debt securities, member investments and retained equity. NCSC is a member-owned taxable member-owned cooperative that mayis permitted to provide financing to members of CFC, government or quasi-government entities which own electric utility systems that meet the Rural

We conduct our operations through threeThe CFC business segments, which are based on each of the legal entities included in our consolidated financial statements: CFC, NCSC and RTFC. CFC’s business operations accountsegment has historically accounted for the substantial majority of our consolidated loans and total revenue. LoansConsolidated loans to members totaled $27,063$28,947 million as of November 30, 2020,2021, of which 96% was attributable to CFC. We generated consolidated total revenue, which consists of consolidated net interest income and consolidated fee and other income, of $227 million for the six months ended November 30, 2021 (“current year-to-date period”), of which approximately 99% was attributable to CFC. In comparison, we generated consolidated total revenue of $212 million for the six months ended November 30, 2020 compared with $171 million for the six months ended November 30, 2019 (“same prior year-to-date period”). Our adjusted total revenue was $155 million for the six months ended November 30, 2020, compared with $146 million for the same prior year-to-date period. We provide additional financial information on the financial performance of our business segments in “Note 14—Business Segments.”

The following MD&A is intended to enhance the understanding of our consolidated financial statements by providing material information that we believe is relevant in evaluating our results of operations, financial condition and liquidity and the potential impact of material known events or uncertainties that, based on management’s assessment, are reasonably likely to cause the financial information included in this Report not to be necessarily indicative of our future financial performance. Management monitors a variety of key indicators and metrics to evaluate our business performance. In addition to financialWe discuss these key 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. 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 key measures used by management to evaluate performance, including, among others, net interest income, net interest yield, debt-to-equity ratio and the related non-GAAP adjusted measures, loan activity and credit quality metrics.period. Our MD&A is provided as a supplement to, and should be read in conjunction with, the unaudited consolidated financial statements and related notesincluded in this Report, our audited consolidated financial statements and related notes for the fiscal year ended May 31, 2021 (“fiscal year 2021”) included in our 20202021 Form 10-K and additional information, contained in our 2020 Form 10-K, including the risk factors identifieddiscussed under “Part I—Item“Item 1A. Risk Factors,” contained in our 2021 Form 10-K, as well as additional information contained elsewhere in this Report.

a reconciliation of our non-GAAP adjusted measures to the most comparable U.S. GAAP measures in the section “Non-GAAP Financial Measures.”

OurAs a member-owned, nonprofit finance cooperative, our primary objective as a member-owned cooperative lender is to provide cost-based financial products to our rural electric utility members with access to affordable, flexible financing products while also maintaining a sound, stable financial position required forand adequate liquidity to meet our financial obligations and maintain ongoing investment-grade credit ratings on our debt instruments. Our objectiveratings. Because maximizing profit is not our primary objective, the interest rates on lending products offered to maximize profit; therefore, the rates we charge our member-borrowersmember borrowers reflect our funding costs plus a spread to cover our operating expenses a provision forand estimated credit losses and generate sufficient earnings sufficient to cover interest owed on our debt obligations and achieve interest coverage to meet ourcertain financial objectives.target goals. Our goal is to earnfinancial goals focus on earning an annual minimum adjusted TIER of 1.10 and to maintainmaintaining an adjusted debt-to-equity ratio at approximately 6.00-to-1 or below.

We are subject to period-to-period volatility in our reported U.S. GAAP results due to changes in market conditions and differences in the way our financial assets and liabilities are accounted for under U.S. 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 U.S. GAAP to carry derivatives at fair value on our consolidated balance sheets; 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, the majority of which are longer dated, than receive-fixed swaps, the majority of which are shorter dated, 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,Therefore, as discussed above under “Summary of Selected Financial Data,” management uses our non-GAAP adjusted resultsmeasures to evaluate our operatingfinancial performance. Our adjusted financial results include the realized net periodic contractual interest expense amounts on our interest rate swap settlement amountsswaps but exclude the impact of unrealized forward fair value gains and losses. Certain of the financial covenants in our committed bank revolving line of credit agreements and debt indentures 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.

