10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

FORM 10-Q

__________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to ______

Commission File Number 1-7102

__________________________

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

__________________________

District of Columbia	52-0891669
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
20701 Cooperative Way, Dulles, Virginia	20166
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (703) 467-1800

__________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                     Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                     Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨       Accelerated filer ¨           Non-accelerated filer x            Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes ¨  No x

The Registrant does not issue capital stock because it is a tax-exempt cooperative.

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)

  A S S E T S

		November 30, 2013		May 31, 2013
Cash and cash equivalents	$	301,377	$	177,062
Restricted cash		8,651		7,696
Investments		26,388		31,632
Time deposits		800,000		700,000
Loans to members		20,388,220		20,305,874
Less: Allowance for loan losses		(55,199)		(54,325	)
Loans to members, net		20,333,021		20,251,549
Accrued interest and other receivables		205,084		175,183
Fixed assets, net		104,866		104,508
Debt service reserve funds		39,353		39,803
Debt issuance costs, net		41,457		38,949
Foreclosed assets, net		255,607		261,472
Derivative assets		291,757		257,878
Other assets		23,803		25,919
Total assets	$	22,431,364	$	22,071,651
See accompanying notes.

2

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands)

L I A B I L I T I E S   A N D   E Q U I T Y

		November 30, 2013		May 31, 2013
Short-term debt	$	6,466,990	$	7,719,483
Accrued interest payable		134,150		144,945
Long-term debt		12,307,904		10,696,433
Deferred income		74,115		25,717
Derivative liabilities		397,695		475,278
Subordinated deferrable debt		400,000		400,000
Members’ subordinated certificates:
Membership subordinated certificates		644,757		644,757
Loan and guarantee subordinated certificates		690,390		696,719
Member capital securities		302,135		387,750
Total members’ subordinated certificates		1,637,282		1,729,226
Other liabilities		64,492		69,308
Commitments and contingencies
Total liabilities		21,482,628		21,260,390
CFC equity:
Retained equity		930,424		791,090
Accumulated other comprehensive income		2,651		8,381
Total CFC equity		933,075		799,471
Noncontrolling interest		15,661		11,790
Total equity		948,736		811,261
Total liabilities and equity	$	22,431,364	$	22,071,651
See accompanying notes.

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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands)

		For the three months ended November 30,					For the six months ended November 30,
		2013		2012			2013		2012
Interest income	$	239,254	$	241,630		$	480,325	$	481,715
Interest expense		(165,345)		(174,301	)		(332,930)		(350,897	)
Net interest income		73,909		67,329			147,395		130,818
(Provision for) recovery of loan losses		(1,096)		3,817			(2,374)		(5,305	)
Net interest income after (provision for) recovery of loan losses		72,813		71,146			145,021		125,513
Non-interest income:
Fee and other income		5,125		17,807			9,281		22,765
Derivative (losses) gains		(30,780)		(3,766	)		75,604		(28,358	)
Results of operations of foreclosed assets		(3,269)		(909	)		(7,318)		(5,674	)
Total non-interest income		(28,924)		13,132			77,567		(11,267	)
Non-interest expense:
Salaries and employee benefits		(9,018)		(10,148	)		(19,346)		(20,553	)
Other general and administrative expenses		(9,555)		(9,303	)		(17,842)		(16,068	)
(Provision for) recovery of guarantee liability		(73)		92			(42)		101
Other		(150)		(4,384	)		(298)		(4,547	)
Total non-interest expense		(18,796)		(23,743	)		(37,528)		(41,067	)
Income prior to income taxes		25,093		60,535			185,060		73,179
Income tax expense		(101)		(454	)		(1,802)		(452	)
Net income		24,992		60,081			183,258		72,727
Less: Net income attributable to the noncontrolling interest		(67)		(699	)		(2,785)		(704	)
Net income attributable to CFC	$	24,925	$	59,382		$	180,473	$	72,023

See accompanying notes.

4

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

		For the three months ended November 30,					For the six months ended November 30,
		2013		2012			2013		2012
Net income	$	24,992	$	60,081		$	183,258	$	72,727
Other comprehensive (loss) income:
Add: Unrealized (losses) gains on securities		(1,335)		893			(5,244)		887
Less: Realized gains on derivatives		(249)		(253	)		(495)		(505)
Other comprehensive (loss) income		(1,584)		640			(5,739)		382
Total comprehensive income		23,408		60,721			177,519		73,109
Less: Total comprehensive income attributable to
noncontrolling interest		(62)		(694	)		(2,776)		(693)
Total comprehensive income attributable to CFC	$	23,346	$	60,027		$	174,743	$	72,416

See accompanying notes.

5

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(UNAUDITED)

 (in thousands)

For the six months ended November 30, 2013 and 2012

						Accumulated							Membership
					Total	other		CFC	Unallocated	Members’		Patronage	fees and
			Noncontrolling		CFC	comprehensive		retained	net income	capital		capital	education
		Total	interest		equity	income		equity	(loss)	reserve		allocated	fund
Balance as of May 31, 2013	$	811,261	$   11,790	$	799,471	$    8,381	$	791,090	$   (213,255)	$    410,259	$	591,581	$    2,505
Patronage capital retirement		(40,724)	-		(40,724)	-		(40,724)	-	-		(40,724)	-
Net income		183,258	2,785		180,473	-		180,473	180,473	-		-	-
Other comprehensive loss		(5,739)	(9)		(5,730)	(5,730)		-	-	-		-	-
Other		680	1,095		(415)	-		(415)	-	-		-	(415)
Balance as of November 30, 2013	$	948,736	$    15,661	$	933,075	$    2,651	$	930,424	$   (32,782)	$    410,259	$	550,857	$    2,090
Balance as of May 31, 2012	$	490,755	$   7,592	$	483,163	$    9,199	$	473,964	$   (346,941)	$    272,126	$	546,366	$    2,413
Patronage capital retirement		(35,341)	-		(35,341)	-		(35,341)	-	-		(35,341)	-
Net income		72,727	704		72,023	-		72,023	72,023	-		-	-
Other comprehensive income (loss)		382	(11)		393	393		-	-	-		-	-
Other		(367)	(2)		(365)	-		(365)	-	-		-	(365)
Balance as of November 30, 2012	$	528,156	$    8,283	$	519,873	$    9,592	$	510,281	$   (274,918)	$    272,126	$	511,025	$    2,048

See accompanying notes.

6

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

		For the six months ended November 30,
		2013		2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	183,258	$	72,727
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred income		(6,104)		(4,710	)
Amortization of debt issuance costs and deferred charges		3,647		3,842
Amortization of discount on long-term debt		2,367		-
Amortization of issuance costs for revolving bank lines of credit		1,332		-
Depreciation		2,838		2,625
Provision for loan losses		2,374		5,305
Provision for (recovery of) guarantee liability		42		(101	)
Results of operations of foreclosed assets		7,318		5,674
Derivative forward value		(111,760)		(961	)
Changes in operating assets and liabilities:
Accrued interest and other receivables		(30,795)		13,386
Accrued interest payable		(10,795)		(6,329	)
Deferred income		54,502		-
Other		(3,665)		4,921
Net cash provided by operating activities		94,559		96,379
CASH FLOWS FROM INVESTING ACTIVITIES
Advances made on loans		(3,941,276)		(2,486,149	)
Principal collected on loans		3,859,164		2,300,104
Net investment in fixed assets		(3,196)		(2,961	)
Proceeds from foreclosed assets		8,567		29,110
Investments in foreclosed assets		(10,020)		(57,111	)
Time deposit investments		(100,000)		(250,000	)
Change in restricted cash		(955)		(955	)
Net cash used in investing activities		(187,716)		(467,962	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuances of short-term debt, net		64,751		90,853
Proceeds from issuances of short term debt with original maturity greater than 90 days		468,142		322,406
Repayments of short term debt with original maturity greater than 90 days		(324,820)		(198,172	)
Issuance costs for revolving bank lines of credit		(2,751)		(1,447	)
Issuance costs for subordinated deferrable debt		(150)		-
Proceeds from issuance of long-term debt		1,769,662		1,254,167
Payments for retirement of long-term debt		(1,713,395)		(730,293	)
Proceeds from issuance of members’ subordinated certificates		1,608		55,548
Payments for retirement of members’ subordinated certificates		(5,945)		(6,066	)
Payments for retirement of patronage capital		(39,630)		(33,991	)
Cash paid portion of debt exchange premium		-		(133,406	)
Net cash provided by financing activities		217,472		619,599
NET INCREASE IN CASH AND CASH EQUIVALENTS		124,315		248,016
BEGINNING CASH AND CASH EQUIVALENTS		177,062		191,167
ENDING CASH AND CASH EQUIVALENTS	$	301,377	$	439,183

See accompanying notes.

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NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

		For the six months ended November 30,
		2013		2012
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	336,379	$	353,383
Cash paid for income taxes		152		89
Non-cash financing and investing activities:
Net decrease in debt service reserve funds/debt service reserve certificates		(450)		-
Collateral trust bonds issued as debt exchange premium		-		39,647

See accompanying notes.

8

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1)        General Information and Accounting Policies

(a)       Basis of Presentation

The accompanying financial statements include the consolidated accounts of National Rural Utilities Cooperative Finance Corporation (“CFC”), Rural Telephone Finance Cooperative (“RTFC”), National Cooperative Services Corporation (“NCSC”) and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions, after elimination of intercompany accounts and transactions.

Unless stated otherwise, references to “we,” “our” or “us” represent the consolidation of CFC, RTFC, NCSC and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions. Foreclosed assets are held by two subsidiaries controlled by CFC. Denton Realty Partners, LP (“DRP”) holds a land development loan and a related limited partnership interest. CAH holds our investment in cable and telecommunications operating entities in the United States Virgin Islands (“USVI”), British Virgin Islands and St. Maarten.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. The accounting estimates that require our most significant and subjective judgments include the allowance for loan losses and the determination of the fair value of our derivatives and certain aspects of our foreclosed assets. While we use our best estimates and judgments based on the known facts at the date of the financial statements, actual results could differ from these estimates as future events occur.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2013.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of our results of operations and financial position for the interim periods presented.

(b)       Variable Interest Entities

We are required to consolidate the financial results of RTFC and NCSC because CFC is the primary beneficiary of variable interests in RTFC and NCSC due to its exposure to absorbing the majority of their expected losses and because CFC manages the lending activities of RTFC and NCSC. Under separate guarantee agreements, RTFC and NCSC pay CFC a fee to indemnify against loan losses. CFC is the sole lender to and manages the business operations of RTFC through a management agreement in effect until December 1, 2016, which is automatically renewed for one-year terms thereafter unless terminated by either party. CFC is the primary source of funding to and manages the lending activities of NCSC through a management agreement that is automatically renewable on an annual basis unless terminated by either party. NCSC funds its lending programs through loans from CFC or debt guaranteed by CFC. In connection with these guarantees, NCSC must pay a guarantee fee and purchase from CFC interest-bearing subordinated term certificates in proportion to the related guarantee.

RTFC and NCSC creditors have no recourse against CFC in the event of a default by RTFC and NCSC, unless there is a guarantee agreement under which CFC has guaranteed NCSC or RTFC debt obligations to a third party. At November 30, 2013, CFC had guaranteed $82 million of NCSC debt, derivative instruments and guarantees with third parties, and CFC’s maximum potential exposure for these instruments totaled $89 million. The maturities for NCSC obligations guaranteed by CFC run through 2031. Guarantees of NCSC debt and derivative instruments are not included in Note 10, Guarantees, as the debt and derivatives are reported on the condensed consolidated balance sheet. At November 30, 2013, CFC guaranteed $2 million of RTFC guarantees with third parties. The maturities for RTFC obligations guaranteed by CFC run through 2015 and are renewed on an annual basis. All CFC loans to RTFC and NCSC are secured by all assets and revenue of RTFC and NCSC. At November 30, 2013, RTFC had total assets of $583 million including loans outstanding to members of $467 million, and NCSC had total assets of $757 million including loans outstanding of $732 million. At November 30, 2013, CFC had committed to lend RTFC

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up to $4,000 million, of which $447 million was outstanding. At November 30, 2013, CFC had committed to provide up to $3,000 million of credit to NCSC, of which $799 million was outstanding, representing $717 million of outstanding loans and $82 million of credit enhancements.

