that have no stated maturity and our trading debt securities.

Fair Value Hierarchy

The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. Fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized below:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: Observable market-based inputs, other than quoted prices in active markets for identical assets or liabilities

Level 3: Unobservable inputs

The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted prices in active markets or observable market parameters. When quoted prices and observable data in active markets are not fully available, management’s judgment is necessary to estimate fair value. Changes in market conditions, such as reduced liquidity in the capital markets or changes in secondary market activities, may reduce the availability and reliability of quoted prices or observable data used to determine fair value.

Membership Fees

Members are charged a one-time membership fee based on member class. CFC distribution system members, power supply system members and national associations of cooperatives pay a $1,000 membership fee. CFC service organization members pay a $200 membership fee and CFC associates pay a $1,000 fee. NCSC members pay a $100 membership fee. Membership fees are accounted for as members’ equity.

Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, we are a party to financial instruments with off-balance sheet risk to meet the financing needs of our member-borrowers. These financial instruments include committed lines of credit, standby letters of credit and guarantees of members’ obligations.

Early Extinguishment of Debt

We redeem outstanding debt early from time to time to manage liquidity and interest rate risk. When we redeem outstanding debt early, we recognize a gain or loss related to the difference between the amount paid to redeem the debt and the net book value of the extinguished debt as a component of other non-interest expense in the consolidated statements of operations.

Income Taxes

While CFC is exempt under Section 501(c)(4) of the Internal Revenue Code, it is subject to tax on unrelated business taxable income. NCSC is a taxable cooperative that pays income tax on the full amount of its reportable taxable income and allowable deductions.

The income tax benefit (expense) recorded in the consolidated statements of operations represents the income tax benefit (expense) at the applicable combined federal and state income tax rates resulting from a statutory tax rate. The federal statutory tax rate for FY2026, FY2025 and FY2024 was 21%. Substantially all of the income tax expense recorded in our consolidated statements of operations relates to NCSC. We recorded an immaterial amount of deferred tax assets as of both May 31, 2026 and 2025.

New Accounting Standards Adopted in Fiscal Year 2026

Income Taxes (Topic 740)—Improvements to Income Tax Disclosures

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures. The ASU requires public business entities to disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a specific quantitative threshold. There is a further requirement that public business entities will need to disclose a tabular reconciliation, using both percentages and reporting currency amounts. The guidance also requires entities to disclose, on an annual basis, income taxes paid (net of refunds received), disaggregated by federal, state and foreign jurisdictions, and further disaggregated by individual jurisdiction when quantitative thresholds are met. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 for public business entities, with early adoption permitted. The ASU should be applied on a prospective basis, while retrospective application is also permitted.

We adopted the guidance effective May 31, 2026 on a prospective basis. The adoption of the guidance did not have an impact on our financial position, results of operations, or cash flows as the guidance pertains to disclosure only. We evaluated the disclosure requirements under ASU 2023‑09 for the fiscal year ended May 31, 2026 and prior periods presented. Due to the immateriality of total income tax expense and income taxes paid (net of refunds received), a rate reconciliation and disaggregated income taxes paid disclosures have not been presented. We continue to present total income taxes paid as a single amount in our consolidated statements of cash flows, with the substantial majority attributable to federal income taxes.

New Accounting Standards Issued But Not Yet Adopted

Financial Instruments—Credit Losses (Topic 326): Purchased Loans

In November 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. The ASU amends ASC Topic 326 to require entities to apply the gross-up approach to all “purchased seasoned loans.” Purchased seasoned loans are loans (excluding purchased financial assets with credit deterioration, credit card receivables, debt securities and trade receivables) that are (i) acquired in a business combination or (ii) obtained through a transfer that is not a business combination or initially recognized through the consolidation of a VIE, if certain seasoning criteria are met. A loan is considered seasoned if it is obtained more than 90 days after its origination date and the transferee was not involved in the origination. ASU 2025-08 is effective for annual reporting periods beginning after December 15, 2026, including interim reporting periods within those annual reporting periods, with early adoption permitted. The ASU must be applied prospectively. We plan to adopt the guidance on June 1, 2027, and do not expect the adoption to have a material impact on our consolidated financial statements or related disclosures.

Targeted Improvements to the Accounting for Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This ASU updates the accounting guidance for internal-use software by eliminating references to software development project stages, thereby requiring companies to start capitalizing software costs when (i) management has authorized and committed to funding the project, and (ii) it is probable the project will be completed and the software will be used to perform its intended function. ASU 2025-06 is effective for annual periods beginning after December 15, 2027, and for interim reporting periods within those annual reporting periods, with early adoption permitted. The ASU can be applied either (i) prospectively, (ii) through a modified transition approach, or (iii) retrospectively. We expect to adopt the guidance on June 1, 2028 and are currently evaluating the impact of ASU 2025-06 on our consolidated financial statements and related disclosures.

Income Statement—Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments require public entities to disclose, in interim and annual reporting periods, additional information about certain expenses in notes to financial statements, including purchases of inventory, employee compensation, depreciation, intangible asset amortization and other specific expense categories. ASU 2024-03 is effective for public business entities for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. Upon adoption, ASU 2024-03 should be applied on a prospective basis, while retrospective application is also permitted. We expect to adopt the guidance in our annual report for the fiscal year ended May 31, 2028, and the interim disclosure requirements in the quarterly report for the quarter ended August 31, 2028. We are currently in the process of reviewing the guidance and evaluating its impact on our consolidated financial statements and related disclosures.

Disclosure Improvements—Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements—Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. The amendments in this update modify the disclosure or presentation requirements of a variety of topics in the ASC in response to the SEC’s Release No. 33-10532, Disclosure Update and

Simplification Initiative, and align the ASC’s requirements with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements, the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective. Early adoption is prohibited. The adoption of the amendments is not expected to have a material impact on our consolidated financial statements or related disclosures.

NOTE 2—INTEREST INCOME AND INTEREST EXPENSE

The following table displays the components of interest income, by interest-earning asset type, and interest expense, by debt product type, presented in our consolidated statements of operations.

Table 2.1: Interest Income and Interest Expense

(1)Includes loan conversion fees, which are generally deferred and recognized in interest income over the period to maturity using the effective interest method, late payment fees, commitment fees and net amortization of deferred loan fees and loan origination costs.

(2)Includes amortization of debt discounts and premiums, and debt issuance costs, which are generally deferred and recognized as interest expense over the period to maturity using the effective interest method. Issuance costs related to dealer commercial paper, however, are recognized in interest expense immediately as incurred.

(3)Includes fees related to funding arrangements, such as up-front fees paid to banks participating in our committed bank revolving line of credit agreements. Based on the nature of the fees, the amount is either recognized immediately as incurred or deferred and recognized in interest expense ratably over the term of the arrangement.

Deferred income reported on our consolidated balance sheets of$30 million and $32 million as of May 31, 2026 and 2025, respectively, consists primarily of deferred loan conversion fees that totaled $18 million and $21 million as of each respective date.

NOTE 3—INVESTMENT SECURITIES

Our investment securities portfolio consists of debt securities classified as trading and equity securities with readily determinable fair values. We therefore record changes in the fair value of our debt and equity securities in earnings and report these unrealized changes together with realized gains and losses from the sale of securities as a component of non-interest income in our consolidated statements of operations. For additional information on our investments in debt securities, see “Note 1—Summary of Significant Accounting Policies.”

Debt Securities

Our debt securities portfolio consists of corporate debt securities, municipality debt securities, commercial mortgage-backed securities (“MBS”) and other asset-backed securities (“ABS”). Pursuant to our investment policy guidelines, all fixed-income debt securities, at the time of purchase, must be rated at least investment grade based on external credit ratings from at least two of the leading global credit rating agencies, when available, or the corresponding equivalent, when not available. Securities rated investment grade, that is those rated Baa3 or higher by Moody’s Investors Service (“Moody’s”) or BBB- or higher by S&P Global Inc. (“S&P”) or BBB- or higher by Fitch Ratings Inc. (“Fitch”), are generally considered by the rating agencies to be of lower credit risk than non-investment-grade securities.

The following table presents the composition of our investment debt securities portfolio and the fair value as of May 31, 2026 and 2025.

Table 3.1: Investments in Debt Securities, at Fair Value

(1)Consists of securities backed by the Federal National Mortgage Association(“Fannie Mae”) and the Federal Home Loan Mortgage Corporation(“Freddie Mac”).

(2)Consists primarily of securities backed by auto lease loans, equipment-backed loans, auto loans and credit card loans.

We recognized net unrealized gains of $1 million, $9 million and $15 million on our debt securities for FY2026, FY2025 and FY2024, respectively.

We sold $19 million and $14 million in principal amount of debt securities during FY2026 and FY2025, respectively, and recorded an immaterial amount of realized gains on the sale of these securities in both periods. We didnot sell any debt securities during FY2024.

Equity Securities

Our equity securities consisted of the Federal Agricultural Mortgage Corporation (“Farmer Mac”) Class A common stock recorded at fair value of $11 million as of both May 31, 2026 and 2025.

We recognized net unrealized losses on our equity securities of less than $1 million and $1 million for FY2026 and FY2025, respectively, and net unrealized gains of $1 million for FY2024. These unrealized amounts are reported as a component of non-interest income in our consolidated statements of operations.

NOTE 4—LOANS

Our loan portfolio is segregated into segments by borrower member class, which is based on the utility sector of the borrowers because the key operational, infrastructure, regulatory, environmental, customer and financial risks of each sector are similar in nature. Total loan portfolio member class consists of CFC distribution, CFC power supply, CFC statewide and associate, NCSC electric and NCSC telecom. We offer both long-term and line of credit loans to our borrowers. Under our long-term loan facilities, a borrower may select a fixed interest rate or a variable interest rate at the time of each loan advance. Line of credit loans are generally revolving loan facilities and have a variable interest rate.