We reported net income of $136 million and TIER of 1.78 for the three months ended November 30, 2021 (“current quarter”), compared with net income of $161 million and a TIER of 1.92 for the three months ended November 30, 2020 (“current quarter”). In comparison, we reported net income of $242 million and a TIER of 2.16 for the three months ended November 30, 2019 (“same prior-year quarter”). We reported net income of $45 million and TIER of 1.13 for the current year-to-date period, compared with net income of $305 million and a TIER of 1.86 for the six months ended November 30, 2020, compared with a net loss of $82 million and a TIER of 0.80 for the same prior year-to-date period. The significant variance between our reported results for the current-year periods and the same prior-year periods was attributable to mark-to-market changes in the fair value of our derivative instruments. Our debt-to-equity ratio decreasedincreased to 30.6020.58 as of November 30, 2020,2021, from 42.4020.17 as of May 31, 2020, primarily2021, largely due to an increase in debt outstanding to fund growth in our loan portfolio coupled with a decrease in equity fromattributable to the CFC Board of Directors’ authorized patronage capital retirement in July 2021 of $58 million, which was partially offset by our reported net income of $305$45 million for the current year-to-date period.

loans. The increase in the net interest yield reflected the combined impact of a reduction in our average cost of borrowings of 18 basis points to 2.52%, which was partially offset by a decrease in equitythe average yield on our interest-earning assets of 17 basis point to 3.84%. The decreases in our average cost of borrowings and average yield on interest-earning assets were driven by the continued low interest rate environment. We recorded a benefit for credit losses of $3 million for the current quarter, compared with a provision for credit losses of $2 million for the same prior-year quarter. The current-quarter benefit stemmed from the retirementelimination of patronage capitalan asset-specific allowance of $60$3 million authorized byattributable to nonperforming loans totaling $9 million as a result of our receipt of full payment of all amounts due on these loans during the CFC Boardcurrent quarter. The provision for credit losses of Directors$2 million recorded in July 2020 and paidthe same prior-year quarter was primarily attributable to members in September 2020.loan growth during the period.

The increase in net interest income of $16 million, or 8%, to $218 million for the current year-to-date period was attributable to an increase in average interest-earning assets of $1,719 million, or 6%, and an increase in the net interest yield of 313 basis points, or 26%2%, to 1.48% and an. The increase in our average interest-earning assets of $575 million, or 2%.was primarily driven by growth in average total loans. The increase in the net interest yield was largely due to a reduction in our average cost of borrowings of 5820 basis points to 2.70%, partially offset by a decrease in the average yield on interest-earning assets of 25 basis points to 4.01%.

Adjusted net income totaled $49$64 million and adjusted TIER was 1.241.32 for the current quarter, compared with adjusted net income of $44$49 million and adjusted TIER of 1.201.24 for the same prior-year quarter. Adjusted net income totaled $107$118 million and adjusted TIER was 1.261.29 for the six months ended November 30, 2020,current year-to-date period, compared with adjusted net income of $105$107 million and adjusted TIER of 1.231.26 for the same prior year-to-date period. Our adjusted debt-to-equity ratio increasedWhile our goal is to 5.90 as of November 30, 2020, from 5.85 as of May 31, 2020, primarily attributable to a reduction in adjusted equity due to the maturity and redemption of subordinated certificates and the authorized patronage capital retirement amount, partially offset by adjusted net income for the current quarter. Ourmaintain an adjusted debt-to-equity ratio of 5.90approximately 6.00-to-1, the adjusted debt-to-equity ratio of 6.15 as of both November 30, 2020, remained below2021 and May 31, 2021 was above our targeted threshold of 6.00-to-1.goal due to increased borrowings to fund growth in our loan portfolio.