(c) Loan Sales

We account for the sale of loans resulting from direct loan sales to third parties and securitization transactions by removing the financial assets from our condensed consolidated balance sheets when control has been surrendered. We retain the servicing performance obligations on these loans and recognize related servicing fees on an accrual basis over the period for which servicing activity is provided. Deferred transaction costs and unamortized deferred loan origination costs related to the loans sold are included in the calculation of the gain or loss on the sale. We do not hold any continuing interest in the loans sold to date other than servicing performance obligations. We have no obligation to repurchase loans from the purchaser, except in the case of breaches of representations and warranties.

During the six months ended November 30, 2013 and 2012, we sold CFC loans with outstanding balances totaling $37 million and $98 million, respectively, at par for cash. We recorded a loss on sale of loans, representing the unamortized deferred loan origination costs and transaction costs for the loans sold, which was immaterial during the six months ended November 30, 2013 and 2012.

(d)          Interest Income

Interest income on loans is recognized using the effective interest method. The following table presents the components of interest income:

		For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)		2013		2012		2013		2012
Interest on long-term fixed-rate loans	$	221,952	$	218,247	$	446,535	$	436,187
Interest on long-term variable-rate loans		4,826		4,893		9,654		10,918
Interest on line of credit loans		7,505		7,413		15,077		15,105
Interest on restructured loans		-		7,625		136		13,087
Interest on investments		1,817		1,576		3,753		2,514
Fee income (1)		3,154		1,876		5,170		3,904
Total interest income	$	239,254	$	241,630	$	480,325	$	481,715

(1) Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Deferred income on the condensed consolidated balance sheets primarily includes deferred conversion fees totaling $69 million and $21 million at November 30, 2013 and May 31, 2013, respectively.

(e)          Interest Expense

The following table presents the components of interest expense:

		For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)		2013		2012		2013		2012
Interest expense on debt (1):
Short-term debt	$	1,607	$	1,697	$	3,039	$	3,316
Medium-term notes		20,980		24,833		42,551		52,716
Collateral trust bonds		74,858		82,271		151,656		163,710
Subordinated deferrable debt		4,750		2,807		9,500		5,613
Subordinated certificates		20,494		20,528		41,120		40,882
Long-term notes payable		38,759		37,915		76,698		76,311
Debt issuance costs (2)		1,782		1,905		3,647		3,842
Fee expense (3)		2,115		2,345		4,719		4,507
Total interest expense	$	165,345	$	174,301	$	332,930	$	350,897

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to the issuance of debt, principally underwriters’ fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3) Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements.

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We exclude indirect costs, if any, related to funding activities from interest expense.

(f)         Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We use derivatives such as interest rate swaps and treasury rate locks to mitigate interest rate risk. Consistent with the accounting standards for derivative financial instruments, we record derivative instruments (including certain derivative instruments embedded in other contracts) on the condensed consolidated balance sheets as either an asset or liability measured at fair value. In recording the fair value of derivative assets and liabilities, we do not net our positions under contracts with individual counterparties. Accrued cash settlements on our derivatives are recorded as accrued interest and other receivables and accrued interest payable line items of the condensed consolidated balance sheet. Changes in the fair value of derivative instruments along with realized gains and losses from cash settlements are recognized in the derivative gains (losses) line item of the condensed consolidated statement of operations unless specific hedge accounting criteria are met.

We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. If applicable hedge accounting criteria are satisfied, the change in fair value of derivative instruments is recorded to other comprehensive income, and net cash settlements are recorded in interest expense. The gain or loss on derivatives used as a cash flow hedge of a forecasted debt transaction is recorded as a component of other comprehensive income (loss) and amortized as interest expense using the effective interest method over the term of the hedged debt. Any ineffectiveness in the hedging relationship is recognized in the derivative gains (losses) line of the statement of operations.

Cash activity associated with interest rate swaps is classified as an operating activity in the condensed consolidated statements of cash flows.

(g)        Reclassifications

Reclassifications of prior period amounts have been made to conform to the current reporting format and the presentation in our Form 10-Q for the six months ended November 30, 2013. Specifically, time deposits with financial institutions have been reclassified from the investments line item and presented as a separate line item on the condensed consolidated balance sheet as of May 31, 2013.

           (h)       Immaterial Correction of Errors

During the third quarter of fiscal year 2013, we identified two errors in the condensed consolidated statement of cash flows related to (1) the classification of advances and sale proceeds of loans sold and (2) the presentation of short-term debt with an original maturity of greater than 90 days. We corrected our previously reported condensed consolidated statement of cash flows for the six months ended November 30, 2012 herein to reflect the impact of the immaterial errors. The errors and the corrections have no effect on the change in cash, our total cash balance, liquidity, condensed consolidated balance sheet, condensed consolidated statement of operations, key ratios or covenant compliance for any period. We concluded that the errors were not material to any of the previously reported quarterly or annual periods.

The effect of recording the correction of the immaterial errors in the condensed consolidated statement of cash flows for the six months ended November 30, 2012, is presented below:

		For the six months ended November 30, 2012
(dollar amounts in thousands)		As Filed		Adjustment		Corrected
Advances made on loans	$	(2,584,296)	$	98,147	$	(2,486,149)
Net proceeds from sale of loans		98,147		(98,147)		-
Proceeds from issuances of short-term debt, net		215,087		(124,234)		90,853
Proceeds from issuances of short term debt with original maturity greater than		-		322,406		322,406
90 days
Repayments of short term debt with original maturity greater than 90 days		-		(198,172)		(198,172)

(i)      New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update, Disclosures about Offsetting Assets and Liabilities, which requires enhanced disclosures about certain financial assets and liabilities that are subject to enforceable master netting agreements or similar agreements, or that have otherwise been offset on the balance sheet under certain specific conditions that permit net presentation. In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies that the scope of the above guidance is limited to derivatives, repurchase and reverse repurchase agreements,

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and securities borrowing and lending transactions. The guidance was effective for the Company beginning in the first quarter of fiscal year 2014. See Note 8, Derivative Financial Instruments, for additional disclosures about offsetting assets and liabilities.

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which requires enhanced disclosures of the amounts reclassified out of Accumulated Other Comprehensive Income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of Accumulated Other Comprehensive Income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. The guidance was effective for the Company beginning in the first quarter of fiscal year 2014 and did not have a material effect on the condensed consolidated financial statements, as the amounts reclassified out of other comprehensive income are immaterial for all periods presented.

(2)         Investments

Our investments include Federal Agricultural Mortgage Corporation Series A preferred stock with a cost basis of $30 million and fair value of $24 million and $29 million at November 30, 2013 and May 31, 2013, respectively, and an unrealized loss of $6 million and $1 million, respectively, recorded in accumulated other comprehensive income on the condensed consolidated balance sheet. The investment has been in a continuous unrealized loss position for less than twelve months. Management does not intend to sell this investment in the foreseeable future and believes the decline is temporary. Our investment in this Series A preferred stock is classified as available-for-sale and therefore recorded in the condensed consolidated balance sheets at fair value.

Our investments also include Federal Agricultural Mortgage Corporation Class A common stock with a cost basis of $0.5 million and a fair value of $2.3 million and $2.2 million at November 30, 2013 and May 31, 2013, respectively, and an unrealized gain of $1.8 million and $1.7 million, respectively, recorded in accumulated other comprehensive income on the condensed consolidated balance sheet. Our investment in this Class A common stock is classified as available-for-sale and therefore recorded in the condensed consolidated balance sheets at fair value.

(3)         Loans and Commitments

Loans outstanding to members and unadvanced commitments by loan type and by member class are summarized as follows:

		November 30, 2013				May 31, 2013
(dollar amounts in thousands)		Loans outstanding		Unadvanced commitments (1)		Loans outstanding		Unadvanced commitments (1)
Total by loan type (2):
Long-term fixed-rate loans	$	18,149,347	$	-	$	17,918,268	$	-
Long-term variable-rate loans		691,568		5,134,559		782,006		4,718,162
Loans guaranteed by RUS		204,465		-		210,815		-
Line of credit loans		1,333,050		8,880,648		1,385,228		8,704,586
Total loans outstanding		20,378,430		14,015,207		20,296,317		13,422,748
Deferred origination costs		9,790		-		9,557		-
Less: Allowance for loan losses		(55,199)		-		(54,325)		-
Net loans outstanding	$	20,333,021	$	14,015,207	$	20,251,549	$	13,422,748
Total by member class (2):
CFC:
Distribution	$	15,019,692	$	9,414,509	$	14,941,192	$	8,948,826
Power supply		4,094,415		3,133,967		4,007,669		3,145,518
Statewide and associate		65,207		107,493		70,956		102,087
CFC total		19,179,314		12,655,969		19,019,817		12,196,431
RTFC		466,863		305,649		503,359		317,344
NCSC		732,253		1,053,589		773,141		908,973
Total loans outstanding	$	20,378,430	$	14,015,207	$	20,296,317	$	13,422,748

(1) The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2) Includes non-performing and restructured loans.

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Non-performing and restructured loans outstanding and unadvanced commitments to members included in the table on page 12 are summarized as follows by loan type and by company:

		November 30, 2013				May 31, 2013
		Loans		Unadvanced		Loans		Unadvanced
(dollar amounts in thousands)		outstanding		commitments (1)		outstanding		commitments (1)
Non-performing and restructured loans:
Non-performing loans: CFC:
Line of credit loans	$	5,000	$	-	$	5,000	$	-
RTFC:
Long-term fixed-rate loans		3,010		-		3,690		-
Long-term variable-rate loans		2,784		-		6,807		-
Total non-performing loans	$	10,794	$	-	$	15,497	$	-
Restructured loans:
CFC:
Long-term fixed-rate loans	$	7,584	$	-	$	46,953	$	-
Line of credit loans (2)		-		-		-		5,000
Total restructured loans	$	7,584	$	-	$	46,953	$	5,000

(1) The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2) The unadvanced commitment is part of the terms outlined in the related restructure agreement. Loans advanced under these commitments would be classified as performing. Principal and interest due under these performing loans would be in addition to scheduled payments due under the restructured loan agreement.

Unadvanced Loan Commitments

A total of $1,948 million and $1,703 million of unadvanced commitments at November 30, 2013 and May 31, 2013, respectively, represented unadvanced commitments related to committed lines of credit loans that are not subject to a material adverse change clause at the time of each loan advance. As such, we will be 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 committed lines of credit that are not subject to a material adverse change clause at November 30, 2013, and the related maturities by fiscal year and thereafter as follows:

	Available	Notional maturities of committed lines of credit
(dollar amounts in thousands)	balance	2014	2015	2016	2017	2018	Thereafter
Committed lines of  credit	$ 1,947,800	$     44,048	$   63,776	$     61,000	$ 636,111	$  894,080	$      248,785

The remaining unadvanced commitments totaling $12,067 million and $11,720 million at November 30, 2013 and May 31, 2013, respectively, were generally subject to material adverse change clauses. 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 imposition of borrower-specific restrictions, or by additional conditions that must be met prior to advancing funds.

Unadvanced 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 cover maintenance and capital expenditure work plans for periods of up to five years and draw down on the facility over that time. In addition, borrowers will typically request an amount in excess of their immediate estimated loan requirements to avoid the expense related to seeking additional loan funding for unexpected items.

The above items all contribute to our expectation that the majority of the unadvanced commitments will expire without being fully drawn upon and that the total unadvanced amount does not necessarily represent future cash funding requirements.

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Payment Status of Loans

The tables below show an analysis of the age of the recorded investment in loans outstanding by member class:

		November 30, 2013
(dollar amounts in thousands)		30-89 days past due		90 days or more past due (1)		Total past due		Current		Total financing receivables		Non-accrual loans
CFC:
Distribution	$	-	$	-	$	-	$	15,019,692	$	15,019,692	$	7,584
Power supply		-		5,000		5,000		4,089,415		4,094,415		5,000
Statewide and associate		-		-		-		65,207		65,207		-
CFC total		-		5,000		5,000		19,174,314		19,179,314		12,584
RTFC		-		3,858		3,858		463,005		466,863		5,794
NCSC		-		-		-		732,253		732,253		-
Total loans outstanding	$	-	$	8,858	$	8,858	$	20,369,572	$	20,378,430	$	18,378
As a % of total loans		0.00%		0.04%		0.04%		99.96%		100.00%		0.09%

(1) All loans 90 days or more past due are on non-accrual status.

