This Quarterly Report on Form 10-Q (this “Report”) contains certain statements that are considered “forward-looking statements” within the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions, whether in the negative or affirmative. All statements about future expectations or projections, including statements about loan volume, the appropriateness of the allowance for loan losses, operating income and expenses, leverage and debt-to-equity ratios, borrower financial performance, impaired loans, and sources and uses of liquidity, are forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, actual results and performance may differ materially from our forward-looking statements due to several factors. Factors that could cause future results to vary from our forward-looking statements include, but are not limited to, general economic conditions, legislative changes including those that could affect our tax status, governmental monetary and fiscal policies, demand for our loan products, lending competition, changes in the quality or composition of our loan portfolio, changes in our ability to access external financing, changes in the credit ratings on our debt, valuation of collateral supporting impaired loans, charges associated with our operation or disposition of foreclosed assets, technological changes within the rural electric utility industry, regulatory and economic conditions in the rural electric industry, nonperformance of counterparties to our derivative agreements, the costs and effects of legal or governmental proceedings involving us or our members, the impact of natural disasters or public health emergencies, such as the current outbreak of a novel strain of coronavirus (“COVID-19”) that the World Health Organization (“WHO”) declared a global pandemic in March 2020, and the factors listed and described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2019 (“2019 Form 10-K”). and under “Item 1A. Risk Factors” of this Report. Except as required by law, we undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date on which the statement is made.

National Rural Utilities Cooperative Finance Corporation (“CFC”) is a 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, generation and transmission (“power supply”) systems and related facilities. CFC also provides its members 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. CFC is exempt from federal income taxes under Section 501(c)(4) of the Internal Revenue Code. As a member-owned cooperative, CFC’s objective is not to maximize profit, but rather to offer members cost-based financial products and services. CFC funds its activities primarily through a combination of public and private issuances of debt securities, member investments and retained equity. As a Section 501(c)(4) tax-exempt, member-owned cooperative, we cannot issue equity securities.

Our financial statements include the consolidated accounts of CFC, National Cooperative Services Corporation (“NCSC”), Rural Telephone Finance Cooperative (“RTFC”) and subsidiaries created and controlled by CFC to hold foreclosed assets resulting from defaulted loans or bankruptcy. NCSC is a taxable member-owned cooperative that may provide financing to members of CFC, government or quasi-government entities which own electric utility systems that meet the Rural Electrification Act definition of “rural” and for-profit and nonprofit entities that are owned, operated or controlled by, or provide significant benefits to certain members of CFC. RTFC is a taxable Subchapter T cooperative association that provides financing for its rural telecommunications members and their affiliates. CFC and its consolidated entities have not held any foreclosed assets since the quarter ended August 31, 2017. See “Item 1. Business—Overview” in our 2019 Form 10-K for additional information on the business activities of each of these entities. Unless stated otherwise, references to “we,

“we,” “our” or “us” relate to CFC and its consolidated entities. All references to members within this document include members, associates and affiliates of CFC and its consolidated entities.

Management monitors a variety of key indicators to evaluate our business performance. The following MD&A is intended to provide the reader with an understanding of our consolidated results of operations, financial condition and liquidity by discussing the factors influencing changes from period to period and the key measures used by management to evaluate performance, such as net interest income, net interest yield, loan growth, debt-to-equity ratio, credit quality metrics and also non-GAAP measures. The MD&A section is provided as a supplement to, and should be read in conjunction with our unaudited condensed consolidated financial statements and related notes in this Report, our audited consolidated financial statements and related notes in our 2019 Form 10-K and additional information contained in our 2019 Form 10-K, including the risk factors discussed under “Part I—Item 1A. Risk Factors,” as well as any risk factors identified under “Part II—Item 1A. Risk Factors” in this Report.