We experienced anThe increase in our adjusted net income of $5$15 million into $64 million for the current quarter from $49 million for the same prior-year quarter largely attributable towas driven by an increase in adjusted net interest income of $7$11 million or 11%, to $72 millionand a favorable shift in our provision for the current quarter.credit losses of $5 million. The increase in adjusted net interest income was driven byof $11 million, or 16%, to $84 million for the current quarter reflected the combined impact of an increase in average interest-earning assets of $1,882 million, or 7%, primarily due to growth in average loans outstanding, and an increase in the adjusted net interest yield of 98 basis points, or 9%8%, to 1.05% and an increase in average interest-earning assets of $575 million, or 2%1.13%. The increase in our adjusted net interest yield reflected the favorable impact of a reduction in our adjusted average cost of borrowings of 3427 basis points to 3.16%2.89%, which was partially offset by a decrease in the average yield on interest-earning assets of 2517 basis points to 4.01%.3.84%, both of which stemmed from the continued low interest rate environment. As noted above in the lower interest rate environment haddiscussion of our reported results, we recorded a favorable impact on our adjusted average costbenefit for credit losses of borrowings and contributed$3 million for the current quarter due to the decreaseelimination of the asset-specific allowance of $3 million attributable to nonperforming loans that were paid in full during the average yield on interest-earnings assets.

The increase in our adjusted net income of $11 million to $118 million for the current year-to-date period from $107 million for the same prior year-to-date period due in part towas primarily driven by the combined impact of an increase in our adjusted net interest income of $14$20 million or 11%, to $145and a decrease in the provision for credit losses of $1 million, which was partially offset by an unfavorable shift in the gains and losses recorded on our investment securities of $10 million. The increase in adjusted net interest income of $20 million, or 14%, to $165 million for the current year-to-date period was driven byattributable to an increase in our average interest-earning assets of $1,719 million, or 6%, primarily due to growth in average loans outstanding, and an increase in the adjusted net interest yield of 7 basis points, or 7%, to 1.04% and an increase in average interest-earning assets of $762 million, or 3%1.11%. The increase in our

See “Non-GAAP Financial Measures” for additional information on our adjusted measures, including a reconciliation of these measures to the most comparable U.S. GAAP measures.

The continued low interest rate environment over the last several years presented an opportunity for our members to obtain new long-term loan advances totaled $1,387 million duringat a lower fixed to maturity interest rate or lock in a lower fixed interest rate to maturity at the same prior year-to-date period,repricing date on existing outstanding long-term loan advances. Because many of which approximately 69% was provided toour members have locked in at or near historic low interest rates on outstanding loan advances for capital expenditures and 25% was provided forextended terms, the refinancingamount of loans made by other lenders. CFC had long-term fixed-rate loans totaling $204that repriced during each fiscal year over the last five fiscal years has gradually decreased, from $1,078 million that werein fiscal year 2016 to $397 million in fiscal year 2021. Long-term fixed-rate loans scheduled to reprice duringover the sixnext 12 months endedtotaled $343 million as of November 30, 2020. Of this total, $198 million repriced to a new long-term fixed rate, $5 million repriced to a long-term variable rate2021, and $1 million was repaid in full. In comparison, CFC had long-term fixed-rate loans totaling $234 million that were scheduled to reprice duringover the same prior year-to-date period,next six months and the subsequent four fiscal years through the fiscal year ended May 31, 2026 totaled $1,390 million as of which $224November 30, 2021, representing an average of $309 million repriced to a new long-term fixed rate, $7 million repriced to a long-term variable rate $3 million was repaid in full.per fiscal year.

We believe the overall credit quality of our loan portfolio remained highstrong as of November 30, 2020, as evidenced by our continued strong credit performance metrics. We had no delinquent loans as of either November 30, 2020 or May 31, 2020, and2021. Historically, we have not experienced any loan defaults or charge-offs since fiscal year 2017. During the fourth quarter of the fiscal year ended May 31, 2020 (“fiscal year 2020”), we classified one loan to a CFC power supply borrower, with an outstanding balance of $168 million as of May 31, 2020, as nonperforming, placed the loan on nonaccrual status and established an asset-specific allowance for credit losses of $34 million as of May 31, 2020. Payments received from the borrower on this loan resulted in a reduction in the outstanding balance to $153 million as of November 30, 2020. The asset-specific allowance for credit losses for this nonperforming loan, which remains on nonaccrual status, was $32 million as of November 30, 2020. We had no other loans classified as nonperforming or on nonaccrual status as of November 30, 2020 or May 31, 2020.