		May 31, 2013
(dollar amounts in thousands)		30-89 days past due		90 days or more past due (1)		Total past due		Current		Total financing receivables		Non-accrual loans
CFC:
Distribution	$	2,841	$	-	$	2,841	$	14,938,351	$	14,941,192	$	7,584
Power supply		-		5,000		5,000		4,002,669		4,007,669		5,000
Statewide and associate		-		-		-		70,956		70,956		-
CFC total		2,841		5,000		7,841		19,011,976		19,019,817		12,584
RTFC		4,163		4,156		8,319		495,040		503,359		10,497
NCSC		-		-		-		773,141		773,141		-
Total loans outstanding	$	7,004	$	9,156	$	16,160	$	20,280,157	$	20,296,317	$	23,081
As a % of total loans		0.03%		0.05%		0.08%		99.92%		100.00%		0.11%

(1) All loans 90 days or more past due are on non-accrual status.

Credit Quality

We monitor the credit quality and performance statistics of our financing receivables in an ongoing manner to provide a balance between the credit needs of our members and the requirements for sound credit quality of the loan portfolio. We evaluate the credit quality of our loans using an internal risk rating system that employs similar criteria for all member classes.

Our internal risk rating system is based on a determination of a borrower’s risk of default utilizing both quantitative and qualitative measurements.

We have grouped our risk ratings into the categories of pass and criticized based on the criteria below.

(i)  Pass:  Borrowers that are not experiencing difficulty and/or not showing a potential or well-defined credit weakness.

(ii) Criticized:  Includes borrowers categorized as special mention, substandard and doubtful as described below:

·   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 weakness and the full collection of principal and interest is questionable or improbable.

Borrowers included in the pass, special mention, and substandard categories are reflected in the general portfolio of loans. Borrowers included in the doubtful category are reflected in the impaired portfolio of loans. Each risk rating is reassessed annually based on the receipt of the borrower’s audited financial statements; however, interim downgrades and upgrades may take place at any time as significant events or trends occur.

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The following table presents our loan portfolio by risk rating category and member class based on available data as of:

		November 30, 2013						May 31, 2013
(dollar amounts in thousands)		Pass		Criticized		Total		Pass		Criticized		Total
CFC:
Distribution	$	15,001,056	$	18,636	$	15,019,692	$	14,922,558	$	18,634	$	14,941,192
Power supply		4,089,415		5,000		4,094,415		4,002,669		5,000		4,007,669
Statewide and associate		64,924		283		65,207		70,668		288		70,956
CFC total		19,155,395		23,919		19,179,314		18,995,895		23,922		19,019,817
RTFC		450,668		16,195		466,863		483,058		20,301		503,359
NCSC		728,482		3,771		732,253		770,419		2,722		773,141
Total loans outstanding	$	20,334,545	$	43,885	$	20,378,430	$	20,249,372	$	46,945	$	20,296,317

Loan Security

Except when providing line of credit loans, we typically lend to our members on a senior secured basis. Long-term loans are typically secured on a parity with other secured lenders (primarily RUS), if any, by all assets and revenue of the borrower with exceptions typical in utility mortgages. Line of credit loans are generally unsecured. In addition to the lien and security interest we receive under the mortgage, our member borrowers are also required to achieve certain financial ratios as required by loan covenants.

The following table summarizes our secured and unsecured loans outstanding by loan type and by company:

(dollar amounts in thousands)			November 30, 2013								May 31, 2013
Total by loan type:			Secured	%			Unsecured	%			Secured	%			Unsecured	%
	Long-term fixed-rate loans	$	17,089,122	94	%	$	1,060,225	6	%	$	16,871,594	94	%	$	1,046,674	6	%
	Long-term variable-rate loans		607,643	88			83,925	12			676,075	86			105,931	14
	Loans guaranteed by RUS		204,465	100			-	-			210,815	100			-	-
	Line of credit loans		303,417	23			1,029,633	77			294,575	21			1,090,653	79
	Total loans outstanding	$	18,204,647	89		$	2,173,783	11		$	18,053,059	89		$	2,243,258	11
Total by company:
	CFC	$	17,243,451	90	%	$	1,935,863	10	%	$	17,049,029	90	%	$	1,970,788	10	%
	RTFC		446,007	96			20,856	4			482,647	96			20,712	4
	NCSC		515,189	70			217,064	30			521,383	67			251,758	33
	Total loans outstanding	$	18,204,647	89		$	2,173,783	11		$	18,053,059	89		$	2,243,258	11

Loan Loss Allowance

We maintain an allowance for loan losses at a level estimated by management to provide for probable losses inherent in the loan portfolio.

The activity in the loan loss allowance summarized in the tables below reflects a disaggregation by company of the allowance for loan losses by company:

		As of and for the three months ended November 30, 2013
(dollar amounts in thousands)		CFC		RTFC		NCSC			Total
Balance as of August 31, 2013	$	43,336	$	8,497	$	3,823		$	55,656
(Recovery of) provision for loan losses		(627)		968		755			1,096
Charge-offs		-		(1,606)		-			(1,606)
Recoveries of loans previously charged-off		53		-		-			53
Balance as of November 30, 2013	$	42,762	$	7,859	$	4,578		$	55,199
		As of and for the three months ended November 30, 2012
(dollar amounts in thousands)		CFC		RTFC		NCSC			Total
Balance as of August 31, 2012	$	136,781	$	8,877	$	6,843	$		152,501
(Recovery of) provision for loan losses		(3,256)		(563)		2			(3,817)
Recoveries of loans previously charged-off		53		-		-			53
Balance as of November 30, 2012	$	133,578	$	8,314	$	6,845	$		148,737

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		As of and for the six months ended November 30, 2013
(dollar amounts in thousands)		CFC		RTFC		NCSC			Total
Balance as of May 31, 2013	$	41,246	$	9,158	$	3,921		$	54,325
Provision for loan losses		1,410		307		657			2,374
Charge-offs		-		(1,606)		-			(1,606)
Recoveries of loans previously charged-off		106		-		-			106
Balance as of November 30, 2013	$	42,762	$	7,859	$	4,578		$	55,199
		As of and for the six months ended November 30, 2012
(dollar amounts in thousands)		CFC		RTFC		NCSC			Total
Balance as of May 31, 2012	$	126,941	$	8,562	$	7,823	$		143,326
Provision for (recovery of) loan losses		6,531		(248)		(978)			5,305
Recoveries of loans previously charged-off		106		-		-			106
Balance as of November 30, 2012	$	133,578	$	8,314	$	6,845	$		148,737

Our allowance for loan losses includes a specific valuation allowance related to individually-evaluated impaired loans, as well as a general reserve for other probable incurred losses for loans that are collectively evaluated. The tables below present the loan loss allowance and the recorded investment in outstanding loans by impairment methodology and by company:

		November 30, 2013
(dollar amounts in thousands)		CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	42,762	$	6,041	$	4,578	$	53,381
Individually evaluated		-		1,818		-		1,818
Total ending balance of the allowance	$	42,762	$	7,859	$	4,578	$	55,199
Recorded investment in loans:
Collectively evaluated	$	19,166,730	$	461,069	$	732,253	$	20,360,052
Individually evaluated		12,584		5,794		-		18,378
Total recorded investment in loans	$	19,179,314	$	466,863	$	732,253	$	20,378,430
Loans to members, net (1)	$	19,136,552	$	459,004	$	727,675	$	20,323,231

		May 31, 2013
(dollar amounts in thousands)		CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	41,246	$	5,731	$	3,921	$	50,898
Individually evaluated		-		3,427		-		3,427
Total ending balance of the allowance	$	41,246	$	9,158	$	3,921	$	54,325
Recorded investment in loans:
Collectively evaluated	$	18,967,864	$	492,862	$	773,141	$	20,233,867
Individually evaluated		51,953		10,497		-		62,450
Total recorded investment in loans	$	19,019,817	$	503,359	$	773,141	$	20,296,317
Loans to members, net (1)	$	18,978,571	$	494,201	$	769,220	$	20,241,992

(1) Excludes deferred origination costs of $10 million at November 30, 2013 and May 31, 2013.

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Impaired Loans

Our recorded investment in individually-impaired loans and the related specific valuation allowance is summarized below by member class:

		November 30, 2013				May 31, 2013
(dollar amounts in thousands)		Recorded investment		Related allowance		Recorded investment		Related allowance
With no specific allowance recorded:
CFC/Distribution	$	7,584	$	-	$	46,953	$	-
CFC/Power Supply		5,000		-		5,000		-
Total		12,584		-		51,953		-
With a specific allowance recorded:
RTFC		5,794		1,818		10,497		3,427
Total		5,794		1,818		10,497		3,427
Total impaired loans	$	18,378	$	1,818	$	62,450	$	3,427

The recorded investment for impaired loans was equal to the total unpaid principal balance for impaired loans as of November 30, 2013 and May 31, 2013. The table below represents the average recorded investment in impaired loans and the interest income recognized by member class:

		For the three months ended November 30,
		2013		2012		2013		2012
(dollar amounts in thousands)		Average recorded investment				Interest income recognized
CFC/Distribution	$	7,584	$	70,706	$	-	$	7,625
CFC/Power Supply		5,000		5,000		-		-
RTFC		7,295		6,618		-		-
Total impaired loans	$	19,879	$	82,324	$	-	$	7,625

		For the six months ended November 30,
		Average recorded investment				Interest income recognized
(dollar amounts in thousands)		2013		2012		2013		2012
CFC/Distribution	$	14,116	$	277,891	$	136	$	13,087
CFC/Power Supply		5,000		5,000		-		-
RTFC		8,838		6,754		-		-
Total impaired loans	$	27,954	$	289,645	$	136	$	13,087

Non-performing and Restructured Loans

Foregone interest income as a result of holding loans on non-accrual status:

		For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)		2013		2012		2013		2012
Non-performing loans	$	142	$	373	$	321	$	780
Restructured loans		122		-		244		-
Total	$	264	$	373	$	565	$	780

At November 30, 2013 and May 31, 2013, non-performing loans totaled $11 million or 0.1 percent, of loans outstanding and $15 million or 0.1 percent, of loans outstanding, respectively. One borrower in this group is currently in bankruptcy. The members of the borrower filed a disclosure statement and draft plan of liquidation on October 18, 2013. Certain secured noteholders filed a disclosure statement and draft plan of reorganization on December 17, 2013. Each disclosure statement and plan is subject to certain changes, approval of the bankruptcy court and voting by impaired creditors. A status conference and hearing on both disclosure statements is scheduled for January 14, 2014. Another borrower in this group is contesting a ruling that it is required to repay state Universal Service Fund (“USF”) payments received. There is one other borrower in this group that is currently seeking a buyer for its system, as it is not anticipated that it will have sufficient cash flow to repay its loans without the proceeds from the sale of the business. It is currently anticipated that even with the sale of the business, there will not be sufficient funds to repay the full amount owed. We have approval rights with respect to the sale of this company.

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At November 30, 2013 and May 31, 2013, we had restructured loans totaling $8 million, or 0.04 percent, of loans outstanding and $47 million, or 0.2 percent, of loans outstanding, respectively, all of which were performing according to their restructured terms. No interest income was accrued on restructured loans during the three months ended November 30, 2013 compared to $8 million of interest income during the prior-year period. Approximately $0.1 million of interest income was accrued on restructured loans during the six months ended November 30, 2013, compared with $13 million of interest income in the prior-year period. One of the restructured loans totaling $39 million at May 31, 2013, was refinanced without concession during the first quarter of fiscal year 2014, with the new loan classified as performing at November 30, 2013. This loan was on accrual status since the time of restructuring. At November 30, 2013, all restructured loans were on non-accrual status.

We believe our allowance for loan loss is adequate to cover the losses inherent in our loan portfolio at November 30, 2013.

Pledging of Loans and Loans on Deposit

We are required to pledge eligible mortgage notes in an amount at least equal to the outstanding balance of our secured debt.

The following table summarizes our loans outstanding as collateral pledged to secure our collateral trust bonds, Clean Renewable Energy Bonds and notes payable to the Federal Agricultural Mortgage Corporation and the amount of the corresponding debt outstanding (see Note 5, Short-Term Debt and Credit Arrangements and Note 6, Long-Term Debt).

