NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

National Rural Utilities Cooperative Finance Corporation (CFC) operates in the rural electric utility lending industry, a sub-sector of the U.S. energy sector. According to a report published in April 2026 by the National Rural Electric Cooperative Association (NRECA), electric cooperatives serve as power providers for approximately 42 million people, including over 23 million businesses, homes, schools and farms across 48 states, and provide power to approximately 56% of the nation's land mass. CFC was established by electric utility cooperatives in April 1969 to serve as a supplemental financing source to Rural Utilities Service (RUS) loan programs and to mitigate uncertainty related to government funding. CFC aggregates the combined strength of its rural electric member cooperatives to access public capital markets and other funding sources, and works cooperatively with RUS but is not a federal agency or a government-sponsored enterprise.

CFC's primary competitor is CoBank, ACB, a federally chartered instrumentality of the United States that is a member of the Farm Credit System. CFC also competes with banks, other financial institutions and the capital markets to provide loans and other financial products to its members. CFC differentiates itself through customer service, product flexibility, and by allocating substantially all net earnings to members in the form of patronage capital and through the members' capital reserve. CFC has developed strong relationships with most of its members over the past 57 years.

CFC is a member-owned, finance cooperative association incorporated under the laws of the District of Columbia. Its principal purpose is to provide its members and associates with financing to supplement the loan programs of RUS of the USDA. CFC extends loans to its rural electric members for construction, acquisitions, system and facility repairs and maintenance, enhancements and ongoing operations. CFC also provides 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. CFC is exempt from federal income taxes under Section 501(c)(4) of the Internal Revenue Code. CFC's objective is not to maximize profit, but rather to offer members cost-based financial products and services. CFC annually allocates its net earnings, which consist of net income excluding the effect of certain noncash accounting entries, to a cooperative educational fund, a general reserve if necessary, members based on each member's patronage of CFC's loan programs during the year, and a members' capital reserve. CFC funds its activities primarily through a combination of public and private issuances of debt securities, member investments and retained equity.

CFC's loan programs include long-term loans with terms of up to 35 years on a senior secured basis and terms of up to five years on an unsecured basis, with amortizing, bullet maturity or serial payment structures. Borrowers may select a fixed interest rate for periods of one to 35 years or a variable interest rate. Line of credit loans are designed primarily to assist borrowers with liquidity and cash management and are generally advanced at variable interest rates, typically revolving facilities. Syndicated line of credit and term loans are typically large financings offered by a group of lenders for tenors that range from several months to five years. CFC may act as lead lender, arranger and/or administrative agent for syndicated loans. Loans to electric utility organizations accounted for approximately 98% of total loans outstanding as of both May 31, 2026 and 2025.

NCSC, doing business as Utility Capital Solutions, is a taxable cooperative incorporated in 1981 in the District of Columbia. NCSC provides financial services for its members and associates, which consist of two classes: NCSC electric and NCSC telecommunications. NCSC electric long-term loans have terms up to 30 years on a senior secured basis. NCSC also provides revolving line of credit loans, equipment financing for leased assets such as vehicles, and participates with other lenders on a syndicated basis in project finance focused on power generation and transmission projects including solar, wind and battery projects. NCSC's telecom portfolio consists primarily of long-term loans to rural local exchange carriers or holding companies of rural local exchange carriers for debt refinancing, construction or upgrades of infrastructure, acquisitions and other corporate purposes, with senior secured long-term loans having terms up to 10 years. Cooperative Securities, a wholly owned subsidiary of NCSC, provides institutional debt placement services and received approval from FINRA in May 2026 to provide services related to debt financing transactions conducted pursuant to Rule 144A of the Securities Act.

CFC's consolidated membership totaled 1,182 members and 559 associates as of May 31, 2026, compared with 1,176 members and 540 associates as of May 31, 2025. CFC membership consists of members in 50 states and three U.S. territories. CFC's members by class as of May 31, 2026 included 844 distribution systems (Class A), 68 power supply systems (Class B), 61 statewide and regional associations including NCSC (Class C), and 1 national association of cooperatives (Class D). NCSC's members and associates as of May 31, 2026 included 458 Class E distribution systems, 3 Class B power supply systems, 7 Class C statewide associations, 208 Class T members, and 515 associates.

For the fiscal year ended May 31, 2026, net income was $1,036.5 million ¹, compared to $1,016.7 million ² in fiscal 2025. Net interest income was $1,388.2 million ³ in fiscal 2026, compared to $1,348.4 million ⁴ in fiscal 2025. Total assets were $37.8 billion ⁵ as of May 31, 2026, compared to $36.1 billion ⁶ as of May 31, 2025. Loans outstanding were $28.7 billion ⁷ as of May 31, 2026, compared to $27.4 billion ⁸ as of May 31, 2025. The allowance for credit losses was $1,003.0 million ⁹ as of May 31, 2026, compared to $1,000.5 million ¹⁰ as of May 31, 2025. Members' equity was $4,631.5 million ¹¹ as of May 31, 2026, compared to $4,393.2 million ¹² as of May 31, 2025.