We had loans to two borrowers totaling $219 million classified as nonperforming as of November 30, 2021. In comparison, we had loans to four borrowers totaling $237 million classified as nonperforming as of May 31, 2021. Nonperforming loans represented 0.76% and 0.84% of total loans outstanding as of November 30, 2021 and May 31, 2021, respectively. Loans outstanding to Brazos Electric Power Cooperative, Inc. (“Brazos”), a CFC Texas-based electric power supply borrower that filed bankruptcy in March 2021 due to its exposure to elevated wholesale electric power costs during the February 2021 polar vortex, accounted for $86 million and $85 million of our total nonperforming loans as of November 30, 2021 and May 31, 2021, respectively. Brazos is not permitted to make scheduled loan payments without approval of the bankruptcy court. As a result, we have not received payments from Brazos since March 2021, and its loans outstanding were delinquent as of each respective date. Prior to Brazos’ bankruptcy filing in March 2021, we had not experienced any defaults or charge-offs in our electric utility and telecommunications loan portfolios since fiscal years 2013 and 2017, respectively. The allowance for credit losses forreduction in nonperforming loans of $18 million during the current year-to-date period was due in part to our receipt during the current quarter of full payment of all amounts due on nonperforming loans to two RTFC borrowers totaling $9 million. In addition, we have continued to receive payments on the remaining outstanding nonperforming loan portfolio increased to $59a CFC electric power supply borrower, including a payment of $9 million during the current year-to-date period, which reduced the balance of this loan to $134 million as of November 30, 2020,2021, from $53$143 million as of May 31, 2020, and the allowance coverage ratio increased to 0.22% from 0.20%. The increase in the2021.

Our allowance for credit losses was primarily attributable toof $86 million and allowance coverage ratio of 0.30% as of November 30, 2021 were unchanged from May 31, 2021, reflecting the offsetting impact of our June 1, 2020 adoption of the current expected credit loss (“CECL”) accounting standard, which replaces the incurred loss methodology for estimating credit losses with an expected loss methodology. The incurred loss model delayed the recognition of credit losses until it was probable that a loss had occurred, while the CECL model requires the immediate recognition of expected credit losses over the contractual term for financial instruments that fall within the scope of CECL at the date of origination or purchase of the financial instrument. The CECL model, which is applicable to the measurement of credit losses on financial assets measured at amortized cost and certain off-balance sheet credit exposures, affects our estimates of the allowance for credit losses for our loan portfolio and the reserve for our off-balance sheet credit exposures related to unadvanced loan commitments and financial guarantees. The adoption of CECL resulted in an increase in ourthe collective allowance for credit losses for our loan portfolio of $4 million and a corresponding decrease to retained earningsin the asset-specific allowance of $4 million, recorded through a cumulative-effect adjustment.$3 million. The impact onincrease in the reservecollective allowance was driven by an increase in the default rates utilized in measuring our collective allowance for credit losses, for our off-balance sheet credit exposures relatedshifts in borrower risk rating grades and an increase in loans outstanding. The decrease in the asset-specific allowance stemmed from the elimination of an asset-specific allowance of $3 million attributable to unadvanced loan commitments and financial guarantees was not material. While CECL had no impact on our earnings at adoption on June 1, 2020, subsequent estimates of lifetime expected credit losses for newly recognizednonperforming loans unadvanced loan commitments and financial guarantees, as well as changesthat were paid in full during the period in our estimate of lifetime expected credit losses for existing financial instruments subject to CECL, are now recognized in earnings.current quarter.

We discussprovide additional information on the credit quality of our methodology for estimating the allowance for credit losses under the CECL model in “Note 1—Summary of Significant Accounting Policies” of this Report. We also provide information onloan portfolio and the allowance for credit losses below in the section “Credit Risk—Allowance for Credit Losses” and in “Note 4—Loans” and “Note 5—Allowance for Credit Losses.”Losses” in this Report.