We offer loans under secured long-term facilities with terms generally up to 35 years and line of credit loans. Under secured long-term facilities, borrowers have the option of selecting a fixed or variable rate for a period ofone to 35 years for each long-term loan advance. When a selected fixed interest rate term expires, the borrower may select another fixed-rate term or a variable rate. Line of credit loans are revolving loan facilities that typically have a variable interest rate and are generally unsecured. Collateral and security requirements for advances on loan commitments are identical to those required at the time of the initial loan approval.

Loans to Members

Loans to members consist of loans held for investment and loans held for sale. The outstanding amount of loans held for investment is recorded based on the unpaid principal balance, net of discounts, net charge-offs and recoveries, of loans and deferred loan origination costs. The outstanding amount of loans held for sale is recorded based on the lower of cost or fair value. The following table presents loans to members by legal entity, member class and loan type, as of May 31, 2026 and 2025.

Table 4.1: Loans to Members by Member Class and Loan Type

(1) Represents the unpaid principal balance, net of discounts, charge-offs and recoveries, of loans as of each period end.

(2) Deferred loan origination costs are recorded at CFC segment.

Loan Sales

We may transfer whole loans and participating interests to third parties. These transfers are typically made concurrently or within a short period of time with the closing of the loan sale or participation agreement at par value and meet the accounting criteria required for sale accounting. Therefore, we remove the transferred loans or participating interests from our consolidated balance sheets when control has been surrendered and recognize a gain or loss on the sale, if any. We retain a servicing performance obligation on the transferred loans and recognize related servicing fees on an accrual basis over the period for which servicing is provided, as we believe the servicing fee represents adequate compensation. Other than the servicing performance obligation, we have not retained any interest in the loans sold to date. In addition, we have no obligation to repurchase loans that are sold, except in the case of breaches of representations and warranties.

We sold CFC and NCSC loans, at par for cash, totaling $671 million, $424 million and $324 million in FY2026, FY2025 and FY2024, respectively. We recorded immaterial losses on the sale of these loans attributable to the unamortized deferred loan origination costs associated with the transferred loans. We had loans held for sale totaling $4 million and $21 million as of May 31, 2026 and 2025, respectively, which were sold at par for cash subsequent to the respective year end.

Credit Concentration

Concentrations of credit may exist when a lender has large credit exposures to single borrowers, large credit exposures to borrowers in the same industry sector or engaged in similar activities, or large credit exposures to borrowers in a geographic region that would cause the borrowers to be similarly impacted by economic or other conditions in the region. As a tax-exempt, member-owned finance cooperative, CFC’s principal focus is to provide funding to its rural electric utility cooperative members to assist them in acquiring, constructing and operating electric distribution systems, power supply systems and related facilities.

Because we lend primarily to our rural electric utility cooperative members, we have had a loan portfolio subject to single-industry and single-obligor concentration risks since our inception in 1969. Loans outstanding to electric utility organizations of $37,821 million and $36,488 million as of May 31, 2026 and 2025, respectively, accounted for 98% of total loans outstanding as of both dates. The remaining loans outstanding in our portfolio were to members, affiliates and associates in the telecommunications industry. Our credit exposure is partially mitigated by long-term loans guaranteed by RUS, which totaled $95 million and $105 million as of May 31, 2026 and 2025, respectively.

Single-Obligor Concentration

The outstanding loan exposure for our 20 largest borrowers totaled $7,374 million and $7,149 million as of May 31, 2026 and 2025, respectively, representing 19% of total loans outstanding as of each respective date. Our 20 largest borrowers consisted of 12 distribution systems andeight power supply systems as of May 31, 2026, compared with 14 distribution systems andsix power supply systems as of May 31, 2025. The largest total outstanding exposure to a single borrower or controlled group represented approximately 1% of total loans outstanding as of both May 31, 2026 and 2025.

We entered into a long-term standby purchase commitment agreement with Farmer Mac during fiscal year 2016. Under this agreement, we may designate certain long-term loans to be covered under the commitment, subject to approval by Farmer Mac, and in the event any such loan later goes into payment default for at least 90 days, upon request by us, Farmer Mac must purchase such loan at par value. We are required to pay Farmer Mac a monthly fee based on the unpaid principal balance of loans covered under the purchase commitment. The aggregate unpaid principal balance of designated and Farmer Mac-approved loans was $322 million and $346 million as of May 31, 2026 and 2025, respectively. Loan exposure to our 20 largest borrowers covered under the Farmer Mac agreement totaled $214 million and $155 million as of May 31, 2026 and 2025, respectively, which reduced our exposure to the 20 largest borrowers to $7,160 million and $6,994 million of our total loans outstanding as of each respective date. We have hadno loan defaults for loans covered under this agreement; therefore, no loans have been put to Farmer Mac for purchase pursuant to the standby purchase agreement as of May 31, 2026.

Geographic Concentration

Although our organizational structure and mission result in single-industry concentration, we serve a geographically diverse group of electric and telecommunications borrowers throughout the United States. The consolidated number of borrowers with loans outstanding totaled 903 and 899 borrowersas of May 31, 2026 and 2025, respectively, located in 49 states. Of the 903 and 899 borrowers with loans outstanding,50 were electric power supply borrowers as of both May 31, 2026 and 2025. Electric power supply borrowers generally require significantly more capital than electric distribution and telecommunications borrowers.

Texas, which had 67 and 68 borrowers with loans outstanding as of May 31, 2026 and 2025, respectively, accounted for the largest number of borrowers with loans outstanding in any one state as of each respective date, as well as the largest concentration of loan exposure in any one state. Loans outstanding to Texas-based borrowers totaled $6,403 million and $6,105 million as of May 31, 2026 and 2025, respectively, and accounted for approximately 17% and 16% of total loans outstanding as of each respective date. Of the loans outstanding to Texas-based borrowers, $109 million and$118 million as of May 31, 2026 and 2025, respectively, were covered by the Farmer Mac standby repurchase agreement, which reduced our credit risk exposure to Texas-based borrowers to$6,294 million and$5,987 million as of each respective date.

Credit Quality Indicators

Assessing the overall credit quality of our loan portfolio and measuring our credit risk is an ongoing process that involves tracking payment status, modifications to borrowers experiencing financial difficulty, nonaccrual loans, charge-offs, the internal risk ratings of our borrowers and other indicators of credit risk. We monitor and subject each borrower and loan facility in our loan portfolio to an individual risk assessment based on quantitative and qualitative factors. Payment status trends and internal risk ratings are indicators, among others, of the probability of borrower default and overall credit quality of our loan portfolio.

Payment Status of Loans

Loans are considered delinquent when contractual principal or interest amounts become past due 30 days or more following the scheduled payment due date. Thefollowing table presents the payment status, by legal entity and member class, of loans outstanding as of May 31, 2026 and 2025.

Table 4.2: Payment Status of Loans Outstanding

We actively monitor problem loans and, from time to time, attempt to work with borrowers to manage such exposures through loan workouts or modifications that better align with the borrower’s current ability to pay. Therefore, as part of our loss-mitigation efforts, we may provide modifications to a borrower experiencing financial difficulty to improve long-term collectability of the loan and to avoid the need for exercising remedies. We consider the impact of all loan modifications when estimating the credit quality of our loan portfolio and establishing the allowance for credit losses.

We hadno loan modifications to borrowers experiencing financial difficulty entered during FY2026 and FY2025.

We hadone loan to a CFC electric power supply borrower of $8 million and $26 million that was on nonaccrual status, which represented 0.02% and 0.07% of total loans outstanding as of May 31, 2026 and 2025, respectively. The decrease in this outstanding loan balance primarily reflected $18 million of payments received during FY2026. Subsequent to FY2026, we received a$3 million payment on this loan, which reduced its outstanding balance to $5 million.

Net Charge-Offs

Charge-offs represent the amount of a loan that has been removed from our consolidated balance sheet when the loan is deemed uncollectible. Generally the amount of a charge-off is the recorded investment in excess of the discounted expected cash flows from the loan or, if the loan is collateral dependent, the fair value of the underlying collateral securing the loan. We report charge-offs net of amounts recovered on previously charged-off loans.

We recorded an immaterial charge-off of $0.3 million related to a CFC electric power supply loan during FY2026. We hadno charge-offs during FY2025. Over the past five years, we hadthree borrower defaults resulting in $14 million of charge-offs. Our electric utility loan portfolio has historically experienced low levels of credit losses, as discussed below.

Borrower Risk Ratings

As part of our management of credit risk, we maintain a credit risk-rating framework under which we employ a consistent process for assessing the credit quality of our loan portfolio. Additional information regarding our borrower risk rating methodology is provided in “Note 1—Summary of Significant Accounting Policies.” Our borrower risk ratings align with the U.S. federal banking regulatory agencies’ credit risk definitions of pass and criticized categories, with the criticized category further segmented among special mention, substandard and doubtful. Pass ratings reflect relatively low probability of default, while criticized ratings have a higher probability of default.

The following is a description of the borrower risk-rating categories.

•Pass: Borrowers that are not included in the categories of special mention, substandard or doubtful.

•Special Mention: Borrowers that may be characterized by a potential credit weakness or deteriorating financial condition that is not sufficiently serious to warrant a classification of substandard or doubtful.

•Substandard: Borrowers that display a well-defined credit weakness that may jeopardize the full collection of principal and interest.

•Doubtful: Borrowers that have a well-defined credit weakness or weaknesses that make full collection of principal and interest, on the basis of currently known facts, conditions and collateral values, highly questionable and improbable.

Our internally assigned borrower risk ratings serve as the primary credit quality indicator for our loan portfolio. Because our internal borrower risk ratings provide important information on the probability of default, they are a key input in determining our allowance for credit losses.