Table 1 provides a summary of consolidated selected financial data for the three and sixnine months ended November 30,February 29, 2020 and February 28, 2019, and 2018, and as of November 30, 2019February 29, 2020 and May 31, 2019. In addition to financial measures determined in accordance with generally accepted accounting principles in the United States (“GAAP”), management also evaluates performance based on certain non-GAAP measures and metrics, which we refer to as “adjusted” measures. Certain financial covenant provisions in our credit agreements are also based on non-GAAP financial measures. Our key non-GAAP financial measures are adjusted net income, adjusted net interest income, adjusted interest expense, adjusted net interest yield, adjusted times interest earned ratio (“adjusted TIER”) and adjusted debt-to-equity ratio. The most comparable GAAP measures are net income, net interest income, interest expense, net interest yield, TIER and debt-to-equity ratio, respectively. The primary adjustments we make to calculate these non-GAAP measures consist of (i) adjusting interest expense and net interest income to include the impact of net periodic derivative cash settlements expense; (ii) adjusting net income, total liabilities and total equity to exclude the non-cash impact of the accounting for derivative financial instruments; (iii) adjusting total liabilities to exclude the amount that funds CFC member loans guaranteed by RUS, subordinated deferrable debt and members’ subordinated certificates; and (iv) adjusting total equity to include subordinated deferrable debt and members’ subordinated certificates and exclude cumulative derivative forward value gains and losses and accumulated other comprehensive income (“AOCI”). We believe our non-GAAP adjusted measures, which are not a substitute for GAAP and may not be consistent with similarly titled non-GAAP measures used by other companies, provide meaningful information and are useful to investors because management evaluates performance based on these metrics, and certain financial covenants in our committed bank revolving line of credit agreements and debt indentures are based on adjusted measures. See “Non-GAAP Financial Measures” for a detailed reconciliation of these adjusted measures to the most comparable GAAP measures.

Our primary objective as a member-owned cooperative lender is to provide cost-based financial products to our rural electric members while maintaining a sound financial position required for investment-grade credit ratings on our debt instruments. Our objective is not to maximize profit; therefore, the rates we charge our member-borrowers reflect our funding costs plus a spread to cover our operating expenses, a provision for loan losses and earnings sufficient to achieve interest coverage to meet our financial objectives. Our goal is to earn an annual minimum adjusted TIER of 1.10 and to maintain an adjusted debt-to-equity ratio at approximately 6.00-to-1 or below 6.00-to-1.below.

We are subject to period-to-period volatility in our reported GAAP results due to changes in market conditions and differences in the way our financial assets and liabilities are accounted for under GAAP. Our financial assets and liabilities expose us to interest-rate risk. We use derivatives, primarily interest rate swaps, as part of our strategy in managing this risk. Our derivatives are intended to economically hedge and manage the interest-rate sensitivity mismatch between our financial assets and liabilities. We are required under GAAP to carry derivatives at fair value on our consolidated balance sheet; however, the financial assets and liabilities for which we use derivatives to economically hedge are carried at amortized cost. Changes in interest rates and the shape of the swap curve result in periodic fluctuations in the fair value of our derivatives, which may cause volatility in our earnings because we do not apply hedge accounting for our interest rate swaps. As a result, the mark-to-market changes in our interest rate swaps are recorded in earnings. Because our derivative portfolio consists of a higher proportion of pay-fixed swaps than receive-fixed swaps, we generally record derivative losses when interest rates decline and derivative gains when interest rates rise. This earnings volatility generally is not indicative of the underlying economics of our business, as the derivative forward fair value gains or losses recorded each period may or may not be realized over time, depending on the terms of our derivative instruments and future changes in market conditions that impact the periodic cash settlement amounts of our interest rate swaps. As such, management uses our adjusted non-GAAP results to evaluate our operating performance. Our adjusted results include realized net periodic interest rate swap settlement amounts but exclude the impact of unrealized forward fair value gains and losses. Our financial debt covenants are also based on our non-GAAP adjusted results, as the forward fair value gains and losses related to our interest rate swaps do not affect our cash flows, liquidity or ability to service our debt.

The variance of $122$206 million between our reported net incomeloss of $242$277 million for the current quarter and our reported net incomeloss of $120$71 million for the same prior-year quarter was driven by an increase in derivative gainslosses of $120$206 million. We recorded derivative gainslosses of $183$338 million for the current quarter, compared with derivative gains of $63and $132 million for the same prior-year quarter. The derivative gains in both periods were primarily attributable to an increase in the fair value of our pay-fixed swaps due to increases in medium- and long-term swap rates during each period. The rise in medium- and long-term interest rates, however, was more pronounced during the current quarter relative to the same prior-year quarter, resulting in significantly higher derivative gains. Net interest income, which accounted for 95% and 96% of total revenue for both the current quarter and same prior-year quarter, increased by $2 million, or 3%, to $79 million.respectively. The increase was attributable to an increase in our average interest-earning assets of $1,121 million, or 4%, which was partially offset by a decrease in the net interest yield of 2 basis points, or 2%, to 1.17%.