We issue debt primarily to fund growth in our loan portfolio. As such, our outstanding debt volumeoutstanding generally increases and decreases in response to member loan demand. Total debt outstanding was $26,017increased $364 million, or 1% to $27,790 million as of November 30, 2020, an increase of $17 million from May 31, 2020. In the fourth quarter of fiscal year 2020 we increased our cash position to $671 million, as a precaution in case there were disruptions in the capital markets2021, due to Covid-19 that would impact our ability to fund operations in fiscal year 2021. During the first six months of fiscal year 2021 there have not been disruptions in our ability to access the capital markets or in our issuance of debt to our members. As a result we have been able to use the $671 million of cash that was on hand as of May 31, 2020borrowings to fund the majority of our operations through November 30, 2020, at which date our cash balance had been reducedincrease in loans to $167 million. Debt activity during this period consisted of net increases in outstandingmembers. Outstanding dealer commercial paper of $715 million and member commercial paper, select notes and daily liquidity fund notes of $104 million, which together totaled $819 million. This increase was partially offset by net decreases in collateral trust bonds of $351 million, Federal Agricultural Mortgage Corporation (“Farmer Mac”) notes payable of $161 million, medium-term notes of $151 million, borrowings under the United States Department of Agriculture (“USDA”) Guaranteed Underwriter Program (“Guaranteed Underwriter Program”) of $71 million and members’ subordinated certificates of $68 million, which together totaled $802 million. Outstanding dealer commercial paper, which totaled $715$1,040 million as of November 30, 2020,2021 was below our targeted maximum threshold of $1,250 million.

On October 8, 2020, we issued $400 million aggregate principal amountSeptember 13, 2021, Fitch Ratings (“Fitch”) affirmed CFC’s credit ratings and stable outlook. In the prior fiscal quarter, S&P Global Ratings (“S&P”) revised its outlook on CFC to stable from negative, stating that the outlook revision mainly reflected its view that the risk of 1.35% sustainability collateral trust bonds due March 15, 2031.CFC experiencing substantial further losses stemming from the February 2021 polar vortex had diminished. On November 19, 2020, we closed9, 2021, S&P issued a credit ratings report review of CFC in which S&P affirmed CFC’s credit ratings and stable outlook. On December 13, 2021, S&P affirmed CFC’s credit ratings and stable outlook under its revised criteria and updated methodology for rating financial institutions published on a $375 million committed loan facilityDecember 9, 2021. On December 16, 2021, Moody’s Investors Service (“Series R”Moody’s”) from the Federal Financing Bank under the Guaranteed Underwriter Program. Pursuant to this facility, we may borrow any time before July 15, 2025. Each advance is subject to quarterly amortizationaffirmed CFC’s credit ratings and a final maturity not longer thanstable outlook. Our overall issuer credit rating by Moody’s, S&P and Fitch was A1, A- and A+, respectively, as of November 30, years from2021. We present our credit ratings for each debt product type, which remain unchanged as of the date of this Report, in the advance.section “Liquidity Risk—Credit

As of November 30, 2020,2021, our sources ofavailable liquidity readily available for access totaled $7,317$7,063 million, consisting ofof: (i) $167 million in cash and cash equivalents;equivalents of $173 million; (ii) investments in debt securities with aan aggregate fair value of $552$589 million, which is subject to changes inchange based on market value;fluctuations; (iii) up to $2,722$2,597 million available for access under committed bank revolving line of credit agreements; (iv) up to $1,275$1,325 million available under committed loan facilities under the Guaranteed Underwriter Program; and (v) up to $2,601$2,379 million available under a Farmer Mac revolving note purchase agreement, with Farmer Mac, subject to market conditions. In addition to our existing available liquidity of $7,063 million as of November 30, 2021, we expect to receive $1,464 million from scheduled long-term loan principal payments over the next 12 months.

