National Rural Utilities Cooper

What they do

CFC provides loans, letters of credit and guarantees to not-for-profit rural electric distribution and generation and transmission systems, supplementing U.S. Department of Agriculture Rural Utilities Service loan programs. Its principal operations are reported in two segments: CFC, the tax-exempt Section 501(c)(4) electric lender, and NCSC (Utility Capital Solutions), a taxable cooperative serving electric and telecommunications members. CFC funds lending through public and private debt issuance, member investments and retained equity, and as a cooperative cannot issue equity securities.

Revenue drivers

• CFC lending and credit enhancements — CFC is the larger segment, earning net interest income on loans to rural electric members for construction, acquisitions, repairs, maintenance and ongoing operations, plus fees on letters of credit and guarantees of member debt obligations.
• NCSC (Utility Capital Solutions) — The taxable cooperative provides financing to NCSC electric and NCSC telecommunication members; CFC is NCSC's primary funding source under a renewable management agreement and NCSC pays CFC a fee.
• Member investments and debt funding — Funding comes from public and private debt securities, member investments and retained equity; lending rates are set at funding cost plus a spread covering operating expenses and estimated credit losses.
• Broker-dealer activity — Cooperative Securities LLC, a wholly owned NCSC subsidiary organized in 2021, is an SEC-registered broker-dealer and member of FINRA.

Recent performance

Fiscal 2026 net income was $262.1 million, up from $139.7 million in fiscal 2025 but below $553.3 million in fiscal 2024 and $501.5 million in fiscal 2023. Annual net income fell sharply in fiscal 2025 to $139.7 million, which management attributes broadly to interest-rate-driven fair value swings on derivatives. Operating cash flow was $310.5 million in fiscal 2026, up from $207.5 million in fiscal 2025. At May 31, 2026, total assets were $39.70 billion, total liabilities $36.39 billion, shareholder equity $3.29 billion, cash and equivalents $248.8 million, and long-term debt $28.35 billion.

Strategy

CFC's stated objective is not to maximize profit but to offer members cost-based financial products and services, with lending rates set at funding cost plus a spread covering operating expenses and estimated credit losses. The company allocates annual net earnings to a cooperative educational fund, a general reserve if necessary, members based on loan-program patronage, and a members' capital reserve. Funding continues through public and private debt issuance, member investments and retained equity, since CFC as a Section 501(c)(4) cooperative cannot issue equity securities. Management manages interest-rate mismatch with derivatives, primarily pay-fixed interest rate swaps, and evaluates performance using non-GAAP adjusted measures such as adjusted net income and adjusted TIER.

Risks

• Derivative-driven earnings volatility — Because hedge accounting is not applied to interest rate swaps, mark-to-market changes run through earnings, and the pay-fixed portfolio produces losses when rates decline, making reported net income swing widely, as seen between fiscal 2024 and fiscal 2025.
• Interest-rate and market risk — CFC's financial assets and liabilities are interest-rate sensitive and carried at amortized cost while derivatives are at fair value, so changes in rates and the swap curve affect earnings and non-GAAP leverage metrics.
• Loan portfolio credit quality — Results depend on borrower performance, the adequacy of the allowance for credit losses, collateral valuation on impaired loans, and potential charges from foreclosed assets tied to rural electric and telecommunications members.
• Funding access and credit ratings — CFC cannot issue equity and relies on public and private debt issuance and member investments, so changes in its credit ratings or in its ability to access external financing could constrain lending.

Outlook

The 10-Q for the quarter ended February 28, 2026 states that forward-looking statements cover loan volume, allowance adequacy, operating income and expenses, leverage and debt-to-equity ratios, borrower financial performance, impaired loans, and sources and uses of liquidity. Management notes actual results may differ materially due to legislative changes affecting tax status, demand for loan products, lending competition, portfolio composition, external financing access, interest-rate and market volatility, credit ratings, and rural electric industry conditions. The company does not undertake to update forward-looking statements except as required by law.