(dollar amounts in thousands)		November 30, 2013		May 31, 2013
Collateral trust bonds:
2007 indenture
Distribution system mortgage notes	$	5,536,853	$	5,674,804
RUS guaranteed loans qualifying as permitted investments		163,630		165,823
Total pledged collateral	$	5,700,483	$	5,840,627
Collateral trust bonds outstanding		4,579,372		4,679,372
1994 indenture
Distribution system mortgage notes	$	1,599,727	$	1,641,858
Collateral trust bonds outstanding		1,460,000		1,465,000
Federal Agricultural Mortgage Corporation:
Distribution and power supply system mortgage notes	$	1,693,828	$	1,795,947
Notes payable outstanding		1,529,286		1,542,474
Clean Renewable Energy Bonds Series 2009A:
Distribution and power supply system mortgage notes	$	22,467	$	23,536
Cash		8,651		7,634
Total pledged collateral	$	31,118	$	31,170
Notes payable outstanding		19,888		19,888

We are required to maintain collateral on deposit in an amount at least equal to the balance of debt outstanding to the Federal Financing Bank of the United States Treasury issued under the Guaranteed Underwriter program of the U.S. Department of Agriculture (the “Guaranteed Underwriter Program”). See Note 6, Long-Term Debt.

The following table shows the collateral on deposit and the amount of the corresponding debt outstanding:

(dollar amounts in thousands)		November 30, 2013		May 31, 2013
Federal Financing Bank
Distribution and power supply system mortgage notes on deposit	$	4,453,299	$	3,903,786
Notes payable outstanding		3,999,000		3,674,000

(4)        Foreclosed Assets

Assets received in satisfaction of loan receivables are initially recorded at fair value when received and are subsequently evaluated periodically for impairment. These assets are classified on the condensed consolidated balance sheets as foreclosed assets. At November 30, 2013, all foreclosed assets were held by DRP and CAH, which are wholly-owned subsidiaries of CFC.

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The activity for foreclosed assets is summarized below:

		As of and for the six months ended November 30, 2013
(dollar amounts in thousands)		CAH		DRP		Total
Balance as of May 31, 2013	$	248,049	$	13,423	$	261,472
Results of operations		(6,651)		(667)		(7,318)
Cash investments (proceeds)		5,953		(4,500)		1,453
Balance as of November 30, 2013	$	247,351	$	8,256	$	255,607

During the six months ended November 30, 2013, our investment in the DRP foreclosed assets decreased primarily due to net cash proceeds received of $4 million from the sale of raw land and developed lots.

(5)         Short-Term Debt and Credit Arrangements

The following is a summary of short-term debt outstanding:

		November 30, 2013		May 31, 2013
(dollar amounts in thousands)
Short-term debt:
Commercial paper sold through dealers, net of discounts (1)	$	1,876,868	$	2,009,884
Commercial paper sold directly to members, at par (1)		1,011,155		812,141
Commercial paper sold directly to non-members, at par (1)		25,006		39,298
Select notes		588,590		358,390
Daily liquidity fund notes sold directly to members		606,586		680,419
Bank bid notes		150,000		150,000
Subtotal short-term debt		4,258,205		4,050,132
Long-term debt maturing within one year:
Medium-term notes sold through dealers		607,472		989,607
Medium-term notes sold to members		416,998		391,318
Secured collateral trust bonds		604,994		1,504,949
Loan and gurantees subordinated certificates		37,827		37,176
Member capital securities		85,615		-
Secured notes payable		451,972		742,402
Unsecured notes payable		3,907		3,899
Total long-term debt maturing within one year		2,208,785		3,669,351
Total short-term debt	$	6,466,990	$	7,719,483

(1) Backup liquidity is provided by our revolving credit agreements.

Revolving Credit Agreements

At November 30, 2013 and May 31, 2013, we had $3,345 million and $3,100 million, respectively, of commitments under revolving credit agreements. We may request letters of credit for up to $100 million under each agreement in place at November 30, 2013, which then reduces the amount available under the facility. Our bank lines of credit may be used for general corporate purposes; however, we use them primarily as backup liquidity for dealer and member commercial paper.

The following table presents the total available and the outstanding letters of credit under our revolving credit agreements:

		Total available				Letters of credit outstanding
(dollar amounts in thousands)		November 30, 2013		May 31, 2013		November 30, 2013		May 31, 2013	Maturity	Facility fee per year (1)
Three-year agreement	$	219,000	$	219,000	$	-	$	-	March 21, 2014	15 basis points
Three-year agreement		1,006,000		916,000		-		-	October 28, 2016	10 basis points
Four-year agreement		1,087,500		1,007,500		-		-	October 28, 2017	10 basis points
Five-year agreement		1,030,609		954,012		1,891		3,488	October 28, 2018	10 basis points
Total	$	3,343,109	$	3,096,512	$	1,891	$	3,488

(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 October 28, 2013, we amended our $1,006 million three-year, $1,088 million four-year, and $1,033 million five-year revolving credit agreements to extend the maturity dates for the three-year, four-year, and five-year revolving credit agreements to October 28, 2016, 2017 and 2018, respectively. The other terms of the facilities remain unchanged.

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The following represents our required and actual financial ratios under the revolving credit agreements:

		Actual
	Requirement	November 30, 2013	May 31, 2013
Minimum average adjusted TIER over the six most recent fiscal quarters (1)	1.025	1.27	1.27
Minimum adjusted TIER for the most recent fiscal year (1) (2)	1.05	1.29	1.29
Maximum ratio of adjusted senior debt to total equity (1)	10.00	5.74	5.85

(1) In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody’s Investors Service and Standard & Poor’s Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

(2) We must meet this requirement to retire patronage capital.

At November 30, 2013 and May 31, 2013, we were in compliance with all covenants and conditions under our revolving credit agreements and there were no borrowings outstanding under these agreements.

(6)         Long-Term Debt

The following is a summary of long-term debt outstanding:

		November 30, 2013		May 31, 2013
(dollar amounts in thousands)
Unsecured long-term debt:
Medium-term notes sold through dealers	$	1,780,416	$	1,528,424
Medium-term notes sold to members		143,280		182,790
Subtotal		1,923,696		1,711,214
Unamortized discount		(620)		(627	)
Total unsecured medium-term notes		1,923,076		1,710,587
Unsecured notes payable		4,034,075		3,709,074
Unamortized discount		(845)		(920	)
Total unsecured notes payable		4,033,230		3,708,154
Total unsecured long-term debt		5,956,306		5,418,741
Secured long-term debt:
Collateral trust bonds		5,434,372		4,639,372
Unamortized discount		(179,976)		(181,640	)
Total secured collateral trust bonds		5,254,396		4,457,732
Secured notes payable		1,097,202		819,960
Total secured long-term debt		6,351,598		5,277,692
Total long-term debt	$	12,307,904	$	10,696,433

In June 2013, we issued $400 million of 2.35 percent collateral trust bonds due 2020 and in November 2013, we issued $400 million of 3.40 percent collateral trust bonds due 2023. On December 16, 2013, we redeemed $150 million of our $600 million 4.75 percent collateral trust bonds due March 1, 2014. The premium and unamortized issuance costs totaling $1.4 million will be recorded during the third quarter of fiscal 2014.

At November 30, 2013 and May 31, 2013, we had unsecured notes payable totaling $3,999 million and $3,674 million, respectively, outstanding under bond purchase agreements with the Federal Financing Bank and a bond guarantee agreement with RUS issued under the Guaranteed Underwriter program, which provides guarantees to the Federal Financing Bank. During the six months ended November 30, 2013, we borrowed $325 million under our committed loan facilities with the Federal Financing Bank. On November 21, 2013, we closed on a $500 million commitment from RUS to guarantee a loan from the Federal Financing Bank as part of the Guaranteed Underwriter Program that is available for advance through October 15, 2016. Advances under this facility have a 20 year maturity repayment period. In the aggregate at November 30, 2013, we had up to $924 million available under committed loan facilities from the Federal Financing Bank as part of this program.

At November 30, 2013 and May 31, 2013, secured notes payable include $­­1,529 million and $1,542 million, respectively, in debt outstanding to the Federal Agricultural Mortgage Corporation under a note purchase agreement totaling $3,900 million. Under the terms of the note purchase agreement, we can borrow up to $3,900 million at any time from the date of the agreement through January 11, 2016, and thereafter automatically extend the agreement on each anniversary date of the closing for an additional year, unless prior to any such anniversary date, the Federal Agricultural Mortgage Corporation provides CFC with a notice that the draw period will not be extended beyond the remaining term.

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The agreement with the Federal Agricultural Mortgage Corporation is a revolving credit facility that allows us to borrow, repay and re-borrow funds at any time through maturity or from time to time as market conditions permit, provided that the principal amount at any time outstanding under the note purchase agreement is not more than the total available under the agreement. 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 agreement. See Note 3, Loans and Commitments, for additional information on the collateral pledged to secure notes payable under these programs. At November 30, 2013 and May 31, 2013, $450 million and $741 million, respectively, in debt outstanding to the Federal Agricultural Mortgage Corporation had a remaining maturity of less than one year and was classified as short-term debt.

(7)         Subordinated Deferrable Debt

At November 30, 2013 and May 31, 2013, we had $400 million of 4.75 percent subordinated deferrable debt outstanding due 2043. Subordinated deferrable debt currently outstanding is callable at par on or after April 30, 2023.

(8)          Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We utilize derivatives such as interest rate swaps and treasury rate locks for forecasted transactions to mitigate interest rate risk.

The following table shows the notional amounts outstanding and the weighted-average rate paid and received for our interest rate swaps by type:

		November 30, 2013						May 31, 2013
(dollar amounts in thousands)		Notional amount	Weighted- average rate paid		Weighted- average rate received			Notional amount	Weighted- average rate paid		Weighted- average rate received
Pay fixed-receive variable	$	5,446,222	3.35	%	0.23	%	$	5,287,889	3.39	%	0.26	%
Pay variable-receive fixed		2,925,440	0.95		4.06			3,500,440	1.12		4.62
Total interest rate swaps	$	8,371,662	2.51		1.57		$	8,788,329	2.49		2.00

The derivative gains (losses) line item of the condensed consolidated statement of operations includes cash settlements and derivative forward value for derivative instruments that do not meet hedge accounting criteria. Gains and losses recorded on the condensed consolidated statements of operations for our interest rate swaps are summarized below:

		For the three months ended November 30,					For the six months ended November 30,
(dollar amounts in thousands)		2013		2012			2013		2012
Derivative cash settlements	$	(19,471)	$	(15,456	)	$	(36,156)	$	(29,319	)
Derivative forward value		(11,309)		11,690			111,760		961
Derivative (losses) gains	$	(30,780)	$	(3,766	)	$	75,604	$	(28,358	)

Rating Triggers

Some of our interest rate swaps have credit risk-related contingent features referred to as rating triggers. Rating triggers are not separate financial instruments and are not required to be accounted for separately as derivatives. At November 30, 2013, the following notional amounts of derivative instruments had rating triggers based on our senior unsecured credit ratings from Moody’s Investors Service or Standard & Poor’s Corporation falling to a level specified in the applicable agreements and are grouped into the categories below. In calculating the payments and collections required upon termination, we netted the agreements for each counterparty, as allowed by the underlying master agreements. At November 30, 2013, our senior unsecured credit ratings from Moody’s Investors Service and Standard & Poor’s Corporation were A2 and A, respectively. At November 30, 2013, both Moody’s Investors Service and Standard & Poor’s Corporation had our ratings on stable outlook.

(dollar amounts in thousands)		Notional amount		Our required payment		Amount we would collect		Net total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	1,500	$	(40)	$	-	$	(40)
fall below Baa1/BBB+ (1)		6,627,731		(162,986)		88,745		(74,241)
Total	$	6,629,231	$	(163,026)	$	88,745	$	(74,281)

(1) Stated senior unsecured credit ratings are for Moody’s Investors Service and Standard & Poor’s Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

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In addition to the rating triggers listed on page 21, at November 30, 2013, we had a total notional amount of $450 million of derivative instruments with one counterparty that would require the pledging of collateral totaling $11 million (the fair value of such derivative instruments excluding credit risk) if our senior unsecured ratings from Moody’s Investors Service were to fall below Baa2 or if the ratings from Standard & Poor’s Corporation were to fall below BBB. The aggregate fair value of all interest rate swaps with rating triggers that were in a net liability position at November 30, 2013, including credit risk, was $171 million.

Offsetting Derivatives Assets and Liabilities

As noted previously, 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 to the transaction. Notwithstanding netting provisions, our derivative assets and liabilities are not offset in the accompanying condensed consolidated balance sheets. The following table provides information on the gross fair value of derivative assets and liabilities and the gross amounts that are not offset in the condensed consolidated balance sheets.