The variance of $455 million between our reported net loss of $359 million for the nine months ended February 29, 2020, and our reported net income of $96 million for the same prior-year period was driven by an unfavorable shift in derivative fair value changes of $489 million. We recorded derivative gainslosses of $71$550 million duringand $62 million for the comparable prior-year periodnine months ended February 29, 2020 and February 28, 2019, respectively, largely due to an increasea decrease in the fair value of our pay-fixed swaps in both periods, resulting from a risedecline in interest rates across the swap yield curve.curve during the nine months ended February 29, 2020 and a decline in medium- and longer-term interest rates during the comparable prior-year period. Net interest income, which accounted for 91%93% and 95% of total revenue for the sixnine months ended November 30,February 29, 2020 and February 28, 2019, and 2018, respectively, increased $11$16 million, or 7%, to $156$240 million. The increase was attributable to the combined impact of an increase in average interest-earning assets of $976$914 million, or 4%3%, and an increase in the net interest yield of 4 basis points, or 4%, to 1.16%1.18%. The increase in the net interest yield was due to a reduction in our average cost of funds of 510 basis points to 3.32%3.26%, which was partially offset by a slight decrease in the average yield on interest-earning assets of 16 basis point to 4.28%4.25%. The decrease in our average cost of funds reflects the impact of the interest savings from the repayment of the 10.375% collateral trust bonds in the first half of fiscal year 2019 and the replacement of this debt with lower-cost funding, which more than offset an increasecombined with a decrease in the average cost of our short-term and variable-rate funding due to a risedecrease in short-term interest rates during fiscal year 2019.2020, as the 3-month London Interbank Offered Rate (“LIBOR”) decreased by 116 basis points to 1.46% and the federal funds rate decreased by 75 basis points to 1.75% during the last twelve months.

Other factors affecting the variance between our results for the sixnine months ended November 30, 2019February 29, 2020 and the comparable prior-year period include an increase in fee income of $7 million due to higher prepayment fees, a gain of $8 million recorded in connection with the July 22, 2019 sale of land and the absence of the loss of $7 million on the early redemption of $300 million of 10.375% collateral trust bonds recorded in the same prior-year period.

Loans to members totaled $26,438$26,823 million as of November 30, 2019,February 29, 2020, an increase of $521$906 million, or 2%3%, from May 31, 2019. The increase in loans was driven by a net increase in long-term loans of $631 million, which was partially offset by a net decrease in revolving line-of-credit loans of $110$858 million. CFC distribution loans, CFC power supply loans, CFC statewide and associate loans and RTFC loans increased by $527$842 million, $23$103 million, $9 million and $11$8 million, respectively, while NCSC loans decreased by $41$57 million.

Long-term loan advances totaled $1,387$1,950 million during the sixnine months ended November 30, 2019,February 29, 2020, with approximately 69%77% of those advances for capital expenditures by members and 25%18% for the refinancing of loans made by other lenders. In comparison, long-term loan advances totaled $814$1,441 million during the same prior-year period, with approximately 83%85% of those advances for capital expenditures and 14%13% for the refinancing of loans made by other lenders. CFC had long-term fixed-rate loans totaling $234$350 million that were scheduled to reprice during the sixnine months ended November 30, 2019.February 29, 2020. Of this total, $224$330 million repriced to a new long-term fixed rate, $7$10 million repriced to a long-term variable rate and $3$10 million was repaid in full. In comparison, CFC had long-term fixed-rate loans totaling $439$676 million that were scheduled to reprice during the same prior-year period, of which $296$490 million repriced to a new long-term fixed rate, $88$119 million repriced to a long-term variable rate and $55$67 million was repaid in full.