Although our available liquidity of $7,317$7,063 million as of November 30, 2020,2021, was $5,575$147 million in excess of, or 3.2 times,below our long-termtotal debt obligations of $1,742 million over the next 12 months. We currentlymonths of $7,210 million, we believe we can continue to roll over our member short-term investments of $3,458 million as of November 30, 2021, based on our expectation that our available liquidity along with our abilitymembers will continue to access the capital markets as a well-known seasoned issuer of debt and to issue debt to our members andreinvest their excess cash in private placements will be more than sufficient to meet the borrowing needs of our members and to cover the payment of long-term debt maturing over the 12 months subsequent to November 30, 2020.

Our available liquidity of $7,063 million as of November 30, 2020, based on2021, was $3,311 million in excess of, or 1.9 times, our expectation thattotal debt obligations, excluding member short-term investments, over the next 12 months of $3,752 million. Our available liquidity of $7,063 million as of November 30, 2021 combined with scheduled long-term loan principal payments over the next 12 months of $1,464 million together total $8,527 million, which was $4,775 million in excess of, or 2.3 times, our members will continue to reinvest their excess cash in our commercial paper, daily liquidity fund notes, select notes and medium-term notes. total debt obligations, excluding member short-term investments, over the next 12 months of $3,752 million.

We expect to continue accessing the dealer commercial paper market as a cost-effective means of satisfying our incremental short-term liquidity needs. Although the intra-period amount of outstanding dealer commercial paper outstanding may fluctuate based on our liquidity requirements, we intendour intent is to manage our short-term wholesale funding risk by maintaining outstanding dealer commercial paper outstanding at an amount near or below $1,250 million for the foreseeable future. We expect to continue to be in compliance with the covenants underMaintaining our committed bank revolving line of credit agreements which will allow usand continuing to be in compliance with the covenants of these agreements serve to mitigate roll-overour rollover risk, as we can draw on these facilities, if necessary, to repay dealer or member commercial paper that cannot be refinanced with similar debt. In addition, under master repurchase agreements we have with two counterparties, we can obtain short-term funding in secured borrowing transactions by selling investment-grade corporate debt securities

We provide additional information on our liquidity profile and our primary sources and uses of liquidity and our liquidity profile belowfunds, including projected amounts, by quarter, over each of the next six fiscal quarters through the quarter ending May 31, 2023, in the “Liquidity Risk” section “Liquidity Risk.”of this Report.

The COVID-19Although the COVD-19 pandemic continues to have an ongoing disruptive impact on the United States (“U.S.”). The continuing duration and severity of the pandemic and its long-term economic impact remain uncertain. CFC is headquartered in the Commonwealth of Virginia and is following workplace guidelines established by the Commonwealth and the U.S. Center for Disease Control and Prevention. We are currently staffing our office at no more than 25% occupancy, with other personnel working remotely, andpersist, we have limited travel and in-person meetings. To date, our business resiliency plans and technology systems have effectively supported both remote and on-site operations. Based on current conditions, our expectation is that we will maintain current remote working levels for the foreseeable future assuming there are no changes to governmental and public health directives.

We believe weAlthough most of the initial restrictions imposed at the onset of the pandemic in the U.S. have been able to navigate the challengesrelaxed or lifted as a result of the distribution of vaccines, there has been a resurgence of COVID-19 pandemiccases fueled by the recently identified, highly transmissible Omicron variant and the continued spread of the Delta variant. Many states throughout the U.S. are currently experiencing record-breaking levels of COVID-19 cases due to date. As noted above, we currently believe that we have sufficient cash flowthe accelerated spread of these variants, which has led some state and liquiditylocal governments to cover our existing debt obligationsreinstitute measures and meetrestrictions to slow the borrowing needstransmission and mitigate public health risks in certain jurisdictions. Such actions could possibly disrupt the business, activities and operations of CFC, as well as the business and operations of our members. Although we believemembers, the extent to which are highly uncertain and depend on future developments, which include, among others, the severity and duration of the current COVID-19 resurgence and its impact on the overall credit qualityeconomy and other industry sectors; vaccination rates; the longer-term efficacy of vaccinations; and the potential emergence of new, more transmissible or severe variants.