		November 30, 2013
				Gross amounts offset in the condensed consolidated balance sheets		Net amounts of assets/liabilities presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
(dollar amounts in thousands)		Gross amounts of recognized assets/liabilities						Financial instruments		Cash collateral pledged		Net amount
Assets:
Derivatives - Interest rate swaps	$	291,757	$	-	$	291,757	$	212,917	$	-	$	78,840
Liabilities:
Derivatives - Interest rate swaps		397,695		-		397,695		212,917		-		184,778

		May 31, 2013
				Gross amounts offset in the condensed consolidated balance sheets		Net amounts of assets/liabilities presented in the condensed consolidated balance sheets		Gross amounts not offset in the condensed consolidated balance sheets
(dollar amounts in thousands)		Gross amounts of recognized assets/liabilities						Financial instruments		Cash collateral pledged		Net amount
Assets:
Derivatives - Interest rate swaps	$	257,878	$	-	$	257,878	$	203,161	$	-	$	54,717
Liabilities:
Derivatives - Interest rate swaps		475,278		-		475,278		203,161		-		272,117

(9)          Equity

In May 2013, the CFC Board of Directors authorized the allocation of $1 million of fiscal year 2013 net earnings to the cooperative educational fund. In July 2013, the CFC Board of Directors authorized the allocation of the fiscal year 2013 net earnings as follows: $138 million to the members’ capital reserve and $81 million to members in the form of patronage capital. In July 2013, the CFC Board of Directors authorized the retirement of allocated net earnings totaling $41 million, representing 50 percent of the fiscal year 2013 allocation. This amount was returned to members in cash on October 1, 2013. 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.

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(10)         Guarantees

The following table summarizes total guarantees by type of guarantee and member class:

(dollar amounts in thousands)		November 30, 2013		May 31, 2013
Total by type:
Long-term tax-exempt bonds	$	526,990	$	547,970
Letters of credit		451,594		447,683
Other guarantees		115,645		117,118
Total	$	1,094,229	$	1,112,771
Total by member class:
CFC:
Distribution	$	224,521	$	245,265
Power supply		813,891		810,900
Statewide and associate		5,397		6,948
CFC total		1,043,809		1,063,113
RTFC		2,304		3,711
NCSC		48,116		45,947
Total	$	1,094,229	$	1,112,771

The maturities for the long-term tax-exempt bonds and the related guarantees run through calendar year 2042. Amounts in the table represent the outstanding principal amount of the guaranteed bonds. At November 30, 2013, our maximum potential exposure for the $74 million of fixed-rate tax-exempt bonds is $121 million, representing principal and interest. Of the amounts shown in the table above for long-term tax-exempt bonds, $453 million and $473 million as of November 30, 2013 and May 31, 2013, respectively, are adjustable or floating-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 could be required to pay related to the remaining adjustable and floating-rate bonds. Many of these bonds have a call provision that in the event of a default allow us to trigger the call provision. This would limit our exposure to future interest payments on these bonds. Our maximum potential exposure is secured by a mortgage lien on all of the member system’s assets and future revenue. If the debt is accelerated because of a determination that the interest thereon is not tax-exempt, the system’s obligation to reimburse us for any guarantee payments will be treated as a long-term loan.

The maturities for letters of credit run through calendar year 2024. The amounts shown in the table above represent our maximum potential exposure, of which $161 million is secured at November 30, 2013. Security provisions include a mortgage lien on substantially all of the system’s assets, future revenue and the system’s investment in our commercial paper.

In addition to the letters of credit listed in the table, under master letter of credit facilities in place at November 30, 2013, we may be required to issue up to an additional $172 million in letters of credit to third parties for the benefit of our members. As of November 30, 2013, all of our master letter of credit facilities were subject to material adverse change clauses at the time of issuance. Also, at November 30, 2013 we had hybrid letter of credit facilities totaling $1,371 million that represent commitments that may be used for the issuance of letters of credit or line of credit loan advances, at the option of a borrower, and are included in unadvanced loan commitments for line of credit loans reported in Note 3, Loans and Commitments. Hybrid letter of credit facilities subject to material adverse change clauses at the time of issuance totaled $352 million at November 30, 2013. 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 time the loan was approved and confirm that the borrower is currently in compliance with the letter of credit terms and conditions. The remaining commitment under hybrid letter of credit facilities of $1,019 million may be used for the issuance of letters of credit as long as the borrower is in compliance with the terms and conditions of the facility.

The maturities for other guarantees listed in the table run through calendar year 2025. The maximum potential exposure for these other guarantees is $117 million, all of which is unsecured.

At November 30, 2013 and May 31, 2013, we had $406 million and $410 million of guarantees, respectively, representing 37 percent of total guarantees for each period, under which our right of recovery from our members was not secured.

At November 30, 2013, we were the liquidity provider for a total of $578 million of variable-rate tax-exempt bonds issued for our member cooperatives. As liquidity provider on these $578 million of tax-exempt bonds, we are required to purchase bonds that are tendered or put by investors. Investors provide notice to the remarketing agent that they will tender or put a certain amount of bonds at the next interest rate reset date. If the remarketing agent is unable to sell such bonds to other

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investors by the next interest rate reset date, we have unconditionally agreed to purchase such bonds. On a total of $453 million of the bonds for which we are liquidity provider, we also provide a guarantee of all principal and interest, which is shown in the chart on page 23 as a tax-exempt bond guarantee. On a total of $125 million of tax-exempt bonds, our obligation as liquidity provider is in the form of a letter of credit which is reflected in our letters of credit. During the six months ended November 30, 2013, we were not required to perform as liquidity provider pursuant to these obligations.

Guarantee Liability

At November 30, 2013 and May 31, 2013, we recorded a guarantee liability of $24 million and $25 million, respectively, which represents the contingent and non-contingent exposures related to guarantees and liquidity obligations associated with our members’ debt. The contingent guarantee liability at November 30, 2013 and May 31, 2013 was $2 million based on management’s estimate of exposure to losses within the guarantee portfolio. The remaining balance of the total guarantee liability of $22 million and $23 million, respectively, at November 30, 2013 and May 31, 2013 relates to our non-contingent obligation to stand ready to perform over the term of our guarantees and liquidity obligations that we have entered into or modified since January 1, 2003.

Activity in the guarantee liability account is summarized below:

(dollar amounts in thousands)		As of and for the six months ended November 30, 2013
Beginning balance as of May 31, 2013	$	24,742
Net change in non-contingent liability		(850	)
Provision for contingent guarantee liability		42
Ending balance as of November 30, 2013	$	23,934
Liability as a percentage of total guarantees		2.19	%

(11)         Fair Value Measurement

Fair Value

Assets and liabilities measured at fair value on either a recurring or non-recurring basis on the condensed consolidated balance sheets at November 30, 2013 and May 31, 2013 consisted of investments in common stock and preferred stock, derivative instruments, and collateral-dependent non-performing loans.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We account for derivative instruments in the condensed consolidated balance sheets as either an asset or liability measured at fair value. There is not an active secondary market for the types of interest rate swaps we use. Our process to estimate the fair value of our derivative instruments involves multiple steps including consideration of indicative quotes from counterparties and use of a discounted cash flow model. We obtain indicative quotes from the interest rate swap counterparties to estimate fair value on a quarterly basis. The indicative quotes are based on the expected future cash flow and the estimated yield curve.

We perform analysis to validate the indicative quotes obtained from our swap counterparties and investigate any significant differences. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. We only enter into swap agreements with counterparties that are participating in our revolving lines of credit at the time the exchange agreements are executed. All of our swap agreements are subject to master netting agreements.

Our valuation technique for interest rate swaps is based on discounted cash flows and we utilize observable inputs, which reflect market data. To calculate fair value, we determine the forward curve. The forward curve allows us to determine the projected floating rate cash flows and the discount factors needed to calculate the net present value of each interest payment. The significant observable inputs for our derivatives include Spot LIBOR rates, Eurodollar futures contracts, and market swap rates.

Fair values for our interest rate swaps are classified as a Level 2 valuation. We record the change in the fair value of our derivatives for each reporting period in the derivative gains (losses) line, included in non-interest income in the condensed consolidated statements of operations, as currently none of our derivatives qualify for hedge accounting.

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Our investments in equity securities include investments in the Federal Agricultural Mortgage Corporation Class A common stock and Series A preferred stock and are recorded in the condensed consolidated balance sheet at fair value. We calculate fair value of the investments based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. Fair values for these securities are classified as a Level 1 valuation. For the three and six months ended November 30, 2013 we recorded an unrealized loss of $1 million and $5 million, respectively, compared to an unrealized gain of $1 million for the prior-year periods in accumulated other comprehensive income on the condensed consolidated balance sheet.

Deferred compensation investments are recorded in the condensed consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the quoted price on the stock exchange where the funds are traded. That stock exchange is an active market based on the volume of shares transacted. The amounts are invested in highly liquid indices and mutual funds and are classified within Level 1 of the fair value hierarchy.

The following table presents our assets and liabilities that are measured at fair value on a recurring basis:

		November 30, 2013				May 31, 2013
(dollar amounts in thousands)		Level 1		Level 2		Level 1		Level 2
Derivative assets	$	-	$	291,757	$	-	$	257,878
Derivative liabilities		-		397,695		-		475,278
Investments in common and
preferred stock		26,388		-		31,632		-
Deferred compensation investments		4,169		-		3,716		-

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. Any adjustments to fair value usually result from application of lower-of-cost or fair value accounting or write-downs of individual assets. At November 30, 2013 and May 31, 2013, we measured certain collateral-dependent non-performing loans at fair value. We utilize the collateral fair value underlying the loan in estimating the specific loan loss allowance. To estimate the fair value of the collateral, we may use third party valuation specialists, internal estimates or a combination of both. The valuation technique used to determine fair value of the non-performing loans provided by both our internal staff and third party specialists includes market multiples (i.e., comparable companies). The significant unobservable inputs used in the determination of fair value include EBITDA multiples ranging from 3.5x to 5.0x. The material inputs used in estimating fair value by both internal staff and third party specialists are Level 3 within the fair value hierarchy. In these instances, the valuation is considered to be a non-recurring item. The significant unobservable inputs for Level 3 assets that are valued using fair values obtained from third party specialists are reviewed by our Credit Risk Management group to assess the reasonableness of the assumptions used and the accuracy of the work performed. In cases where we rely on third party inputs, we use the final unadjusted third party valuation analysis as support for any financial statement adjustments and disclosures to the financial statements. The valuation techniques and significant unobservable inputs for assets classified as Level 3 in the fair value hierarchy, which are measured using an internal model, are independently reviewed by other internal staff.

Assets measured at fair value on a non-recurring basis at November 30, 2013 and May 31, 2013, were classified as Level 3 within the fair value hierarchy. Any increase or decrease to significant unobservable inputs used in the determination of fair value will not have a material impact on the fair value measurement of those assets or to the results of operations of the Company. For the three and six months ended November 30, 2013 and 2012, respectively, there were no losses on our non-performing loans. The following table provides the carrying/fair value of the related individual assets at November 30, 2013 and May 31, 2013:

		Level 3 Fair Value
(dollar amounts in thousands)		November 30, 2013		May 31, 2013
Non-performing loans,
net of specific reserves	$	8,976	$	12,070

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(12)         Fair Value of Financial Instruments

Carrying and fair values for our financial instruments are presented as follows:

		November 30, 2013				May 31, 2013
(dollar amounts in thousands)		Carrying value		Fair value		Carrying value		Fair value
Assets:
Cash and cash equivalents	$	301,377	$	301,377	$	177,062	$	177,062
Restricted cash		8,651		8,651		7,696		7,696
Investments		26,388		26,388		31,632		31,632
Time deposits		800,000		800,000		700,000		700,000
Deferred compensation investments		4,169		4,169		3,716		3,716
Loans to members, net		20,333,021		20,746,388		20,251,549		21,318,406
Debt service reserve funds		39,353		39,353		39,803		39,803
Derivative instruments		291,757		291,757		257,878		257,878
Liabilities:
Short-term debt		6,466,990		6,480,895		7,719,483		7,751,021
Long-term debt		12,307,904		13,443,765		10,696,433		12,156,097
Guarantee liability		23,934		26,862		24,742		27,730
Derivative instruments		397,695		397,695		475,278		475,278
Subordinated deferrable debt		400,000		375,532		400,000		404,300
Members’ subordinated certificates		1,637,282		1,754,549		1,729,226		1,880,672
Off-balance sheet instruments:
Commitments		-		-		-		-

See Note 11, Fair Value Measurement,for more details on assets and liabilities measured at fair value on a recurring or non-recurring basis on our condensed consolidated balance sheets. 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. There were no transfers between levels of the fair value hierarchy during the six months ended November 30, 2013 and the year ended May 31, 2013.