The overall credit quality of our loan portfolio remained high as of November 30, 2019,February 29, 2020, as evidenced by our continued strong credit performance metrics. We had no delinquent or nonperforming loans as of November 30, 2019,February 29, 2020, and we have not experienced any loan defaults or charge-offs since fiscal year 2017. Outstanding loans to electric utility organizations represented approximately 99% of total outstanding loan portfolio as of November 30, 2019,February 29, 2020, unchanged from May 31, 2019. We historically have had limited defaults and losses on loans in our electric utility loan portfolio. We generally lend to members on a senior secured basis, which reduces the risk of loss in the event of a borrower default. Of our total loans outstanding, 93% were secured and 7% were unsecured as of November 30, 2019,February 29, 2020, compared to 92% secured and 8% unsecured as of May 31, 2019. The allowance for loan losses was $17$19 million as of November 30, 2019,February 29, 2020, compared with $18 million as of May 31, 2019, and the allowance coverage ratio was 0.06% as of November 30, 2019, and 0.07% as of both February 29, 2020 and May 31, 20192019.

We issue debt primarily to fund growth in our loan portfolio. As such, our outstanding debt volume generally increases and decreases in response to member loan demand. Total debt outstanding increased by $403$631 million, or 2%3%, to $25,565$25,793 million as of November 30, 2019,February 29, 2020, from May 31, 2019, due to an increase in borrowings to fund the increase in loans to members. The increase was primarily attributable to a net increase in member commercial paper, select notes and daily liquidity fund notes totaling $916$324 million, a net increase in dealer commercial paper outstanding of $94$300 million, a net increase in medium-term notes of $205 million and a net increase in Federal Agricultural Mortgage Corporation (“Farmer Mac”) notes payable of $40 million. These increases were partially offset by a net decrease in medium-term notes of $296 million, a net decrease in collateral trust bonds of $297 million and a net decrease in borrowings under USDA’s Guaranteed Underwriter Program (“Guaranteed Underwriter Program”) of $47$255 million. These increases were partially offset by a net decrease in collateral trust bonds of $199 million and a net decrease in Federal Agricultural Mortgage Corporation (“Farmer Mac”) notes payable of $228 million. Outstanding dealer commercial paper totaled $1,039$1,245 million as of November 30, 2019,February 29, 2020, below our targeted maximum threshold of $1,250 million.

On November 26, 2019, we amended the three-year and five-year committed bank revolving line of credit agreements to extend the maturity date of the three-year agreement to November 28, 2022, and to terminate certain bank commitments totaling $125 million under the three-year agreement and $125 million under the five-year agreement. The total commitment

Outlook forOn December 20, 2019, we terminated the Next 12 Months

COVID-19 has spread globally, including to every state in the United States, and has resulted in the WHO declaring COVID-19 to be a global pandemic. On March 13, 2020, the United States declared a national emergency with respect to COVID-19. The initial 15-day social distancing guidelines issued by the U.S. federal government, which were due to expire on March 30, 2020, have been extended through April 30, 2020, and may be extended further, as a measure to reduce the escalation of the spread of COVID-19 in the United States. More than 40 states and certain U.S. territories, including the District of Columbia, have issued orders requiring the closure of non-essential businesses and/or requiring residents to stay at home. We believeare following guidelines established by the Centers for Disease Control and WHO and orders issued by the state and local governments where we operate. We have taken a number of precautionary steps to safeguard our business and our employees from COVID-19, including, but not limited to, implementing employee travel restrictions and telecommuting arrangements, while maintaining business continuity so that we can continue to roll over outstandingdeliver service to and meet the demands of our members. As of March 18, 2020, most of our employees were working remotely, with only certain operationally critical employees working on site at our headquarters. We are monitoring and assessing the impact of the COVID-19 pandemic on a daily basis to ensure that we continue to adhere to guidelines and orders issued by federal, state and local governments.

The effects of COVID-19 and the response to the virus have negatively impacted financial markets and overall economic conditions. On March 27, 2020, the U.S. President signed into law a $2.2 trillion relief bill, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), that is intended to provide emergency relief to several groups and individuals impacted by the COVID-19 pandemic. Among the numerous provisions contained in the CARES Act is the creation of a $349 billion Paycheck Protection Program that provides federal government loan forgiveness for Small Business Administration Section 7(a) loans for small businesses, which may include our members or our members’ customers, to pay up to eight weeks of basic expenses, including utilities such as electric and telephone bills. The CARES Act also adds $45 billion for the disaster relief fund administered by the Federal Emergency Management Agency (“FEMA”) that our members may rely on to restore power after storms and emergencies. In addition, the CARES Act includes funds totaling $900 million for the Low-Income Home Energy Assistance Program, which may assist low-income and moderate-income consumers located in our members’ territories in paying their utility bills. We will continue to evaluate the provisions of the CARES Act and its impact on CFC and our employees as well as our rural utility member short-termcooperatives and their customers.