As part of our loan portfolio remains high,credit risk management process, we continue to activelymaintain ongoing communications with our members, closely monitor conditionsdevelopments and developments, includingreview key credit metrics of our borrowers, to facilitate the timely identification and active management of loans to borrowers with potential credit weaknesses and assess any notable shifts in the credit quality of our loan portfolio as well as anydue to the pandemic or to other factors. To date, we believe that the pandemic has not had a significant negative impact on the overall financial performance of our financial position. Assuming no material adverse changesmembers.

As indicated in the credit quality“Liquidity Risk—Projected Near-Term Sources and Uses of Funds” section, we currently anticipate net long-term loan growth over the next 12 months of $879 million. We believe that our borrowers,current projected loan growth, coupled with our current estimated cost of funding this loan growth, will result in an increase in our reported net interest income and adjusted net interest income over the next 12 months relative to the prior 12-month period ended November 30, 2021. Although we expect an increase in our reported net interest income over the next 12 months, we believe that our reported net interest yield will remain flat based on an anticipated increase in the average cost of borrowings required to fund our projected loan growth over the next 12 months. However, we believe that we will experience an increase in our adjusted net interest yield based on our assumption that short-term interest rates will increase over the next 12 months, which we anticipate will reduce our derivative net periodic cash settlements expense and thereby reduce our adjusted average cost of borrowings.

We expect that our financial performance for the fiscal year ended May 31, 2021 (“fiscal year 2021”) will be comparable to or slightly better than our financial performance for fiscal year 2020, absentadjusted debt-to-equity ratio, which excludes the impact of (i) the non-cash impairment chargederivative forward value gains and losses, will remain elevated above our target threshold of $31 million recorded6.00-to-1 in the fourth quarter of fiscal year 2020 resulting from the abandonment of an internal-use software project; (ii) the loan impairment charge of $34 million recorded in the fourth quarter of fiscal year 2020near term due to a projected increase in total debt outstanding to fund the establishment of an asset-specific allowance foranticipated growth in our loan portfolio. As discussed above, we are subject to earnings volatility, often significant, because we do not apply hedge accounting to our interest rate swaps and therefore the outstanding loan to the CFC power supply borrower noted above; and (iii) changesperiodic unrealized fluctuations in the fair value of our derivativesinterest rate swaps are recorded in our earnings. We exclude the impact of derivative forward fair value gains and investment securities thatlosses, which are driven by changes in marketexpected interest rates over the life of the swaps, from certain of our non-GAAP adjusted measures. We are unable to provide directional guidance to the most directly comparable forward-looking GAAP measures because we are unable to predict with a reasonable degree of certainty the exact timing and prices,impact of derivative forward value gains and losses. The majority of our swaps are long-term, with an average remaining life of approximately 14 years as of November 30, 2021. As such, the periodic unrealized forward gains and losses will be largely based on future changes in expected long-term interest rates, which we cannot accurately predict. As indicated by the volatility in our reported earnings, we often experience significant shifts in the unrealized derivative forward value gains and losses recorded each period. Therefore, the unavailable information could have a significant impact on our actual future debt-to-equity ratio, the most directly comparable GAAP measure. We provide a reconciliation of our adjusted debt-to-equity ratio to our reported debt-to-equity ratio as of November 30, 2021 and May 31, 2021 in the section “Non-GAAP Financial Measures,” which illustrates the potential impact that unrealized derivative forward value gains and losses could have on our future reported debt-to-equity ratios.

We continue to believe that our exposure to the significant adverse financial impact on some electric utilities from the surge in wholesale power costs in Texas during the February 2021 polar vortex was primarily limited to our outstanding loans to two CFC electric power supply borrowers, Brazos and Rayburn Country Electric Cooperative, Inc. (“Rayburn”), and that the overall credit quality of our loan portfolio remained strong as of November 30, 2021. Loans outstanding to Brazos and Rayburn of $86 million and $371 million, respectively, together totaled $457 million as of November 30, 2021, of which $180 million was secured and $277 million was unsecured. In June 2021, Texas enacted securitization legislation that offers a financing program for qualifying electric cooperatives exposed to elevated power costs during the February 2021 polar vortex. Brazos and Rayburn both qualify for the Texas-enacted financing program. Rayburn has initiated the securitization financing process to raise funds for eligible costs incurred during the February 2021 polar vortex, as specified in the legislation, and has stated that it intends to use the proceeds to pay down its related outstanding obligation to the Electric Reliability Council of Texas (“ERCOT”). There are many factors, which we are unable to predict.predict, that may impact the completion and outcome of the securitization transaction and the ultimate collectibility of Rayburn’s loans outstanding. Rayburn, however, was current on all of its debt obligations to us as of the date of this Report.