Table 4.3 displays total loans outstanding, by borrower risk rating category and by legal entity and member class, as of May 31, 2026 and 2025. The borrower risk rating categories presented below correspond to the borrower risk-rating categories used in calculating our collective allowance for credit losses. If a parent company provides a guarantee of full repayment of loans of a subsidiary borrower and has a better risk rating, we include the loans outstanding in the borrower risk-rating category of the guarantor parent company rather than the risk-rating category of the subsidiary borrower for purposes of calculating the collective allowance.

We present term loans outstanding as of May 31, 2026 and 2025, by fiscal year of origination for each year during the five-year annual reporting period beginning in fiscal year 2022 and 2021, and in the aggregate for periods prior to fiscal year 2022 and 2021, respectively. The origination period represents the date CFC advances funds to a borrower, rather than the execution date of a loan facility for a borrower. Revolving loans are presented separately. The substantial majority of loans in our portfolio represent fixed-rate advances under secured long-term facilities with terms up to 35 years, and as indicated in Table 4.3 below, term loan advances made to borrowers prior to fiscal year 2022 totaled $19,273 million, representing 50% of our total loans outstanding as of May 31, 2026. In comparison, term loan advances made to borrowers prior to fiscal year 2021 totaled $18,537 million, representing 50% of our total loans outstanding as of May 31, 2025. The average remaining maturity of our long-term loans, which accounted for 88% of total loans outstanding as of both May 31, 2026 and 2025, was 19 years, as of each respective date.

Table 4.3: Loans Outstanding by Borrower Risk Ratings and Origination Year

Criticized loans totaled $207 million and $219 million as of May 31, 2026 and 2025, respectively, and represented approximately 1% of total loans outstanding as of each respective date. The $12 million decrease in criticized loans was primarily driven by $18 million in payments received during FY2026 from a CFC electric power supply borrower in the doubtful category, partially offset by a $6 million increase in loans outstanding in the special mention category, as discussed below. Each of the borrowers with loans outstanding in the criticized category was current with regard to all principal and interest amounts due to us as of May 31, 2026 and 2025.

Special Mention

One CFC electric distribution borrower with loans outstanding of$189 million and $181 million as of May 31, 2026 and 2025, respectively, accounted for the substantial majority of loans in the special mention loan category amount of $199 million and $193 million as of each respective date. This borrower experienced an adverse financial impact from restoration costs incurred to repair damage caused bytwo successive hurricanes. We expect that the borrower will continue to receive grant funds from the Federal Emergency Management Agency and the state where it is located for the full reimbursement of the hurricane damage-related restoration costs.

Substandard

We didnot have any loans classified as substandard as of May 31, 2026 and 2025.

Doubtful

We hadone loan outstanding classified as doubtful totaling $8 million and $26 million to a CFC electric power supply borrower as of May 31, 2026 and 2025, respectively, which was also on nonaccrual status as of each respective date. The reduction in this outstanding loan balance primarily reflected$18 million of payments received during FY2026. Subsequent to FY2026, we received a $3 million payment on this loan which reduced its outstanding balance to $5 million.

Unadvanced Loan Commitments

Unadvanced loan commitments represent approved and executed loan contracts for which funds have not been advanced to borrowers. The following table presents unadvanced loan commitments, by member class and by loan type, as of May 31, 2026 and 2025.

Table 4.4: Unadvanced Commitments by Member Class and Loan Type(1)

(1)Excludes the portion of any commitment to advance funds under swingline loan facilities in excess of CFC’s total commitment amount in a syndicated credit facility. Other syndicate lenders have an absolute obligation to acquire participations in such swingline loans upon CFC’s election, including during a default by the borrower.

(2)The interest rate on unadvanced loan commitments is not set until an advance is made; therefore, all unadvanced long-term loan commitments are reported as variable rate. However, the borrower may select either a fixed or a variable rate when an advance is drawn under a loan commitment.

The following table displays, by loan type, the available balance under unadvanced loan commitments as of May 31, 2026 and the related maturities in each fiscal year during the five-year period ended May 31, 2031, and thereafter.

Table 4.5: Unadvanced Loan Commitments

Unadvanced line of credit commitments accounted for 58% of total unadvanced loan commitments as of May 31, 2026. Unadvanced line of credit commitments are typically revolving facilities for periods not to exceed five years and generally serve as supplemental back-up liquidity to our borrowers. Historically, borrowers have not drawn the full commitment amount for line of credit facilities, and we have experienced a very low utilization rate on line of credit loan facilities regardless of whether or not we are obligated to fund the facility when a material adverse change has occurred.

Because we historically have experienced a very low utilization rate on line of credit loan facilities, which account for the majority of our total unadvanced loan commitments, we believe the unadvanced loan commitment total of $20,014 million as of May 31, 2026 is not necessarily representative of our future funding requirements.

Our unadvanced long-term loan commitments typically have afive-year draw period under which a borrower may draw funds prior to the expiration of the commitment. We expect that the majority of the long-term unadvanced loan commitments of $8,398 million will be advanced prior to the expiration of the commitment.

Unadvanced Loan Commitments—Conditional

The substantial majority of our line of credit commitments and all of our unadvanced long-term loan commitments include material adverse change clauses. Unadvanced loan commitments subject to material adverse change clauses totaled $16,288 million and $14,629 million as of May 31, 2026 and 2025, respectively. Prior to making an advance on these facilities, we confirm that there has been no material adverse change in the business or condition, financial or otherwise, of the borrower since the time the loan was approved and confirm that the borrower is currently in compliance with loan terms and conditions. In some cases, the borrower’s access to the full amount of the facility is further constrained by the designated purpose, imposition of borrower-specific restrictions or by additional conditions that must be met prior to advancing funds.

Unadvanced Loan Commitments—Unconditional

Unadvanced loan commitments not subject to material adverse change clauses at the time of each advance consisted of unadvanced committed lines of credit totaling $3,726 million and $3,590 million as of May 31, 2026 and 2025, respectively. We are required to advance amounts on these committed facilities as long as the borrower is in compliance with the terms and conditions of the facility. The following table summarizes the available balance under unconditional committed lines of credit as of May 31, 2026, and the related maturity amountsin each fiscal year during the five-year period ending May 31, 2031.

Table 4.6: Unconditional Committed Lines of Credit—Available Balance

Pledged Collateral—Loans

We are required to pledge eligible mortgage notes or other collateral in an amount at least equal to the outstanding balance of our secured debt. Table 4.7 displays the borrowing amount under each of our secured borrowing agreements and the corresponding loans outstanding pledged as collateral as of May 31, 2026 and 2025. See “Note 6—Short-Term Borrowings” and “Note 7—Long-Term Debt” in this Report for information on our secured borrowings and other borrowings.

Table 4.7: Pledged Loans

NOTE 5—ALLOWANCE FOR CREDIT LOSSES

We are required to maintain an allowance based on a current estimate of credit losses that are expected to occur over the remaining term of the loans in our portfolio. Our allowance for credit losses consists of a collective allowance and an asset-specific allowance. Additional information on our current CECL allowance methodology is provided in “Note 1—Summary of Significant Accounting Policies.”

Allowance for Credit Losses—Loan Portfolio

The following tables summarize, by legal entity and member class, changes in the allowance for credit losses for our loan portfolio and present the allowance components for the periods presented.

Table 5.1: Changes in Allowance for Credit Losses

The following tables present, by legal entity and member class, the components of our allowance for credit losses as of May 31, 2026 and 2025.

Table 5.2: Allowance for Credit Losses Components

(1)Represents the unpaid principal amount of loans as of the end of each period. Excludes unamortized deferred loan origination costs of $19 million and $16 million as of May 31, 2026 and 2025, respectively.

(2)Calculated based on the collective allowance component at period-end divided by collectively evaluated loans outstanding at period-end.

(3)Calculated based on the asset-specific allowance component at period-end divided by individually evaluated loans outstanding at period-end.

(4)Calculated based on the total allowance for credit losses at period-end divided by total loans outstanding at period-end.

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. The $11 million decrease in the allowance for credit losses was attributable to a $9 million reduction in the asset-specific allowance, driven by higher-than-expected payments received on a nonaccrual CFC power supply loan during FY2026, and an approximately $2 million decrease in the collective allowance, driven primarily by improved borrower credit quality and a refinement in our borrower risk rating methodology during FY2026, as discussed above in “Note 4—Loans.”

Reserve for Credit Losses—Unadvanced Loan Commitments

In addition to the allowance for credit losses for our loan portfolio, we maintain an allowance for credit losses for unadvanced loan commitments, which we refer to as our “reserve for credit losses” because this amount is reported as a component of other liabilities on our consolidated balance sheets. We measure the reserve for credit losses for unadvanced loan commitments based on expected credit losses over the contractual period of our exposure to credit risk arising from our obligation to extend credit, unless that obligation is unconditionally cancellable by us. The reserve for credit losses related to our off-balance sheet exposure for unadvanced loan commitments was less than $1 million as of both May 31, 2026 and 2025.

NOTE 6—SHORT-TERM BORROWINGS

Short-term borrowings consist of borrowings with an original contractual maturity ofone year or less and do not include the current portion of long-term debt. Our short-term borrowings totaled $5,160 million and $5,091 million as of May 31, 2026 and 2025, respectively, and accounted for 14% and 15% of total debt outstanding as of each respective date. The following table provides information on our short-term borrowings and weighted-average interest rates as of May 31, 2026 and 2025.

Table 6.1: Short-Term Borrowing Sources and Weighted-Average Interest Rates

We issue commercial paper for periods ofone to 270 days. We also issue select notes for periods ranging from 30 to 270 days. Select notes are unsecured obligations that do not require backup bank lines of credit for liquidity purposes. These notes also require a larger minimum investment than our commercial paper sold to members. Daily liquidity fund notes are unsecured obligations that do not require backup bank lines of credit for liquidity purposes. Medium-term notes represent unsecured obligations that may be issued through dealers in the capital markets or directly to our members.