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 and preferred stock investments that have no stated maturity. Below is a summary of significant methodologies used in estimating fair value amounts at November 30, 2013 and May 31, 2013.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and certificates of deposit with original maturities of less than 90 days. Cash and cash equivalents are valued at the carrying value, which approximates fair value. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, cash and cash equivalents classified within Level 1 of the fair value hierarchy totaled $301 million and $177 million, respectively.

Restricted Cash

Restricted cash consists of cash and cash equivalents for which use is contractually restricted. Restricted cash is valued at the carrying value, which approximates fair value. Restricted cash is classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, restricted cash classified within Level 1 of the fair value hierarchy totaled $9 million and $8 million, respectively.

Investments

Our investments include investments in the Federal Agricultural Mortgage Corporation Class A common stock and Series A preferred stock. The Class A common stock and Series A preferred stock are classified as available-for-sale securities and recorded in the condensed consolidated balance sheets at fair value. We calculate fair value based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. The common stock and preferred stock are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, investments classified within Level 1 of the fair value hierarchy totaled $26 million and $32 million, respectively.

Time Deposits

Time deposits with financial institutions in interest bearing accounts have maturities of less than one year as of the reporting date and are valued at the carrying value, which approximates fair value. The deposits are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, time deposits classified within Level 2 of the fair value hierarchy totaled $800 million and $700 million, respectively.

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Deferred Compensation Investments

CFC offers a non-qualified 457(b) deferred compensation plan to highly compensated employees. Such amounts deferred by employees are invested by the company. The deferred compensation investments are recorded in the condensed consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the quoted price on the stock exchange where the funds are traded. That stock exchange is an active market based on the volume of shares transacted. The amounts are invested in highly liquid indices and mutual funds and are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, deferred compensation investments classified within Level 1 of the fair value hierarchy totaled $4 million.

Loans to Members, net

As part of receiving a loan from us, our members have additional requirements and rights that are not typical of other financial institutions, such as the ability to receive a patronage capital allocation, the general requirement to purchase subordinated certificates or member capital securities to meet their capital contribution requirements as a condition of obtaining additional credit from us, the option to select fixed rates from one year to maturity with the fixed rate resetting or repricing at the end of each selected rate term, the ability to convert from a fixed rate to another fixed rate or the variable rate at any time, and certain interest rate discounts that are specific to the borrower’s activity with us. These features make it difficult to obtain market data for similar loans. Therefore, we must use other methods to estimate the fair value.

Fair values for fixed-rate loans are estimated using a discounted cash flow technique by discounting the future expected cash flows using the current rates at which we would make similar loans to new borrowers for the same remaining maturities. The maturity date used in the fair value calculation of loans with a fixed rate for a selected rate term is the next repricing date since these borrowers must reprice their loans at various times throughout the life of the loan at the current market rate.

Loans with different risk characteristics, specifically non-performing and restructured loans, are valued by 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. See Note 11, Fair Value Measurement, for more details about how we calculate the fair value of certain non-performing loans.

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.

Loans to members are classified within Level 3 of the fair value hierarchy and at November 30, 2013 and May 31, 2013, totaled $20,746 million and $21,318 million, respectively.

Debt Service Reserve Funds

Debt service reserve funds represent cash and/or investments on deposit with the bond trustee for tax-exempt bonds that we guarantee. Debt service reserve fund investments are comprised of actively traded tax exempt municipal bonds and commercial paper. Carrying value is considered to be equal to fair value. Debt service reserve funds are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, debt service reserve funds classified within Level 1 of the fair value hierarchy totaled $39 million and $40 million, respectively.

Short-Term Debt

Short-term debt consists of commercial paper, select notes, bank bid notes, daily liquidity fund and other long-term debt due within one year. The fair value of short-term debt with maturities less than or equal to 90 days is carrying value, which is a reasonable estimate of fair value. The fair value of short-term debt with maturities greater than 90 days is estimated based on discounted cash flows and quoted market rates for debt with similar maturities. Short-term debt classified within Level 1 of the fair value hierarchy is comprised of dealer commercial paper, bank bid notes, and daily liquidity fund. At November 30, 2013 and May 31, 2013, short-term debt classified within the Level 1 of the fair value hierarchy is based on quoted prices in active markets and totaled $2,633 million and $2,840 million, respectively. Short-term debt classified within Level 2 of the fair value hierarchy is comprised of member commercial paper, non-member commercial paper and select notes. At November 30, 2013 and May 31, 2013, short-term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows using discount rates consistent with current market rates for similar products with similar remaining terms and totaled $1,625 million and $1,210 million, respectively.

Short-term debt classified within Level 2 also includes our collateral trust bonds and medium-term notes maturing within one year. At November 30, 2013 and May 31, 2013, short-term debt classified within the Level 2 of the fair value hierarchy totaled $1,639 million and $2,912 million, respectively. The fair value of short term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows using a pricing model that incorporates available market information such as indicative benchmark yields and credit spread assumptions that are provided by third party pricing services such as our banks that underwrite our other debt transactions.

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Short-term debt classified within the Level 3 of the fair value hierarchy includes our notes payable, members’ subordinated certificates and members’ capital securities due within one year and totaled $584 million and $789 million at November 30, 2013 and May 31, 2013, respectively. The fair value of short term debt classified within Level 3 of the fair value hierarchy was determined based on discounted cash flows using benchmark yields and spreads for similar instruments supplied by underwriter quotes for similar instruments, if available. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk.

Long-Term Debt

Long-term debt consists of collateral trust bonds, medium-term notes and long-term notes payable. We issue all collateral trust bonds and some medium-term notes in underwritten public transactions. Collateral trust bonds and medium-term notes are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, long-term debt classified within the Level 2 of the fair value hierarchy totaled $8,187 million and $7,410 million, respectively. The fair value of long- term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows. There is no active secondary trading for all underwritten collateral trust bonds and medium-term notes; therefore, dealer quotes and recent market prices are both used in estimating fair value. There is essentially no secondary market for the medium-term notes issued to our members or in transactions that are not underwritten; therefore, fair value is estimated based on observable benchmark yields and spreads for similar instruments supplied by banks that underwrite our other debt transactions.

The long-term notes payable are issued in private placement transactions and there is no secondary trading of such debt. Long-term notes payable are classified within Level 3 of the fair value hierarchy. Long-term debt classified within the Level 3 of the fair value hierarchy totaled $5,257 million and $4,746 million at November 30, 2013 and May 31, 2013, respectively. The fair value was determined based on discounted cash flows using benchmark yields and spreads for similar instruments supplied by underwriter quotes for similar instruments, if available. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk.

Guarantees

The fair value of our guarantee liability is based on the fair value of our contingent and non-contingent exposure related to our guarantees. The fair value of our contingent exposure for guarantees is based on management’s estimate of our exposure to losses within the guarantee portfolio using a discounted cash flow method. The fair value of our non-contingent exposure for guarantees issued is estimated based on the total unamortized balance of guarantee fees paid and guarantee fees to be paid discounted at our current short-term funding rate, which represents management’s estimate of the fair value of our obligation to stand ready to perform. Guarantees are classified within Level 3 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, guarantees classified within Level 3 of the fair value hierarchy totaled $27 million and $28 million, respectively.

Subordinated Deferrable Debt

Subordinated deferrable debt outstanding was issued in an underwritten public transaction. There is not active secondary trading for this subordinated deferrable debt; therefore, dealer quotes and recent market prices are both used in estimating fair value based on a discounted cash flow method. Subordinated deferrable debt is classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, subordinated deferrable debt classified within the Level 2 of the fair value hierarchy totaled $376 million and $404 million, respectively.

Members’ Subordinated Certificates

Members’ subordinated certificates include (i) membership subordinated certificates issued to our members, (ii) loan and guarantee subordinated certificates issued as a condition of obtaining loan funds or guarantees and (iii) member capital securities issued as voluntary investments by our members. Membership, loan and guarantee subordinated certificates are non-transferable other than among members with CFC’s consent. There is no ready market from which to obtain fair value quotes for membership, loan and guarantee subordinated certificates. These certificates are valued at par. There also is no ready market from which to obtain fair value quotes for member capital securities. Fair value for member capital securities is based on the discounted cash flows using the coupon interest rate on the last business day of the reporting period. Members’ subordinated certificates are classified within Level 3 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, members’ subordinated certificates classified within Level 3 of the fair value hierarchy totaled $1,755 million and $1,881 million, respectively.

Derivative Instruments

We record derivative instruments in the condensed consolidated balance sheets as either an asset or liability measured at fair value. Because there is not an active secondary market for the types of interest rate swaps we use, we obtain indicative quotes from the interest rate swap counterparties to estimate fair value on a quarterly basis. The indicative quotes are based on the expected future cash flow and estimated yield curves. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium

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required by a market participant based on the available information related to us and the counterparty. Derivative instruments are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, derivative asset instruments classified within Level 2 of the fair value hierarchy totaled $292 million and $258 million, respectively, and derivative liability instruments classified within Level 2 of the fair value hierarchy totaled $398 million and $475 million, respectively.

Commitments

The fair value of our commitments is estimated as the carrying value, or zero. Extensions of credit under these commitments, if exercised, would result in loans priced at market rates.

(13)         Segment Information

The following tables contain the segment presentation for the condensed consolidated statements of operations for the six months ended November 30, 2013 and 2012 and condensed consolidated balance sheets at November 30, 2013 and 2012.

		For the six months ended November 30, 2013
(dollar amounts in thousands)		CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	472,831	$	25,345	$	(17,851)	$	480,325
Interest expense		(332,200)		(18,581)		17,851		(332,930)
Net interest income		140,631		6,764		-		147,395
Provision for loan losses		(2,374)		-		-		(2,374)
Net interest income after provision for loan losses		138,257		6,764		-		145,021
Non-interest income:
Fee and other income		8,187		694		400		9,281
Derivative gains		74,351		1,253		-		75,604
Results of operations from foreclosed assets		(7,318)		-		-		(7,318)
Total non-interest income		75,220		1,947		400		77,567
Non-interest expense:
General and administrative expenses		(32,663)		(4,125)		(400)		(37,188)
Provision for guarantee liability		(42)		-		-		(42)
Other		(299)		1		-		(298)
Total non-interest expense		(33,004)		(4,124)		(400)		(37,528)
Income prior to income taxes		180,473		4,587		-		185,060
Income tax expense		-		(1,802)		-		(1,802)
Net income	$	180,473	$	2,785	$	-	$	183,258
Assets:
Total loans outstanding	$	20,342,560	$	1,199,116	$	(1,163,246)	$	20,378,430
Deferred origination costs		9,790		-		-		9,790
Less: Allowance for loan losses		(55,199)		-		-		(55,199)
Loans to members, net		20,297,151		1,199,116		(1,163,246)		20,333,021
Other assets		2,079,206		140,738		(121,601)		2,098,343
Total assets	$	22,376,357	$	1,339,854	$	(1,284,847)	$	22,431,364

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		For the six months ended November 30, 2012
(dollar amounts in thousands)		CFC			Other			Elimination			Consolidated
Statement of operations:
Interest income	$	473,682		$	28,333		$	(20,300	)	$	481,715
Interest expense		(350,034	)		(21,163	)		20,300			(350,897	)
Net interest income		123,648			7,170			-			130,818
Provision for loan losses		(5,305	)		-			-			(5,305	)
Net interest income after provision for loan losses		118,343			7,170			-			125,513
Non-interest income:
Fee and other income		22,533			686			(454	)		22,765
Derivative losses		(26,436	)		(1,922	)		-			(28,358	)
Results of operations from foreclosed assets		(5,674	)		-			-			(5,674	)
Total non-interest income		(9,577	)		(1,236	)		(454	)		(11,267	)
Non-interest expense:
General and administrative expenses		(32,297	)		(4,778	)		454			(36,621	)
Recovery of guarantee liability		101			-			-			101
Other		(4,547	)		-			-			(4,547	)
Total non-interest expense		(36,743	)		(4,778	)		454			(41,067	)
Income prior to income taxes		72,023			1,156			-			73,179
Income tax expense		-			(452	)		-			(452	)
Net income	$	72,023		$	704		$	-		$	72,727
Assets:
Total loans outstanding	$	19,064,837		$	1,230,471		$	(1,198,134	)	$	19,097,174
Deferred origination costs		8,033			-			-			8,033
Less: Allowance for loan losses		(148,737	)		-			-			(148,737	)
Loans to members, net		18,924,133			1,230,471			(1,198,134	)		18,956,470
Other assets		1,623,931			153,837			(123,844	)		1,653,924
Total assets	$	20,548,064		$	1,384,308		$	(1,321,978	)	$	20,610,394

The following tables contain the segment presentation for the condensed consolidated statements of operations for the three months ended November 30, 2013 and 2012.