See “Item 1A. Risk Factors” in our 20202021 Form 10-K for a discussion of the potential adverse impact of natural disasters, including weather-related events such as the February 2021 polar vortex, and widespread health emergencies, such as COVID-19, on our business, results of operations, financial condition and liquidity.

The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our 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 underin “Note 1—Summary of Significant Accounting Policies” in our 20202021 Form 10-K. Pursuant to our June 1, 2020 adoption of the CECL accounting standard, we have provided updates to certain of our significant accounting policies, including the allowance for credit losses, in “Note 1—Summary of Significant Accounting Policies” of this Report.

We have identified certainCertain accounting policies asare considered 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 criticalThe determination of the allowance for expected credit losses over the remaining expected life of the loans in our loan portfolio involves a significant degree of management judgment and level of estimation uncertainty. As such, we have identified our accounting policies and estimates involvepolicy governing the determinationestimation of the allowance for credit losses and fair value. Below we have updated ouras a critical accounting policypolicy. We describe our allowance methodology and process for estimating the allowance for credit losses under the CECL model, which involves additional areas involving significant management judgment.“Note 1—Summary of Significant Accounting Policies—Allowance for Credit Losses–Loan Portfolio—Current Methodology” in our 2021 Form 10-K.

Prior toWe identify the adoption of CECL on June 1, 2020, we maintained an allowance based on an estimate of probable incurred losses inherentkey inputs used in our loan portfolio as of each balance sheet date. Under CECL, we are required to maintain an allowance based on a current estimate of credit losses that are expected to occur over the remaining contractual life of the loans in our portfolio. The methods utilized to estimatedetermining the allowance for credit losses, keydiscuss the assumptions that require the most significant management judgment and quantitativecontribute to the estimation uncertainty and qualitative information considered by managementdisclose the sensitivity of our allowance to hypothetical changes in determining the appropriateassumptions underlying the calculation of our reported allowance for credit losses is discussedof $86 million as of May 31, 2021 under “Item 7. MD&A—Critical Accounting Policies and Estimates” in “Note 1—Summary of Significant Accounting Policies” of this Report. The determination ofour 2021 Form 10-K. We regularly evaluate the key inputs and assumptions used in determining the allowance for credit losses entails significant judgment on various risk factors, including our historical loss data, third-party default data and the assessment of a borrower’s capacity to meet its financial obligations. While our estimate of lifetime credit losses is sensitive to each of these inputs, the most notable input that affects the sensitivity of the allowance is the internal risk ratings assigned to each borrower.

Our allowance for credit losses of $86 million and allowance coverage ratio of 0.30% as of November 30, 2021 were unchanged from May 31, 2021, reflecting the offsetting impact of an increase in the collective allowance of $4 million and a decrease in the asset-specific allowance of $3 million. Management has discussed the significant judgments, key inputs and assumptions in applying our critical accounting policiespolicy governing the measurement of the allowance for credit losses with the Audit Committee of the CFC Board of Directors.

We provide information on the significant judgments and assumptions in measuring fair value under “MD&A—Critical Accounting Policies and Estimates” in our 2020 Form 10-K. See “Item 1A. Risk Factors” in our 2020 Form 10-K for a discussion ofdiscuss the risks associated withand uncertainties related to management’s judgments and estimates in applying our accounting policies that have been identified as a critical accounting policy under “Item 1A. Risk Factors—Regulatory and methods.Compliance Risks” in our 2021 Form 10-K. We provide additional information on the allowance for credit losses under “Credit Risk—Allowance for Credit Losses” section and in “Note 5—Allowance for Credit Losses” in this Report.