Committed Bank Revolving Line of Credit Agreements

The following table presents the amount available for access under our bank revolving line of credit agreements as of May 31, 2026.

Table 6.2: Committed Bank Revolving Line of Credit Agreement Available Amounts

(1)Facility fee determined by CFC’s senior unsecured credit ratings based on the pricing schedules put in place at the inception of the related agreement.

On November 12, 2025, we amended ourthree-year andfour-year committed bank revolving line of credit agreements to(i) extend the maturity dates to November 28, 2028 and November 28, 2029, respectively, (ii) remove the credit spread adjustment in Term Secured Overnight Financing Rate (“SOFR”) tenors as described in each agreement and (iii) increase commitments by $150 million under thethree-year revolving credit agreement and $50 million under thefour-year revolving credit agreement. Under thethree-year revolving credit agreement, commitments of $50 million will continue to expire at the prior maturity date of November 28, 2027.

The total commitment amount under thethree-year facility and thefour-year facility was $1,745 million and $1,755 million, respectively, resulting in a combined total commitment amount under thetwo facilities of $3,500 million as of May 31, 2026. We didnot have any outstanding borrowings under our committed bank revolving line of credit agreements as of May 31, 2026; however, we had letters of credit outstanding of $7 million under thefour-year committed bank revolving agreement as of this date. These agreements allow us to request up to $300 million of letters of credit, which, if requested, results in a reduction in the total amount available for our use. We were in compliance with all covenants and conditions under the agreements as of May 31, 2026.

NOTE 7—LONG-TERM DEBT

The following table displays, by debt product type, long-term debt outstanding, the weighted-average interest rates and the maturity date as of May 31, 2026 and 2025. Long-term debt outstanding totaled $28,346 million and $27,164 million as of May 31, 2026 and 2025, respectively, and accounted for 79% and 78% of total debt outstanding as of each respective date. Long-term debt with fixed and variable interest rates accounted for 90% and 10%, respectively, of our total long-term debt outstanding as of May 31, 2026, compared with 94% and 6%, respectively, of our total long-term debt outstanding as of May 31, 2025.

Table 7.1: Long-Term Debt—Debt Product Types and Weighted-Average Interest Rates

(1)Maturity is presented based on calendar year.

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

(3)Amount includes medium-term notes issued to both institutional and retail investors in the capital markets.

The following table presents the principal amount of long-term debt maturing in each of the five fiscal years subsequent to May 31, 2026 and thereafter.

Table 7.2: Long-Term Debt—Maturities and Weighted-Average Interest Rates

(1)Amounts presented are based on the face amount of debt outstanding as of May 31, 2026, and therefore do not include debt issuance costs and unamortized premiums or discounts.

Secured Debt

Long-term secured debt of $15,753 million and $17,133 million as of May 31, 2026 and 2025, respectively, represented 56% and 63% of total long-term debt outstanding as of each respective date. We were in compliance with all covenants and conditions under our secured debt indentures as of May 31, 2026 and 2025. We are required to pledge eligible mortgage notes in an amount at least equal to the outstanding balance of our secured debt. See “Note 4—Loans” in this Report for information on pledged collateral under our secured debt agreements.

Collateral Trust Bonds

Collateral trust bonds represent secured obligations sold to investors in the capital markets. Collateral trust bonds are secured by the pledge of mortgage notes or eligible securities in an amount at least equal to the principal balance of the bonds outstanding. We repaid $413 million in principal amount of collateral trust bonds that matured during FY2026.

Guaranteed Underwriter Program Notes Payable

We repaid$1,118 millionof notes payable outstanding under the Guaranteed Underwriter Program of the USDA (the “Guaranteed Underwriter Program”) during FY2026. We had up to $1,800 million available for access under the Guaranteed Underwriter Program as of May 31, 2026.

On January 29, 2026, we closed on a $450 million Series W committed loan facility from the U.S. Treasury Department’s Federal Financing Bank under the Guar anteed Underwriter Program. Pursuant to this facility, we may borrow any time before July 15, 2030. Each advance is subject to quarterly amortization and a final maturity not longer than 30 years from the date of the advance.

The notes outstanding under the Guaranteed Underwriter Program contain a provision that if during any portion of the fiscal year, our senior secured credit ratings do not have at least two of the following ratings: (i) A3 or higher from Moody’s, (ii) A- or higher from S&P, (iii) A- or higher from Fitch or (iv) an equivalent rating from a successor rating agency to any of the above rating agencies, we may not make cash patronage capital distributions in excess of 5% of total patronage capital. We are required to pledge eligible distribution system or power supply system loans as collateral in an amount at least equal to the total principal amount of notes outstanding under the Guaranteed Underwriter Program.

Farmer Mac Notes Payable

We have a revolving note purchase agreement with Farmer Mac, under which we can borrow up to $6,500 million from Farmer Mac at any time, subject to market conditions, through January 14, 2030, after which the agreement allows for successiveone-year renewals of the draw period upon sixty days’ notice by CFC, subject to approval by Farmer Mac and Farmer Mac Mortgage Securities Corporation. Pursuant to this revolving note purchase agreement, we can borrow, repay and re-borrow funds at any time through maturity, as market conditions permit, provided the outstanding principal does not exceed the total available under the agreement. Each borrowing is documented with a pricing agreement setting forth the interest rate, maturity date and other terms. We may select a fixed or variable rate for each advance.

We borrowed an aggregate principal amount of $250 million and repaid $118 million in long-term notes under the Farmer Mac revolving note purchase agreement during FY2026. As of May 31, 2026, $3,912 million was outstanding with$2,588 million avail able for borrowing. We are required to pledge eligible electric distribution system or electric power supply system loans as collateral in an amount at least equal to the total principal amount of notes outstanding under this agreement.

Unsecured Debt

Long-term unsecured debt of $12,593 million and $10,031 million as of May 31, 2026 and 2025, respectively, represented 44% and 37% of total long-term debt outstanding as of each respective date.

Medium-Term Notes

Medium-term notes represent unsecured obligations that may be issued through dealers in the capital markets or directly to our members. During FY2026, we issued an aggregate principal amount of dealer medium-term notes to institutional investors totaling $4,425 million, of which $2,800 million was at a weighted average fixed interest rate of 4.14% with a weighted average term ofthree years and $1,625 million was at floating interest rates with a weighted average term of 16 months. We also issued an aggregate principal amount of $18 million dealer medium-term notes to retail investors during FY2026. We repaid$1,239 millionin principal amount of dealer medium-term notes during FY2026 andredeemed $600 million of fixed-rate dealer medium-term notes at par plus accrued interestand recognized an immaterial amount of losses on early extinguishment of debt related to unamortized debt issuance costs and discount in our consolidated statements of operations for FY2026 .

Subsequent to FY2026, we issued $300 million of dealer medium-term notes at a floating interest rate with a term of 18 months.

NOTE 8—SUBORDINATED DEFERRABLE DEBT

Subordinated deferrable debt represents long-term debt that is subordinated to all debt other than subordinated certificates held by our members. The following table presents, by issuance, subordinated deferrable debt outstanding and the weighted-average interest rates as of May 31, 2026 and 2025.

Table 8.1: Subordinated Deferrable Debt Outstanding and Weighted-Average Interest Rates

(1)At any time on or after the call date, the subordinated deferrable debt is redeemable, in whole or in part, at par.

(2)Maturity is presented based on calendar year.

(3)The subordinated notes may be called, in whole or in part, at par on any day during the period commencing 90 days prior to, and including, the first interest rate reset date and then on each interest payment date thereafter. The first interest rate reset date is April 20, 2031 for the 5.75% Notes and April 20, 2036 for the 5.95% Notes.

(4)The subordinated notes may be called, in whole or in part, at par on or after five years from the date of the issuances.

During FY2026, we redeemed $650 million in aggregate principal amount of our subordinated deferrable debt, including $300 million of notes due 2043 (the “2043 Notes”) and $350 million of notes due 2046 (the “2046 Notes”). The notes were redeemed at par plus accrued interest. As a result, we recognized $6 million of losses on early extinguishment of debt related to unamortized debt issuance costs for these notes in our consolidated statements of operations for FY2026. Losses on early extinguishment of debt were included in other non-interest expense in our consolidated statements of operations.

Our 5.50% subordinated deferrable debt due 2064 pays interest quarterly, may be called at parfive years after the issuance and allows us to defer interest payments for one or more consecutive interest periods, not to exceed 40 consecutive quarterly periods.

Ourtwo issuances of 7.125% subordinated deferrable debt due 2053 pay interest semiannually, may be called at par every five years after the issuances, reset to a new fixed rate every five years based on the five-year U.S. Treasury rate plus a spread of 3.533% and allow us to defer interest payments for one or more consecutive interest periods, not to exceed 20 consecutive semiannual periods.

During FY2026, we issued in a private placement $600 million of fixed-to-fixed reset rate subordinated notes due 2056, consisting of two tranches: $150 million notes at a fixed rate of 5.75% that are noncallable forfive years (the“5.75% Notes”) and $450 million notes at a fixed rate of 5.95% that are noncallable for 10 years (the“5.95% Notes”.) The interest rate for the 5.75% Notes will be reset on April 20, 2031 and every five years thereafter based on the five-year U.S. Treasury Rate plus a spread of 2.000%, to be reset on each reset date, provided that the interest rate during any reset period will not reset below 5.75%. The interest rate for the 5.95% Notes will be reset on April 20, 2036 and every five years thereafter based on the five-year U.S. Treasury Rate plus a spread of 1.800%, to be reset on each reset date, provided that the interest rate during any reset period will not reset below 5.95%. Both notes pay interest semiannually and allow us to defer interest payments for one or more consecutive interest periods, not to exceed 20 consecutive semiannual periods. The notes may be called, in whole or in part, at par on any day during the period commencing 90 days prior to, and including, the first interest rate reset date and then on each interest payment date thereafter.