Electric cooperatives are experiencing one of the largest capital investment cycles in recent decades, driven by native load growth, reserve margin requirements, resource adequacy needs and reliability concerns. According to NERC's 2025 Long-Term Reliability Assessment published in January 2026, summer peak demand is projected to increase by approximately 224 GW ¹³ over the next 10 years, 69% higher than the prior year's projection of 132 GW ¹⁴. Winter peak demand is projected to grow by approximately 245 GW ¹⁵ over the same period. New data centers for AI and the digital economy account for most of the projected increase in North American electricity demand over the next 10 years. While many proposed large-load projects remain in evaluation or negotiation, successful project development could drive significant future infrastructure investment and corresponding demand for capital from CFC. Many G&T cooperatives are financing these projects through a combination of CFC, the capital markets, commercial lenders and RUS, and often require interim financing to bridge RUS approval and funding timelines.

Federal financing programs, including traditional RUS electric loan programs and the Empowering Rural America (New ERA) and Powering Affordable Clean Energy (PACE) programs, continue to represent a significant source of capital for electric cooperatives. Timing gaps between award and disbursement are expected to continue to generate demand for interim and bridge financing from CFC. Cooperative Securities received approval from FINRA in May 2026 to provide services related to debt financing transactions conducted pursuant to Rule 144A of the Securities Act, which may expand NCSC's service offerings.Many electric cooperatives continue to face extended lead times for gas turbines, transformers, switchgear and other critical equipment, which have increased project costs, delayed construction schedules and lengthened the duration of financing CFC's members require. In response to extreme weather events, electric cooperatives are increasing investments in system hardening, grid modernization and other resiliency measures, which may increase demand for capital from CFC.

Management did not disclose specific R&D spending levels, capital expenditure plans, share repurchase authorization amounts, or dividend policy with exact figures in the filing.

The filing identifies several headwinds and constraints. Changing federal regulatory and financing landscape includes the One Big Beautiful Bill Act enacted in July 2025, which phased out or terminated several clean energy tax credits established under the 2022 Inflation Reduction Act, particularly for wind and solar, while largely preserving incentives for battery storage, clean fuels and carbon capture. Efforts to enact comprehensive permitting reform have continued, although a comprehensive legislative package has not been enacted and permitting timelines for major transmission projects remain largely unchanged. Supply chain and equipment constraints continue to affect electric cooperatives with extended lead times for critical equipment. Extreme weather events, including hurricanes, winter storms, heat waves and wildfires, continue to strain electric infrastructure and have required substantial investment to repair, replace and upgrade affected assets.

The filing identifies that there are 11 states in which some or all electric cooperatives are subject to state regulatory oversight of their rates and tariffs by state utility commissions: Arizona, Arkansas, Hawaii, Kentucky, Louisiana, Maine, Maryland, New Mexico, Vermont, Virginia and West Virginia. The Federal Energy Regulatory Commission (FERC) has regulatory authority over the transmission of electric energy in interstate commerce, the sale of electric energy at wholesale in interstate commerce, and the approval and enforcement of reliability standards affecting all users, owners and operators of the bulk power system.

Credit risk is a material risk, as the loan portfolio is concentrated in the rural electric utility industry, with loans to electric utility organizations accounting for approximately 98% of total loans outstanding as of May 31, 2026. The 20 largest borrowers represented 37.4% ¹⁶ of total loans outstanding as of May 31, 2026. Geographic concentration exists, with Texas representing 15.2% ¹⁷ of total loans outstanding as of May 31, 2026. The allowance for credit losses was $1,003.0 million ¹⁸ as of May 31, 2026, and the provision for credit losses was $123.5 million ¹⁹ in fiscal 2026. Liquidity risk is significant, as CFC relies on access to capital markets and other funding sources; total short-term borrowings were $4.9 billion ²⁰ as of May 31, 2026, and total long-term debt was $24.3 billion ²¹ as of May 31, 2026. Interest rate risk is material, as changes in interest rates could affect net interest income and the value of the loan portfolio. Regulatory risk includes potential changes to CFC's tax-exempt status under Section 501(c)(4) of the Internal Revenue Code, which could materially affect financial results.

Management's message emphasizes that CFC was established by and for the rural electric cooperative network to provide financing solutions to electric cooperatives, and the fundamental goal of the overall business model is to work with members to ensure CFC is able to meet their financing needs, as well as provide industry expertise and strategic services. Management highlights that loans to electric utility organizations accounted for approximately 98% of total loans outstanding as of both May 31, 2026 and 2025, and that substantially all electric cooperative borrowers continued to demonstrate stable operating performance and strong financial ratios as of May 31, 2026. Management emphasizes the strategy to maintain diversified funding sources beyond capital market offerings of debt securities, including various short- and long-term unsecured investment products offered to members and their affiliates, access to funds through bank revolving line of credit arrangements, government-guaranteed programs such as funding from the Federal Financing Bank guaranteed by RUS through the Guaranteed Underwriter Program, and a revolving note purchase agreement with Farmer Mac. Management also notes that CFC's objective is not to maximize profit, but rather to offer members cost-based financial products and services.