In light of the extreme volatility and disruptions in the capital and credit markets in early March 2020 resulting from the COVID-19 crisis, including a significant decline in corporate debt and equity issuances and a deterioration in the commercial paper market, we took a number of $3,600precautionary actions in March to enhance our financial flexibility by bolstering our cash position to ensure we have adequate cash readily available to meet both expected and unexpected cash needs without adversely affecting our daily operations. These actions included, but are not limited to, drawing additional advances under our committed credit facilities, revising our objective for the use of our held-to-maturity investment portfolio from previously serving as a supplemental source of liquidity to serving as a readily available source of liquidity and executing a plan for the orderly liquidation of a portion of debt securities from our investment portfolio. We borrowed an additional $625 million under the Guaranteed Underwriter Program and $250 million under the Farmer Mac note purchase agreement. Table 2 below displays our liquidity sources as of March 31, 2020.

As indicated in the above tables, our available liquidity of $8,761 million as of March 31, 2020 was $1,852 million, or 1.3 times, in excess of our expected debt obligations of $6,909 million over the next 12 months. Our members historically have maintained a relatively stable level of short-term investments in CFC in the form of commercial paper, select notes, daily liquidity fund notes and medium-term notes. We currently expect that our members will continue to reinvest their excess cash in our commercial paper, daily liquidity fund notes, select notes and medium-term notes. We expect to continue accessing the dealer commercial paper market as a cost-effective means of satisfying ourthese short-term liquidity needs. Although the intra-period amount of outstanding dealer commercial paper may fluctuate based on our liquidity requirements, we intend to manage our short-term wholesale funding risk by maintaining outstanding dealer commercial paper at an amount near or below $1,250 million for the foreseeable future. We expect to continue to be in compliance with the covenants under our committed bank revolving line of credit agreements, which will allow us to mitigate roll-over risk, as we can draw on these facilities to repay dealer or member commercial paper that cannot be refinanced with similar debt.

Although we anticipatecurrently believe that our adjusted debt-to-equity ratioexcess liquidity along with the ability to access the capital markets as a well-known seasoned issuer of debt will remainbe more than sufficient to cover our debt obligations over the next 12 months subsequent to March 31, 2020, as well as meet the borrowing needs of our members, we continue to review actions that we may take to further enhance our financial flexibility in the event that market conditions deteriorate further and for an extended period.

We provide additional information on our management of liquidity risk, our primary sources and uses of liquidity and our liquidity profile below under “Liquidity.”

In April 2020, management determined that we would not complete an ongoing project to develop a new internal-use loan origination and servicing platform with the current vendor. The project was intended to update our target thresholdloan platform to provide increased functionality and flexibility and enhance the operational efficiency of 6.00-to-1.our lending, loan servicing and loan accounting processes. As a result of the decision to abandon the existing project and select a new vendor, we recognized a non-cash impairment charge of $31 million in the fourth quarter of fiscal year 2020. This non-cash impairment charge represents the total capitalized amount, which is included as a component of fixed assets, on our consolidated balance sheet as of March 31, 2020, for the development of this platform.

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the amount of assets, liabilities, income and expenses in the consolidated financial statements. Understanding our accounting policies and the extent to which we use management’s judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a discussion of our significant accounting policies under “Note 1—Summary of Significant Accounting Policies” in our 2019 Form 10-K.

We have identified certain accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. Our most critical accounting policies and estimates involve the determination of the allowance for loan losses and fair value. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed significant judgments and assumptions in applying our critical accounting policies with the Audit Committee of our board of directors. We provide additional information on our critical accounting policies and estimates under “MD&A—Critical Accounting Policies and Estimates” in our 2019 Form 10-K. See “Item 1A. Risk