Under an agency agreement with InspereX LLC, Citigroup Global Markets Inc., RBC Capital Markets, LLC and Wells Fargo Clearing Services, LLC, as agents, we may offer and sell, from time to time, an unlimited aggregate principal amount of our subordinated deferrable interest notes (the“Subordinated Notes”). The Subordinated Notes may be called, in whole or in part, at par on or after five years from the date of the issuance and allow us to defer interest payments for one or more consecutive interest periods, not to exceed 20 consecutive semiannual periods or 40 consecutive quarterly periods. During FY2026, we issued the Subordinated Notes with an aggregate principal amount of$29 million, each with a maturity of 30 years.

To date, we have not exercised our right to defer interest payments on any of our subordinated deferrable debt.

NOTE 9—MEMBERS’ SUBORDINATED CERTIFICATES

Membership Subordinated Certificates

Prior to June 2009, CFC members were required to purchase membership subordinated certificates as a condition of membership. Such certificates are interest-bearing, unsecured, subordinated debt. Membership certificates typically have an original maturity of 100 years and pay interest at 5% semiannually. No requ irement to purchase membership certificates has existed for NCSC.

Loan and Guarantee Subordinated Certificates

Members obtaining long-term loans, certain line of credit loans or guarantees may be required to purchase additional loan or guarantee subordinated certificates with each such loan or guarantee based on the borrower’s debt-to-equity ratio with CFC. These certificates are unsecured, subordinated debt and may be interest bearing or non-interest bearing.

Under our current policy, most borrowers requesting standard loans are not required to buy subordinated certificates or guarantee subordinated certificates as a condition of a loan or guarantee. Borrowers meeting certain criteria, including but not limited to, high leverage ratios, or borrowers requesting large facilities, may be required to purchase loan or guarantee subordinated certificates or member capital securities (described below) as a condition of the loan. Loan subordinated certificates have the same maturity as the related long-term loan. Some certificates may amortize annually based on the outstanding loan balance.

The interest rates payable on guarantee subordinated certificates purchased in conjunction with our guarantee program vary in accordance with applicable CFC policy. Guarantee subordinated certificates have the same maturity as the related guarantee.

Member Capital Securities

CFC offers member capital securities to its voting members. Member capital securities are interest-bearing, unsecured obligations of CFC, which are subordinate to all existing and future senior and subordinated indebtedness of CFC held by nonmembers of CFC, but rank proportionally to our member subordinated certificates. Member capital securities mature 30 years from the date of issuance and are callable at par at our option five years from the date of issuance and anytime thereafter. The interest rate for new member capital securities issuance is set at the time of issuance. These securities represent voluntary investments in CFC by the members. Member capital securities issued prior to FY2023 have a call option of 10 years from the date of issuance and anytime thereafter. The following table displays members’ subordinated certificates and the weighted-average interest rates as of May 31, 2026 and 2025.

Table 9.1: Members’ Subordinated Certificates Outstanding and Weighted-Average Interest Rates

(1)The subscribed and unissued subordinated certificates represent subordinated certificates that members are required to purchase. Upon collection of full payment of the subordinated certificate amount, the certificate will be reclassified from subscribed and unissued to outstanding.

The weighted-average maturity for all membership subordinated certificates outstan ding was 51 and 52 yearsas of May 31, 2026 and 2025, respectively. The following table presents the amount of members’ subordinated certificates maturing in each of the five fiscal years subsequent to May 31, 2026 and thereafter.

Table 9.2: Members’ Subordinated Certificate Maturities and Weighted-Average Interest Rates

(1)Excludes $0.02 million in subscribed and unissued member subordinated certificates for which a payment has been received, but no certificate has been issued. Amortizing member loan subordinated certificates totaling $114 million are amortizing annually based on the unpaid principal balance of the related loan. Amortization payments on these certificates totaled $7 million in FY2026 and represented 6% of amortizing loan subordinated certificates outstanding.

NOTE 10—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We are an end user of derivative financial instruments and do not engage in derivative trading. Derivatives may be privately negotiated contracts, which are often referred to as OTC derivatives, or they may be listed and traded on an exchange. We generally engage in OTC derivative transactions. Our derivative instruments are an integral part of our interest rate risk-management strategy. Our principal purpose in using derivatives is to manage our aggregate interest rate risk profile within prescribed risk parameters. The derivative instruments we use primarily consist of interest rate swaps, which we typically hold to maturity. In addition, we may use treasury locks to manage the interest rate risk associated with future debt issuance or debt that is scheduled to reprice in the future. We typically designate the treasury locks as cash flow hedges.

Notional Amount and Maturities of Derivatives Not Designated as Accounting Hedges

The notional amount is used only as the basis on which interest payments are determined and is not the amount exchanged, nor recorded on our consolidated balance sheets. The following table shows, by derivative instrument type, the notional amount, the weighted-average interest rate paid and the weighted-average interest rate received for our interest rate swaps as of May 31, 2026 and 2025. For the substantial majority of interest rate swap agreements, SOFR is used as the basis for determining variable interest payment amounts each period.

Table 10.1: Derivative Notional Amount and Weighted-Average Rates

The following table presents the notional amount of our interest rate swaps maturing in each of the five fiscal years subsequent to May 31, 2026 and thereafter.

Table 10.2: Derivative Notional Amount Maturities

Cash Flow Hedges

During FY2025, we executed five treasury lock agreements with an aggregate notional amount of $700 million to hedge interest rate risk on anticipated debt issuances. We terminated the treasury locks upon the pricing of the debt issuances and recorded a net gain of $1 million in AOCI, which is reclassified into interest expense over the terms of the related debt.

During FY2024, we executedtwo treasury lock agreements with an aggregate notional amount of $300 million to hedge interest rate risk on anticipated debt issuances. We terminated the treasury locks upon the pricing of the anticipated debt and recorded a net settlement gain of less than $1 million in AOCI during FY2024, which is reclassified into interest expense over the term of the related debt. In addition, during FY2024, we reclassified an $8 million gain related to prior settled treasury locks from AOCI to earnings as a component of derivative gains (losses) in our consolidated statements of operations, as the hedged forecasted transaction did not occur in the time period specified in the hedge documentation.

We did not execute any treasury lock agreements during FY2026 and didnot have any derivatives designated as accounting hedges as of May 31, 2026 and 2025.

Impact of Derivatives on Consolidated Balance Sheets

The following table displays the fair value of the derivative assets and derivative liabilities, by derivative type, recorded on our consolidated balance sheets and the related outstanding notional amount as of May 31, 2026 and 2025.

Table 10.3: Derivative Assets and Liabilities at Fair Value

(1)The notional amount as of May 31, 2026 included $21 million of forward starting swaps, as shown above in Table 10.1: Derivative Notional Amount and Weighted-Average Rates, with an effective start date in June 2026. The fair value of the swap as of May 31, 2026 is included in the above table and in our consolidated financial statements.

All of our master swap agreements include netting provisions that allow for offsetting of all contracts with a given counterparty in the event of default by one of the two parties. However, we report derivative asset and liability amounts on a gross basis by individual contract. The following table presents the gross fair value of derivative assets and liabilities reported on our consolidated balance sheets as of May 31, 2026 and 2025, and provides information on the impact of netting provisions under our master swap agreements and collateral pledged, if any.

Table 10.4: Derivative Gross and Net Amounts

Impact of Derivatives on Consolidated Statements of Operations

The primary factors affecting the fair value of our derivatives and the derivative gains (losses) recorded in our consolidated statements of operations include changes in interest rates, the shape of the swap curve and the composition of our derivative portfolio. We generally record derivative losses when interest rates decline and derivative gains when interest rates rise, as our derivative portfolio consists of a higher proportion of pay-fixed swaps than receive-fixed swaps.

The following table presents the components of the derivative gains (losses) reported 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 reporting period due to changes in expected future interest rates over the remaining life of our derivative contracts. We classify the derivative cash settlement amounts for the net periodic contractual interest expense on our interest rate swaps as an operating activity in our consolidated statements of cash flows.

Table 10.5: Derivative Gains (Losses)

(1)During 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.

Credit Risk-Related Contingent Features

Our derivative contracts typically contain mutual early-termination provisions, generally in the form of a credit rating trigger. Under the mutual credit rating trigger provisions, either counterparty may, but is not obligated to, terminate and settle the agreement if the credit rating of the other counterparty falls below a level specified in the agreement. If a derivative contract is terminated, the amount to be received or paid by us would be equal to the prevailing fair value, as defined in the agreement, as of the termination date.

During FY2026, Moody’s, S&P and Fitch affirmed CFC’s credit ratings and stable outlook. Our senior unsecured credit ratings from Moody’s, S&P and Fitch were A2, A- and A, respectively, as of May 31, 2026. Moody’s, S&P and Fitch had our ratings on stable outlook as of May 31, 2026. Our credit ratings and outlook remain unchanged as of the date of this Report.

The following table displays the notional amounts of our derivative contracts with mutual rating triggers as of May 31, 2026, and the payments that would be required if the contracts were terminated as of that date because of a downgrade of our unsecured credit ratings or the counterparty’s unsecured credit ratings below A3/A-, below Baa1/BBB+, to or below Baa2/BBB, or to or below Ba2/BB+ by Moody’s or S&P, respectively. In calculating the payment amounts that would be required upon termination of the derivative contracts, we assume that amounts for each counterparty would be netted in accordance with the provisions of the master netting agreements with the counterparty. The net payment amounts are based on the fair value of the underlying derivative instrument, excluding the credit risk valuation adjustment, plus any unpaid accrued interest amounts.

Table 10.6: Derivative Credit Rating Trigger Exposure

(1)Rating trigger for CFC falls below A3/A-, while rating trigger for counterparty falls below Baa1/BBB+ by Moody’s or S&P, respectively.