		For the three months ended November 30, 2013
(dollar amounts in thousands)		CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	235,505	$	12,582	$	(8,833)	$	239,254
Interest expense		(164,980)		(9,198)		8,833		(165,345)
Net interest income		70,525		3,384		-		73,909
Provision for loan losses		(1,096)		-		-		(1,096)
Net interest income after provision for loan losses		69,429		3,384		-		72,813
Non-interest income:
Fee and other income		4,163		342		620		5,125
Derivative losses		(29,232)		(1,548)		-		(30,780)
Results of operations from foreclosed assets		(3,269)		-		-		(3,269)
Total non-interest income		(28,338)		(1,206)		620		(28,924)
Non-interest expense:
General and administrative expenses		(15,942)		(2,011)		(620)		(18,573)
Provision for guarantee liability		(73)		-		-		(73)
Other		(151)		1		-		(150)
Total non-interest expense		(16,166)		(2,010)		(620)		(18,796)
Income prior to income taxes		24,925		168		-		25,093
Income tax expense		-		(101)		-		(101)
Net income	$	24,925	$	67	$	-	$	24,992

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		For the three months ended November 30, 2012
(dollar amounts in thousands)		CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	237,711	$	13,946	$	(10,027)	$	241,630
Interest expense		(173,870)		(10,458)		10,027		(174,301)
Net interest income		63,841		3,488		-		67,329
Recovery of loan losses		3,817		-		-		3,817
Net interest income after recovery of loan losses		67,658		3,488		-		71,146
Non-interest income:
Fee and other income		17,741		292		(226)		17,807
Derivative losses		(3,391)		(375)		-		(3,766)
Results of operations from foreclosed assets		(909)		-		-		(909)
Total non-interest income		13,441		(83)		(226)		13,132
Non-interest expense:
General and administrative expenses		(17,425)		(2,252)		226		(19,451)
Recovery of guarantee liability		92		-		-		92
Other		(4,384)		-		-		(4,384)
Total non-interest expense		(21,717)		(2,252)		226		(23,743)
Income prior to income taxes		59,382		1,153		-		60,535
Income tax expense		-		(454)		-		(454)
Net income	$	59,382	$	699	$	-	$	60,081

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis is designed to provide a better understanding of our consolidated financial condition and results of operations and as such should be read in conjunction with the condensed consolidated financial statements, including the notes thereto and the information contained elsewhere in this Form 10-Q, and Part I, Item 1A. Risk Factors in our Form 10-K for the year ended May 31, 2013.

Unless stated otherwise, references to “we,” “our” or “us” relate to the consolidation of National Rural Utilities Cooperative Finance Corporation (“CFC”), Rural Telephone Finance Cooperative (“RTFC”), National Cooperative Services Corporation (“NCSC”) and certain entities created and controlled by CFC to hold foreclosed assets and to accommodate loan securitization transactions.

This Form 10-Q contains forward-looking statements defined by the Securities Act of 1933, as amended, and the 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 adequacy of the loan loss allowance, 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 could materially differ. Factors that could cause future results to vary from current expectations 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, regulatory and economic conditions in the rural electric industry, non-performance of counterparties to our derivative agreements and the costs and effects of legal or governmental proceedings involving CFC or its members. Some of these and other factors are discussed in our annual and quarterly reports previously filed with the U.S. Securities and Exchange Commission (“SEC”). 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.

Throughout this management discussion and analysis, we will refer to certain of our financial measures that are not in accordance with generally accepted accounting principles in the United States (“GAAP”) as “adjusted.” In our Executive Summary, our discussion focuses on the key metrics that we use to evaluate our business, which are adjusted times interest earned ratio (“TIER”) and adjusted debt-to-equity ratio. The most closely related GAAP measures are TIER and debt-to-equity ratio. The financial covenants in our revolving credit agreements and debt indentures are based on our adjusted measures rather than the related GAAP measures. In addition to the adjusted measures mentioned above, we also use GAAP measures such as loans outstanding in our evaluation of our business performance. The main adjustments we make to calculate the non-GAAP measures compared with the related GAAP measures are to adjust interest expense to include derivative cash settlements; to adjust net income, senior debt and total equity to exclude the non-cash adjustments from the accounting for derivative financial instruments; to exclude from senior debt the amount that funds CFC member loans guaranteed by the Rural Utilities Service (“RUS”), subordinated deferrable debt and members’ subordinated certificates; and to adjust total equity to include subordinated deferrable debt and members’ subordinated certificates. See Non-GAAP Financial Measures for further explanation of the adjustments we make to our financial results for our own analysis and covenant compliance and for a reconciliation to the related GAAP measures.

Our primary objective as a member-owned cooperative lender is to provide cost-based financial products to our rural electric and telecommunications members while maintaining sound financial results required for investment-grade credit ratings on our debt instruments. Our objective is not to maximize net income; therefore, the rates we charge our member-borrowers reflect our adjusted interest expense 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 achieve and maintain an adjusted debt-to-equity ratio below 6.00-to-1.

Executive Summary

Lending Activity

At November 30, 2013, total loans outstanding were $20,378 million, which represented an $82 million or 0.4 percent increase during the six months ended November 30, 2013, primarily due to an increase of $79 million in CFC distribution loans and an increase of $87 million in CFC power supply loans partly offset by a decrease of $77 million in NCSC and RTFC loans.

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During the six months ended November 30, 2013, $480 million of CFC long-term fixed-rate loans repriced. Of this total, $420 million selected a new long-term fixed rate; $32 million selected a long-term variable rate; $11 million selected a new rate offered as part of our loan sales program and were sold by CFC with CFC continuing to service the loans sold; and $17 million were repaid in full.

Funding Activity

At November 30, 2013, total debt outstanding was $20,812 million, which represented a $267 million or 1.3 percent increase during the six months ended November 30, 2013, primarily due to funding for the $82 million increase in loans outstanding and the $224 million increase in cash and time deposits. During the six months ended November 30, 2013, we funded the overall growth in our total assets and refinanced maturing debt with a mix of original issue short-term debt, collateral trust bonds and notes payable issued under the Guaranteed Underwriter Program.

Since May 31, 2013, long-term debt maturing in the next 12 months decreased by $1,461 million, which we refinanced through the issuance of original issue short-term debt and other long-term debt funding. Specifically, original issue short-term debt increased by $208 million as we continued to maintain a high utilization of our commercial paper and other original issue short-term funding to take advantage of the low interest rate environment. At November 30, 2013 and May 31, 2013, commercial paper, select notes, daily liquidity fund and bank bid notes outstanding represented 20 percent of total debt outstanding. Further, on July 18, 2013, we borrowed $325 million as part of the Guaranteed Underwriter Program at a weighted average interest rate of 2.49 percent. In June 2013, we issued $400 million of 2.35 percent collateral trust bonds due 2020 and in November 2013 we issued $400 million of 3.40 percent collateral trust bonds due 2023.

Financial Results

For the six months ended November 30, 2013 and 2012, we reported net income of $183 million and $73 million, respectively, and TIER of 1.55 and 1.21, respectively. As previously mentioned, we use adjusted non-GAAP measures in our analysis to evaluate our performance and for debt covenant compliance. For the six months ended November 30, 2013 and 2012, our adjusted net income was $71 million and $72 million, respectively, and adjusted TIER was 1.19 for both periods.

The decrease to our adjusted net income for the six months ended November 30, 2013 as compared with the prior-year period was driven primarily by a $13 million decrease in fee and other income partially offset by a $10 million increase in adjusted net interest income. The decrease in fee income was due to a $13 million prepayment fee received on a capital expenditures loan in September 2012. The increase in adjusted net interest income of $10 million was primarily due to the refinancing of higher cost debt with lower cost debt and the continued higher utilization of our commercial paper issuance capacity.

At November 30, 2013, our debt-to-equity ratio decreased to 22.64-to-1 compared with 26.21-to-1 at May 31, 2013. As mentioned previously, we use adjusted non-GAAP measures in our own analysis to evaluate our performance and for covenant compliance. Our adjusted debt-to-equity ratio increased to 5.82-to-1 at November 30, 2013 compared with 5.76-to-1 at May 31, 2013 due to the increase in adjusted liabilities partially offset by the increase in adjusted equity.

Outlook for the Next 12 Months

We expect the amount of scheduled long-term loan repayments to slightly exceed new long-term loan advances over the next 12 months and we expect earnings from core lending operations to be fairly stable over the next 12 months.

During the six months ended November 30, 2013, the CFC Board of Directors authorized management to execute the call of our 7.5 percent member capital securities held by CFC members. As of November 30, 2013, notice was provided to members for the early call of $86 million of the 7.5 percent member capital securities. The call dates for the $86 million will take place through February 2014. Over the next 12 months, we expect to provide notice to members for the early call of an additional $301 million of 7.5 percent member capital securities with call dates through February 2015. The Board of Directors also authorized management to offer members the option to reinvest the proceeds from the early call of the 7.5 percent member capital securities, into a new series of 5 percent member capital securities.

We have $4,258 million of short-term debt and $2,209 million of long-term debt scheduled to mature over the next 12 months. We believe that we have sufficient liquidity from the combination of member loan repayments and our ability to issue debt in the capital markets, to our members and in private placements, to satisfy member loan advances and meet our need to fund long-term debt maturing over the next 12 months. At November 30, 2013, we had $1,128 million in cash, investments and time deposits, up to $924 million available under committed loan facilities from the Federal Financing Bank, $3,343 million available under committed revolving lines of credit with a syndicate of banks and, subject to market conditions, up to $2,371 million available under a revolving note purchase agreement with the Federal Agriculture Mortgage Corporation. On November 21, 2013, we closed on a $500 million commitment from RUS to guarantee a loan from the Federal Financing Bank as part of the Guaranteed Underwriter Program that is available for advance through October 15, 2016. We also have the ability to issue collateral trust bonds and medium-term notes in the capital markets and medium-term notes to members. We believe we can continue to roll over the $4,258 million of commercial paper, select notes, daily

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liquidity fund and bank bid notes scheduled to mature over the next 12 months, as we expect to continue to maximize the utilization of these short-term funding options. We expect to be in compliance with the covenants under our revolving credit agreements; therefore, we could draw on these facilities to repay dealer or member commercial paper that cannot be rolled over in the event of market disruptions.

We expect to be able to maintain the adjusted debt-to-equity ratio below 6.00-to-1 over the next 12 months.

Results of Operations

The following table presents the results of operations for the three and six months ended November 30, 2013 and 2012.