(2)Rating trigger for CFC falls to or below Baa2/BBB, while rating trigger for counterparty falls to or below Ba2/BB+ by Moody’s or S&P, respectively.

In addition, we have interest rate swaps withone counterparty that are subject to a ratings trigger and early termination provisionin the event of a downgrade of CFC’s senior unsecured credit ratings below Baa3, BBB- or BBB- by Moody’s, S&P or Fitch, respectively. The outstanding notional amount of these swaps, which is not included in the above table, totaled $552 million as of May 31, 2026. These swaps were in an unrealized gain position of$39 million as of May 31, 2026.

The aggregate fair value amount, including the credit valuation adjustment, of all interest rate swaps with rating triggers that were in a net liability position was$1 million as of May 31, 2026.

Derivative Counterparty Credit Exposure

Our interest rate swap contracts are subject to credit risk associated with counterparties to these derivative contracts. As mentioned above, we generally engage in OTC derivative transactions, which expose us to individual counterparty credit risk because these transactions are executed and settled directly between us and each counterparty. To manage this risk, we diversify our derivative positions among counterparties with investment-grade credit ratings, perform an internal credit risk analysis and maintain enforceable master netting arrangements, allowing us to net derivative assets and liabilities with the same counterparty. The fair value of our derivatives includes credit valuation adjustments reflecting counterparty credit risk.

We had 12 active derivative counterparties with credit ratings ranging from Aa1 to Baa1 by Moody’s as of both May 31, 2026 and 2025, and from AA- to BBB+ by S&P as of both May 31, 2026 and 2025. Our largest counterparty exposure, based on the outstanding notional amount, accounted for approximately 25% of the total outstanding notional amount of our derivatives as of both May 31, 2026 and 2025. We believe our exposure to derivative counterparty risk, at any point in time, is equal to the amount of our outstanding derivatives in a net gain position, at the individual counterparty level based on the legally enforceable netting provisions under our master swap agreements, which totaled $524 million and $506 million as of May 31, 2026 and 2025, respectively, as presented in Table 10.4 above.

NOTE 11—EQUITY

Total equity increased by $209 million to $3,312 million as of May 31, 2026, compared with $3,103 million as of May 31, 2025. The increase was attributable primarily to our reported net income of $263 million for FY2026, partially offset by a decrease in equity of $53 million from the CFC Board of Directors’ authorized patronage capital retirements during the period, as discussed below.

Table 11.1: Equity

(1) Represents derivative forward value gains (losses) for CFC only, as total CFC equity does not include the noncontrolling interests of the consolidated variable interest entities. The cumulative amounts also include CFC historical foreign currency translation adjustments recorded in net income. See “Note 16—Business Segments” for the statements of operations for CFC.

Allocation of Net Earnings and Retirement of Patronage Capital—CFC

District of Columbia cooperative law requires cooperatives to allocate net earnings to patrons, to a general reserve in an amount sufficient to maintain a balance of at least 50% of paid-in capital and to a cooperative educational fund, as well as permits additional allocations to board-approved reserves. District of Columbia cooperative law also requires that a cooperative’s net earnings be allocated to all patrons in proportion to their individual patronage, and each patron’s allocation be distributed to the patron unless the patron agrees that the cooperative may retain its share as additional capital.

Annually, the CFC Board of Directors allocates its net earnings to its patrons in the form of patronage capital, to a cooperative educational fund, to a general reserve, if necessary, and to board-approved reserves. An allocation to the general reserve is made, if necessary, to maintain the balance of the general reserve at 50% of the membership fees collected. The general reserve is included in the patronage capital allocated component of CFC’s retained equity. CFC’s bylaws require the allocation to the cooperative educational fund to be at least 0.25% of its net earnings. Funds from the coopera tive educational fund are disbursed annually to statewide cooperative organizations to fund the teaching of cooperative principles and for other cooperative education programs.

Currently, CFC hasone additional board-approved reserve, the members’ capital reserve. The CFC Board of Directors determines the amount of net earnings that is allocated to the members’ capital reserve, if any. The members’ capital reserve represents net earnings that CFC holds to increase equity retention. The net earnings held in the members’ capital reserve have not been specifically allocated to members, but may be allocated to individual members in the future as patronage capital if authorized by the CFC Board of Directors.

All remaining net earnings are allocated to CFC’s members in the form of patronage capital. The amount of net earnings allocated to each member is based on the member’s patronage of CFC’s lending programs during the year. No interest is earned by members on allocated patronage capital. There is no effect on CFC’s total equity as a result of allocating net earnings to members in the form of patronage capital or to board-approved reserves. The CFC Board of Directors has voted annually to retire a portion of the patronage capital allocation. Upon retirement, patronage capital is paid out in cash to the members to whom it was allocated. CFC’s total equity is reduced by the amount of patronage capital retired to its members and by amounts disbursed from board-approved reserves. CFC’s net earnings for determining allocations are based on CFC’s non-GAAP adjusted net income, which excludes the impact of derivative forward value gains (losses).

The current policy of the CFC Board of Directors is to retire 50% of the prior year’s allocated patronage capital and hold the remaining 50% for 25 years. The retirement amount and timing is subject to annual approval by the CFC Board of Directors.

In May 2026, the CFC Board of Directors authorized the allocation of $1 million of net earnings for FY2026 to the cooperative educational fund. In July 2026, the CFC Board of Directors authorized the allocation of net earnings for FY2026 as follows: $72 million to members in the form of patronage capital and $172 million to the members’ capital reserve. See “Item 7. MD&A—Non-GAAP Financial Measures” for information on adjusted net income.

In July 2026, the CFC Board of Directors also authorized the retirement of allocated net earnings totaling $62 million, of which $36 million represented 50% of the patronage capital allocation for FY2026 and $26 million represented the portion of the allocation from net earnings for fiscal year 2001 that had been held for 25 years pursuant to the CFC Board of Directors’ policy. We expect to return the authorized patronage capital retirement amount of $62 million to members in cash in the second quarter of fiscal year 2027. The remaining portion of the patronage capital allocation for FY2026 will be retained by CFC for 25 years pursuant to the guidelines adopted by the CFC Board of Directors in June 2009.

In May 2025, the CFC Board of Directors authorized the allocation of $1 million of net earnings for FY2025 to the cooperative educational fund. In July 2025, the CFC Board of Directors authorized the allocation of net earnings for FY2025 as follows: $67 million to members in the form of patronage capital and $176 million to the members’ capital reserve. In July 2025, the CFC Board of Directors also authorized the retirement of allocated net earnings totaling $53 million, of which $34 million represented 50% of the patronage capital allocation for FY2025 and $19 million represented the portion of the allocation from net earnings for fiscal year 2000 that had been held for 25 years pursuant to the CFC Board of Directors’ policy. The authorized patronage capital retirement amount of $53 million was returned to members in cash in September 2025. The remaining portion of the amount allocated for FY2025 will be retained by CFC for 25 years under current guidelines adopted by the CFC Board of Directors in June 2009.

Future allocations and retirements of net earnings may be made annually as determined by the CFC Board of Directors with due regard for its financial condition. The CFC Board of Directors has the authority to change the current practice for allocating and retiring net earnings at any time, subject to applicable laws and regulations.

CFC’s total equity includes noncontrolling interests, which consists of 100% of the equity of NCSC, as the members of NCSC own or control 100% of the interests in NCSC. NCSC also allocates annual net earnings, subject to approval by its board of directors. The allocation of net earnings by NCSC toboard-approved reserves does not affect noncontrolling interests; however, thecash disbursements from board-approved reserves results in a reduction to noncontrolling interests.

Allocation of Net Earnings—NCSC

NCSC’s bylaws require that it allocate at least 0.25% of its net earnings to a cooperative educational fund and an amount to the general reserve required to maintain the general reserve balance at 50% of membership fees collected. Funds from the cooperative educational fund are disbursed annually to fund the teaching of cooperative principles and for other cooperative education programs.

Accumulated Other Comprehensive Income (Loss)

The following table presents, by component, changes in AOCI for the years ended May 31, 2026 and 2025 and the balance of each component as of the end of each respective period.

Table 11.2: Changes in Accumulated Other Comprehensive Income (Loss)

(1)Derivative gains reclassified to earnings for FY2026 were included in the interest expense line item in our consolidated statements of operations. For FY2025, a portion of thed erivative gains reclassified to earnings was included as a component of the derivative gains (losses) line item and the remainder was reclassified to the interest expense line item in our consolidated statements of operations.

(2)Reclassified to earnings as a component of the other non-interest expense line item presented in our consolidated statements of operations.

We expect to reclassify realized net gains of less than $1 million attributable to derivative cash flow hedges from AOCI into earnings over the next 12 months.

NOTE 12—EMPLOYEE BENEFITS

National Rural Electric Cooperative Association (“NRECA”) Retirement Security Plan

CFC is a participant in the NRECA Retirement Security Plan (“the Retirement Security Plan”), a multiple-employer defined benefit pension plan. The employer identification number of the Retirement Security Plan is 53-0116145, and the plan number is 333. Plan information is available publicly through the annual Form 5500, including attachments. The Retirement Security Plan is a qualified plan in which all employees are eligible to participate upon completion ofone year of service. Under this plan, participating employees are entitled to receive annually, under a 50% joint and surviving spouse annuity,1.70% of the average of their five highest base salaries during their participation in the plan, multiplied by the number of years of participation in the plan.

The risks of participating in the multiple-employer plan are different from the risks of single-employer plans due to the following characteristics of the plan:

•Assets contributed to the multiple-employer plan by one participating employer may be used to provide benefits to employees of other participating employers.

•If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

•If CFC chooses to stop participating in the plan, CFC may be required to pay a withdrawal liability representing an amount based on the underfunded status of the plan.

Because of the current funding status of the Retirement Security Plan, it is not subject to a certified zone status determination under the Pension Protection Act of 2006 (“PPA”). In April 2025, the Department of Labor issued guidance under the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act of 2022, which revised the methodology for reporting annual funding information for defined benefit pension plans. These changes became effective for plan years beginning after December 31, 2023. As a result, prior-year plan funding information has been restated to agree to the updated reporting requirements. Under the market-based reporting of plan assets and liab ilities, the plan was more than 100% funded as of both December 31, 2025 and 2024 and more than 90% funded as of December 31, 2023. We made contributions to the Retirement Security Plan of $8 million, $7 million and $6 million in FY2026, FY2025 and FY2024, respectively. In each of these years, our contribution represented less than 5% of total contributions made to the plan by all participating employers. Our contribution did not include a surcharge. CFC’s expense is limited to the annual premium to participate in the Retirement Security Plan. Because it is a multiple-employer plan, there is no funding liability for CFC for the plan. There were no funding improvement plans, rehabilitation plans implemented or pending, and no required minimum contributions. There are no collective bargaining agreements in place that cover CFC’s employees.

Executive Benefit Restoration Plan

We adopted a supplemental top-hat Executive Benefit Restoration (“EBR”) Plan, effective January 1, 2015. The EBR Plan is a nonqualified, unfunded plan maintained by CFC to provide retirement benefits to a select group of executive officers whose compensation exceeds Internal Revenue Service limits for qualified defined benefit plans. There is a risk of forfeiture if participants leave the company prior to becoming fully vested in the EBR Plan. This plan included nine participants as of both May 31, 2026 and 2025.

We recognized net periodic pension expense for this plan of approximately $1 million in each of FY2026, FY2025 and FY2024. The unfunded projected benefit obligation of this plan, which is included on our consolidated balance sheets as a component of other liabilities, was $8 million as of both May 31, 2026 and 2025. CFC contributed $1 million to the plan in each of FY2026, FY2025 and FY2024 for lump-sum settlement payments to fully vested participants of $1 million in each year. Unrecognized pension costs recorded in accumulated other comprehensive loss were $5 millionas of both May 31, 2026 and 2025. We expect to amortize less than $1 million of the unrecognized pension costs as a component of our net periodic pension benefit expense in the fiscal year ended May 31, 2027.

As a result of the settlement payments in FY2026, FY2025 and FY2024, we recognized a settlement loss of less than $1 million in each of FY2026, FY2025 and FY2024. The settlement losses are recorded as a component ofnon-interest expense in our consolidated statements of operations.

Defined Contribution Plan

CFC offers a 401(k) defined contribution savings program, the 401(k) Pension Plan, to all employees who have completed a minimum of 1,000 hours of service in either the first 12 consecutive months or first full calendar year of employment. We contribute an amount up to 2% of an employee’s salary each year for all employees participating in the program with a minimum 2% employee contribution. We contributed approximately$1 millionto the plan in each of FY2026, FY2025 and FY2024.

NOTE 13—GUARANTEES

We guarantee certain contractual obligations of our members so they may obtain various forms of financing. We use the same credit policies and monitoring procedures in providing guarantees as we do for loans and commitments. If a member system defaults on its obligation to pay debt service, then we are obligated to pay any required amounts under our guarantees. Meeting our guarantee obligations satisfies the underlying obligation of our member systems and prevents the exercise of remedies by the guarantee beneficiary based upon a payment default by a member system. In general, the member system is required to repay any amount advanced by us with interest, pursuant to the documents evidencing the member system’s reimbursement obligation.

The following table displays the notional amount of our outstanding guarantee obligations, by guarantee type and by member class, as of May 31, 2026 and 2025.

Table 13.1: Guarantees Outstanding by Type and Member Class

(1)Represents the outstanding principal amount of long-term variable-rate guaranteed bonds.

(2)Reflects our maximum potential exposure for letters of credit, which also includes interest due, if any.

(3)Includes CFC guarantees to NCSC telecom members totaling $37 million and $42 million as of May 31, 2026 and 2025, respectively.

We had guarantees outstanding totaling $1,266 million and $1,211 million as of May 31, 2026 and 2025, respectively. Guarantees under which our right of recovery from our members was not secured totaled $910 million and $781 million and represented 72% and 65% of total guarantees as of May 31, 2026 and 2025, respectively. We were not required to perform pursuant to any of our guarantee obligations during FY2026 or FY2025.

We guarantee debt issued in connection with the construction or acquisition of pollution control, solid waste disposal, industrial development and electric distribution facilities, classified as long-term tax-exempt bonds in the table above. We unconditionally guarantee to the holders or to trustees for the benefit of holders of these bonds the full principal, interest and in most cases, premium, if any, on each bond when due.

Long-term tax-exempt bonds of $47 million and $48 million as of May 31, 2026 and 2025, respectively, consist of adjustable-rate or variable-rate bonds that may be converted to a fixed rate as specified in the applicable indenture for each bond offering. We are unable to determine the maximum amount of interest that we may be required to pay related to the remaining adjustable-rate or variable-rate bonds. Many of these bonds have a call provision that allows us to call the bond in the event of a default, which would limit our exposure to future interest payments on these bonds. Our maximum potential exposure generally is secured by mortgage liens on the members’ assets and future revenue. If a member’s debt is accelerated because of a determination that the interest thereon is not tax-exempt, the member’s obligation to reimburse us for any guarantee payments will be treated as a long-term loan. The maturities for long-term tax-exempt bonds and the related guarantees extend through calendar year 2037.

Of the outstanding letters of credit of $1,034 million and $978 million as of May 31, 2026 and 2025, respectively, $284 million and $356 million were secured as of each respective date. The maturities for the outstanding letters of credit as of May 31, 2026 extend through calendar year 2044.

In addition to the outstanding letters of credit listed in the table above, under master letter of credit facilities in place as of May 31, 2026, we may be required to issue up to an additional $105 million in letters of credit to third parties for the benefit of our members. All of our master letter of credit facilities were subject to material adverse change clauses at the time of issuance as of May 31, 2026. Prior to issuing a letter of credit, we would confirm that there has been no material adverse change in the business or condition, financial or otherwise, of the borrower since the master letter of credit facility was approved and confirm that the borrower is currently in compliance with the terms and conditions of the agreement governing the facility.

The maximum potential exposure for other guarantees was $185 million and $184 million as of May 31, 2026 and 2025, respectively, of which $25 million was securedas of both May 31, 2026 and 2025. The maturities for these other guarantees listed in the table above extend through calendar year 2030.

In addition to the guarantees described above, we were also the liquidity provider for $47 million and $48 million of variable-rate tax-exempt bonds as of May 31, 2026 and 2025, respectively, issued for our member cooperatives. While the bonds are in variable-rate mode, in return for a fee, we have unconditionally agreed to purchase bonds tendered or put for redemption if the remarketing agents are unable to sell such bonds to other investors. We werenot required to perform as liquidity provider pursuant to these obligations during FY2026, FY2025 or FY2024.

Guarantee Liability

We recorded a total guarantee liability for noncontingent and contingent exposures related to guarantees and liquidity obligations of $17 million and $14 million as of May 31, 2026 and 2025, respectively. The noncontingent guarantee liability, which pertains to our obligation to stand ready to perform over the term of our guarantees and liquidity obligations we have entered into or modified and accounts for the substantial majority of our guarantee liability, totaled $16 millionand $13 million as of May 31, 2026 and 2025, respectively. The remaining amount pertains to our contingent guarantee exposures.

The following table details the scheduled maturities of our outstanding guarantees in each of the five fiscal years following May 31, 2026 and thereafter:

Table 13.2: Guarantees Outstanding Maturities

NOTE 14—FAIR VALUE MEASUREMENT

Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The levels, in priority order based on the extent to which observable inputs are available to measure fair value, are Level 1, Level 2 and Level 3. The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. We describe the valuation technique for each level in “Note 1—Summary of Significant Accounting Policies.”

The following table presents the carrying value and estimated fair value of all of our financial instruments, including those carried at amortized cost, as of May 31, 2026 and 2025. The table also displays the classification level within the fair value hierarchy based on the degree of observability of the inputs used in the valuation technique for estimating fair value.

Table 14.1: Fair Value of Financial Instruments

Loans to Members, Net

Because of the interest rate repricing options we provide to borrowers on loan advances and other characteristics of our loans, there is no ready market from which to obtain fair value quotes or observable inputs for similar loans. As a result, we are unable to use the exit price to estimate the fair value of loans to members. We therefore estimate fair value for fixed-rate loans by discounting the expected future cash flows based on the current rate at which we would make a similar new loan for the same remaining maturity to a borrower. The assumed maturity date used in estimating the fair value of loans with a fixed rate for a selected rate term is the next repricing date because at the repricing date, the loan will reprice at the current market rate. The carrying value of our variable-rate loans adjusted for credit risk approximates fair value since variable-rate loans are eligible to be reset at least monthly.

The fair value of loans with different risk characteristics, specifically nonaccrual and restructured loans, is estimated using collateral valuations or by adjusting cash flows for credit risk and discounting those cash flows using the current rates at which similar loans would be made by us to borrowers for the same remaining maturities. The fair value of loans held for sale is determined based on the cost, which approximates the fair value, as we sell these loans at par value, concurrently or within a short period of time with the closing of the loan or participation agreement. See below for information on how we estimate the fair value of certain individually evaluated loans.

Transfers Between Levels

We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2 and Level 3 accordingly. Observable market data include but are not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in changes in the valuation technique used, are generally the cause of transfers between levels. We did not have any transfers into or out of Level 3 of the fair value hierarchy during fiscal years ended May 31, 2026 and 2025.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the carrying value and fair value of financial instruments reported in our consolidated financial statements at fair value on a recurring basis as of May 31, 2026 and 2025, and the classification of the valuation technique within the fair value hierarchy. We didnot have any assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs during the years ended May 31, 2026 and 2025.

Table 14.2: Assets and Liabilities Measured at Fair Value on a Recurring Basis

Below is a description of the valuation techniques we use to estimate fair value of our financial assets and liabilities recorded at fair value on a recurring basis, the significant inputs used in those techniques, if applicable, and the classification within the fair value hierarchy.

Equity Securities

Our investments in equity securities consist of investments in Farmer Mac Class A common stock. These securities are reported at fair value in our consolidated balance sheets. We determine the fair value based on quoted prices on the stock exchange where the stock is traded. Because quoted market prices are the key input in deriving fair value for these securities, the valuation methodology is classified as Level 1.

Debt Securities Trading

As discussed above in “Note 1—Summary of Significant Accounting Policies” our debt securities consist of investments in corporate debt securities, municipality debt securities, commercial MBS and other ABS and were classified as trading as of May 31, 2026. Management estimates the fair value of our debt securities utilizing the assistance of third-party pricing services. Methodologies employed, controls relied upon and inputs used by third-party pricing vendors are subject to management review when such services are provided. This review may consist of, in part, obtaining and evaluating control reports issued and pricing methodology materials distributed. We review the pricing methodologies provided by the vendors in order to determine if observable market information is being used to determine the fair value versus unobservable inputs. Investment securities traded in secondary markets are typically valued using unadjusted vendor prices. These investment securities, which include those measured using unadjusted vendor prices, are generally classified as Level 2 because the valuation typically involves using quoted market prices for similar securities, pricing models, discounted cash flow analyses using significant observable market inputs where available or a combination of multiple valuation techniques for which all significant assumptions are observable in the market.

Deferred Compensation Investments and Liability

CFC offers a nonqualified 457(b) deferred compensation plan to highly compensated employees and board members. Such amounts deferred by employees are invested by the company. The deferred compensation investments are presented as other assets in the consolidated balance sheets at fair value. A corresponding deferred compensation liability, measured at the same amount as the deferred compensation investments, is included in other liabilities in the consolidated balance sheets. Fair value is determined based on the daily published and quoted net asset value. Because quoted market prices are the key input in deriving the fair value, the valuation methodology is classified as Level 1.

Derivative Instruments

Our derivatives primarily consist of OTC interest rate swaps executed under master netting swap agreements that do not have readily available quoted market prices. We derive the fair value of our derivatives using a vendor-provided derivative system, which is based on industry-standard discounted cash flow models. We rely primarily on market-observable inputs for these models, including market interest rates and forward swap yield curves, as well as the contractual terms of the derivative instrument, as of the valuation date. We include a credit risk valuation adjustment in our valuation of derivatives, which takes into consideration the effect of nonperformance credit risk of the counterparty or our own nonperformance risk and depends on whether the derivative instrument is in a gain, or asset, financial position or in a loss, or liability, financial position. We corroborate our derivative valuations by comparing the amounts to third-party pricing sources. Because observable market data serve as the key inputs in valuing our interest rate swaps, the valuation methodology is classified as Level 2.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis on our consolidated balance sheets. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as in the application of the lower of cost or fair value accounting or when we evaluate assets for impairment. We didnot have any assets or liabilities measured at fair value on a nonrecurring basis during FY2026 and FY2025.

NOTE 15—VARIABLE INTEREST ENTITIES

NCSC meets the definition of a VIE because it does not have sufficient equity investment at risk to finance its activities without financial support. CFC is the primary source of funding for NCSC. Under the terms of the management agreement with NCSC, CFC manages the business operations of NCSC. CFC also unconditionally guarantees full payment to NCSC for amounts equal to any loan losses pursuant to a guarantee agreement with NCSC. CFC earns management and guarantee fees from its agreements with NCSC.

All loans that require NCSC board approval also require CFC board approval. CFC is not a member of NCSC and does not elect directors to the NCSC board. NCSC members elect directors to the NCSC board based onone vote for each member. NCSC is a Class C member of CFC.

NCSC creditors have no recourse against CFC in the event of a default by NCSC, unless there is a guarantee agreement under which CFC has guaranteed NCSC debt obligations to a third party. The following table provides information on incremental consolidated assets and liabilities of the VIE included in CFC’s consolidated financial statements, after intercompany eliminations, which include NCSC’s consolidated assets and liabilities as of May 31, 2026 and 2025.

Table 15.1: Consolidated Assets and Liabilities of Variable Interest Entities

The following table provides information on CFC’s credit commitments and potential exposure to loss under these commitments to NCSC as of May 31, 2026 and 2025.

Table 15.2: CFC Exposure Under Credit Commitments to NCSC

(1)Intercompany borrowings payable by NCSC to CFC as of May 31, 2026 and 2025 are eliminated in consolidation.

(2)Excludes interest due on these instruments.

Under a loan and security agreement with CFC, NCSC has access to a $2,000 million revolving line of credit and a $3,000 million revolving term loan from CFC as of May 31, 2026, which will mature in 2067. CFC loans to NCSC are secured by all assets and revenue of NCSC. CFC’s maximum potential exposure, including interest due, for the credit enhancements totaled $106 million as of May 31, 2026. The maturities for obligations guaranteed by CFC extend through 2043.

NOTE 16—BUSINESS SEGMENTS

Our operating segments consist of CFC and NCSC which also represent ourreportable segments. CFC’s principal purpose is to provide its members with financing to supplement the loan programs of RUS. CFC makes loans to its rural electric members so they can acquire, construct and operate electric distribution systems, electric power supply systems and related facilities. CFC also provides its members and associates with credit enhancements in the form of letters of credit and guarantees of debt obligations. NCSC’s principal purpose is to provide financing to its members and associates. NCSC makes loans to electric cooperatives and their subsidiaries that provide non-electric services in the energy and telecommunication industries as well as to entities that provide substantial benefit to CFC members, including eligible solar energy providers and investor-owned utilities. NCSC also provides its members and associates with equipment financing for leased assets, institutional debt placement services through its wholly owned subsidiary Cooperative Securities and credit enhancements in the form of letters of credit.

Basis of Presentation

We present the results of our business segments on the basis in which management internally evaluates operating performance to establish short- and long-term performance goals, develop budgets and forecasts, identify potential trends, allocate resources and make compensation decisions. This presentation is aligned with how results are reviewed internally by our Chief Executive Officer (“CEO”), which we determined to be our chief operating decision maker (“CODM”). The primary measure used regularly by our CODM to evaluate segment financial performance and allocate resources accordingly between segments is the net income adjusted to exclude derivative forward value gains (losses), which represent the effects of fair value fluctuations in our interest rate swaps. The CODM reviews and analyzes on a monthly basis the budget-to-actual variances for the adjusted net income and its components, to inform his decisions regarding the business segment allocation of capital and resources, in order to ensure alignment with our performance goals. The CODM also looks at changes in our total loans outstanding to assess the performance of the segments.

Business Segment Reporting Methodology

The results of our business segments are intended to present the separate results for each of the reportable segments included in our consolidated financial statements. As discussed in “Note 15—Variable Interest Entities,” all of NCSC’s funding is either provided by CFC or guaranteed by CFC, the terms and conditions of which are stipulated in a loan and security agreement and a guarantee agreement between CFC and NCSC. Pursuant to the guarantee agreement, CFC unconditionally guarantees full indemnification to NCSC for any credit losses. In addition, CFC manages the business operations of NCSC under a management agreement that automatically renews on an annual basis unless the agreement is terminated by either party.

We report loans, and interest and fees earned on loans, based on the entity that holds the loans. CFC borrows from various sources to fund the operations of CFC and NCSC, the cost of which is reflected in CFC’s interest expense. NCSC borrows from CFC to fund loans to its members, the cost of which is reported as interest expense by NCSC. CFC charges NCSC a management fee, which CFC reports as a component of fee and other income. NCSC reports the management fee charged by CFC as a component of non-interest expense. CFC and NCSC use derivatives, primarily interest rate swaps, to manage interest rate risk. Because we generally do not elect to apply hedge accounting to our interest rate swaps, changes in the fair value of our interest rate swaps are recorded in earnings in our consolidated total results of operations. However, management excludes the impact of derivative forward value gains (losses) and includes the net periodic derivative cash settlement interest income or expense amounts as a component of interest expense in reporting our segment results of operations, which represents the only difference between the accounting and reporting for our business segment results of operations and our consolidated total results of operations.

Segment Results and Reconciliation

The following tables display segment results of operations for the years ended May 31, 2026, 2025 and 2024, assets attributable to each segment as of May 31, 2026 and 2025 and a reconciliation of total segment amounts to our consolidated total amounts.

Table 16.1: Business Segment Information

(1)Consists of (i) the reclassification of net periodic derivative settlement interest income (expense) amounts, which we report as a component of interest expense for business segment reporting purposes but is included in derivatives gains (losses) in our consolidated total results and (ii) derivative forward value gains (losses), which we exclude from our business segment results but is included in derivatives gains (losses) in our consolidated total results.

(2)Consists of intercompany borrowings payable by NCSC to CFC and the interest related to those borrowings, management fees paid by NCSC to CFC and other intercompany amounts, all of which are eliminated in consolidation.

(3)The significant expense categories and amounts align with the segment level information that is regularly provided to the CODM.

(4)Interest expense presented at the segment level is adjusted to include the effects of derivative cash settlement interest income or expense as provided to the CODM.

(5)Other non-interest expense for each segment includes consulting, information technology, member relations, board, and other general and administrative expenses. For the NCSC segment, the other non-interest expense also includes the management fee expense paid to CFC pursuant to the management agreement. Certain reclassifications have been made to the presentation of information in prior periods to conform to the current-period presentation.

(6) Net income (loss) presented at the segment level is adjusted to exclude derivative forward value gains (losses) and is the primary measure used regularlyby our CODM to evaluate segment financial performance and allocate resources between segments.