		For the three months ended November 30,						For the six months ended November 30,
(dollar amounts in thousands)		2013		2012		Change		2013		2012		Change
Interest income	$	239,254	$	241,630	$	(2,376)	$	480,325	$	481,715	$	(1,390)
Interest expense		(165,345)		(174,301)		8,956		(332,930)		(350,897)		17,967
Net interest income		73,909		67,329		6,580		147,395		130,818		16,577
(Provision for) recovery of loan losses		(1,096)		3,817		(4,913)		(2,374)		(5,305)		2,931
Net interest income after (provision for)
recovery of loan losses		72,813		71,146		1,667		145,021		125,513		19,508
Non-interest income:
Fee and other income		5,125		17,807		(12,682)		9,281		22,765		(13,484)
Derivative (losses) gains		(30,780)		(3,766)		(27,014)		75,604		(28,358)		103,962
Results of operations from foreclosed assets		(3,269)		(909)		(2,360)		(7,318)		(5,674)		(1,644)
Total non-interest income		(28,924)		13,132		(42,056)		77,567		(11,267)		88,834
Non-interest expense:
Salaries and employee benefits		(9,018)		(10,148)		1,130		(19,346)		(20,553)		1,207
Other general and administrative expenses		(9,555)		(9,303)		(252)		(17,842)		(16,068)		(1,774)
(Provision for) recovery of guarantee liability		(73)		92		(165)		(42)		101		(143)
Other		(150)		(4,384)		4,234		(298)		(4,547)		4,249
Total non-interest expense		(18,796)		(23,743)		4,947		(37,528)		(41,067)		3,539
Income prior to income taxes		25,093		60,535		(35,442)		185,060		73,179		111,881
Income tax expense		(101)		(454)		353		(1,802)		(452)		(1,350)
Net income		24,992		60,081		(35,089)		183,258		72,727		110,531
Less:  Net income attributable to
noncontrolling interest		(67)		(699)		632		(2,785)		(704)		(2,081)
Net income attributable to CFC	$	24,925	$	59,382	$	(34,457)	$	180,473	$	72,023	$	108,450
Adjusted net income	$	36,301	$	48,391	$	(12,090)	$	71,498	$	71,766	$	(268)
Adjusted interest expense	$	(184,816)	$	(189,757)	$	4,941	$	(369,086)	$	(380,216)	$	11,130
TIER		1.15		1.34				1.55		1.21
Adjusted TIER (1)		1.20		1.26				1.19		1.19

 (1) Adjusted to exclude the effect of the derivative forward value from net income and to include all derivative cash settlements in the interest expense. The derivative forward value and derivative cash settlements are combined in the derivative (losses) gains line item in the chart above. See Non-GAAP Financial Measures for further explanation and a reconciliation of these adjustments.

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Interest Income

The following tables break out the average rate on loans and the change to interest income due to changes in average loan volume versus changes to interest rates summarized by loan type.

			Average balances and interest rates – Assets
			For the three months ended  November 30,
			2013		2012		2013		2012	2013		2012
(dollar amounts in thousands)			Average volume				Interest income			Average yield
Long-term fixed-rate loans		$	18,381,382	$	17,138,897	$	221,952	$	218,247	4.84	%	5.11	%
Long-term variable-rate loans			700,124		642,677		4,826		4,893	2.76		3.05
Line of credit loans			1,417,244		1,163,508		7,505		7,413	2.12		2.56
Restructured loans (2)			7,586		92,944		-		7,625	-		32.91
Non-performing loans			12,704		47,747		-		-	-		-
Total			20,519,040		19,085,773		234,283		238,178	4.58		5.01
Investments			949,864		356,532		1,817		1,576	0.77		1.77
Fee income (1)			-		-		3,154		1,876	-		-
Total	$		21,468,904	$	19,442,305	$	239,254	$	241,630	4.47		4.98

			Average balances and interest rates – Assets
			For the six months ended November 30,
			2013		2012		2013		2012	2013		2012
(dollar amounts in thousands)			Average volume				Interest income			Average yield
Long-term fixed-rate loans		$	18,364,696	$	16,967,005	$	446,535	$	436,187	4.85	%	5.13	%
Long-term variable-rate loans			699,276		692,218		9,654		10,918	2.75		3.15
Line of credit loans			1,218,411		1,156,766		15,077		15,105	2.47		2.60
Restructured loans (2)			14,036		274,565		136		13,087	1.93		9.51
Non-performing loans			14,084		48,105		-		-	-		-
Total			20,310,503		19,138,659		471,402		475,297	4.63		4.95
Investments			892,787		391,837		3,753		2,514	0.84		1.28
Fee income (1)			-		-		5,170		3,904	-		-
Total	$		21,203,290	$	19,530,496	$	480,325	$	481,715	4.52		4.92

 (1) Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

(2) On September 13, 2012, we received a prepayment from one of our borrowers, with $414 million applied to the restructured loan balance, as well as applicable interest due on the restructured loan.

		Analysis of changes in interest income
		For the three months ended November 30, 2013 vs. 2012						For the six months ended November 30, 2013 vs. 2012
		Change due to (3)						Change due to (3)
(dollar amounts in thousands)		Average volume (1)		Average rate (2)		Net change		Average volume (1)		Average rate (2)		Net change
Increase (decrease) in interest income:
Long-term fixed-rate loans	$	15,822	$	(12,117)	$	3,705	$	35,932	$	(25,584)	$	10,348
Long-term variable-rate loans		437		(504)		(67)		111		(1,375)		(1,264)
Line of credit loans		1,617		(1,525)		92		805		(833)		(28)
Restructured loans		(7,003)		(622)		(7,625)		(12,418)		(533)		(12,951)
Total interest income on loans		10,873		(14,768)		(3,895)		24,430		(28,325)		(3,895)
Investments		2,623		(2,382)		241		3,214		(1,975)		1,239
Fee income		-		1,278		1,278		-		1,266		1,266
Total interest income	$	13,496	$	(15,872)	$	(2,376)	$	27,644	$	(29,034)	$	(1,390)

(1) Calculated using the following formula: (current period average balance – prior-year average balance) x prior-year average rate.

(2) Calculated using the following formula: (current period average rate – prior-year average rate) x current period average balance.

(3) The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change.

During the three months ended November 30, 2013, interest income decreased by 1 percent compared with the prior-year period, primary due to the 43 basis-point decrease in the average rate on loans, partly offset by the increase in average loan balances and the $2 million increase in the interest income earned on our time deposits and fee income. During the six months ended November 30, 2013, interest income decreased by 0.3 percent compared with the prior-year period, primary due to the 32 basis-point decrease in the average rate on loans, partly offset by the increase in average loan balances and the

35

$3 million increase in the interest income earned on our time deposits and fee income. The decrease in the total interest income earned on loans for the three and six months ended November 30, 2013 compared to the prior-year periods was driven primarily by the decrease of $8 million and $13 million, respectively, in interest income earned on restructured loans. The decrease in income on restructured loans is due to the pay-off of a $414 million restructured loan in September 2012.

The increase in interest income earned on long-term fixed-rate loans during the three and six months ended November 30, 2013 compared to the prior-year periods was primarily due to the $1,242 million and $1,398 million increase in average fixed-rate loan balances, respectively, partly offset by a 27 basis-point and 28 basis-point decrease in the weighted average rate earned on our long-term fixed-rate loans, respectively. The increase in average fixed-rate loan balances was primarily due to a large amount of advances to CFC and NCSC borrowers during the fourth quarter of fiscal 2013 to refinance debt from other lenders, to fund capital improvements and for new loan advances. The decrease in average yield on fixed-rate loans was due to activity in the capital markets and the repricing of loans. As a cost-based lender, our fixed interest rates reflect our cost of borrowing in the capital markets marked up to cover our cost of operations. As benchmark treasury rates and spreads tightened over the past few years, there was a continued reduction in the rates we had to pay for funding in the capital markets and we lowered the long-term fixed rates we offered on our new loans. Although the average long-term fixed interest rates we offered on electric loans started to increase during the three and six months ended November 30, 2013, the residual impact of lower rates offered over the past few years continued to result in a decrease in the average yield earned when comparing the three months and six ended November 30, 2013 to the prior-year periods. In addition, during the six months ended November 30, 2013, $480 million of long-term fixed rate loans repriced and the borrowers of $420 million of these loans selected a new long-term fixed rate, which on average was lower than the rate prior to the repricing.

Our non-performing and restructured loans on non-accrual status affect interest income for both the current and prior-year period. The effect of non-accrual loans on interest income is included in the rate variance in the table on page 35. Foregone interest income was as follows as a result of holding loans on non-accrual status:

		For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)		2013		2012		2013		2012
Electric	$	159	$	267	$	317	$	565
Telecommunications		105		106		248		215
Total	$	264	$	373	$	565	$	780

Interest Expense

The following tables break out the average cost of debt and the change to interest expense due to changes in average debt volume versus changes to interest rates summarized by debt type. We do not fund each individual loan with specific debt. Rather, we attempt to minimize costs and maximize efficiency by funding large aggregated amounts of loans. The following tables also break out the change to derivative cash settlements due to changes in the average notional amount of our derivative portfolio versus changes to the net difference between the average rate paid and the average rate received. Additionally, the tables present adjusted interest expense, which includes all derivative cash settlements in interest expense. See Non-GAAP Financial Measures for further explanation of the adjustment we make in our financial analysis to include all derivative cash settlements in interest expense.

		Average balances and interest rates – Liabilities
		For the three months ended November 30,
		2013		2012		2013		2012	2013		2012
(dollar amounts in thousands)		Average volume				Interest expense			Average cost
Short-term debt (1) (2)	$	4,415,278	$	3,394,771	$	(1,607)	$	(1,697)	(0.15)	%	(0.20)	%
Medium-term notes (1)		2,720,722		2,623,679		(20,980)		(24,833)	(3.09)		(3.80)
Collateral trust bonds (1)		5,795,684		6,222,897		(74,858)		(82,271)	(5.18)		(5.30)
Subordinated deferrable debt (1)		395,659		181,058		(4,750)		(2,807)	(4.82)		(6.22)
Subordinated certificates (1)	1,751,394			1,728,603		(20,494)		(20,528)	(4.69)		(4.76)
Long-term notes payable (1)	5,530,105			4,881,191		(38,759)		(37,915)	(2.81)		(3.12)
Total		20,608,842		19,032,199		(161,448)		(170,051)	(3.14)		(3.58)
Debt issuance costs (3)		-		-		(1,782)		(1,905)	-		-
Fee expense (4)		-		-		(2,115)		(2,345)	-		-
Total	$	20,608,842	$	19,032,199	$	(165,345)	$	(174,301)	(3.22)		(3.67)
Derivative cash settlements (5)	$	8,297,021	$	9,252,825	$	(19,471)	$	(15,456)	(0.94)	%	(0.67)	%
Adjusted interest expense (6)	20,608,842			19,032,199		(184,816)		(189,757)	(3.60)		(4.00)

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		Average balances and interest rates – Liabilities
		For the six months ended November 30,
		2013		2012		2013		2012	2013		2012
(dollar amounts in thousands)		Average volume				Interest expense			Average cost
Short-term debt (1) (2)	$	4,196,329	$	3,357,570	$	(3,039)	$	(3,316)	(0.14)	%	(0.20)	%
Medium-term notes (1)		2,860,230		2,573,378		(42,551)		(52,716)	(2.97)		(4.09)
Collateral trust bonds (1)		5,875,475		6,276,068		(151,656)		(163,710)	(5.15)		(5.20)
Subordinated deferrable debt (1)		395,711		181,001		(9,500)		(5,613)	(4.79)		(6.19)
Subordinated certificates (1)		1,730,178		1,714,449		(41,120)		(40,882)	(4.74)		(4.76)
Long-term notes payable (1)		5,449,920		4,780,003		(76,698)		(76,311)	(2.81)		(3.18)
Total		20,507,843		18,882,469		(324,564)		(342,548)	(3.16)		(3.62)
Debt issuance costs (3)		-		-		(3,647)		(3,842)	-		-
Fee expense (4)		-		-		(4,719)		(4,507)	-		-
Total	$	20,507,843	$	18,882,469	$	(332,930)	$	(350,897)	(3.24)		(3.71)
Derivative cash settlements (5)	$	8,392,169	$	9,306,967	$	(36,156)	$	(29,319)	(0.86)	%	(0.63)	%
Adjusted interest expense (6)		20,507,843		18,882,469		(369,086)		(380,216)	(3.59)		(4.02)

(1) Interest expense includes the amortization of discounts on debt.

(2) Average volume and interest expense includes commercial paper, daily liquidity fund, bank bid notes and select notes.

(3) Interest expense includes amortization of all deferred charges related to debt issuances, principally underwriter’s fees, legal fees, printing costs and comfort letter fees. Amortization is calculated on the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(4) Interest expense includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

(5) For derivative cash settlements, average volume represents the average notional amount of derivative contracts outstanding, and the average cost represents the net difference between the average rate paid and the average rate received for cash settlements during the period.

(6) See Non-GAAP Financial Measures for further explanation of the adjustment we make in our financial analysis to include the derivative cash settlements in interest expense.

		Analysis of changes in interest expense
		For the three months ended November 30, 2013 vs. 2012						For the six months ended November 30, 2013 vs. 2012
		Change due to (3)						Change due to (3)
(dollar amounts in thousands)		Average volume (1)		Average rate (2)		Net change		Average volume (1)		Average rate (2)		Net change
(Increase) decrease in interest expense:
Short-term debt	$	(510)	$	600	$	90	$	(829)	$	1,106	$	277
Medium-term notes		(919)		4,772		3,853		(5,876)		16,041		10,165
Collateral trust bonds		5,648		1,765		7,413		10,449		1,605		12,054
Subordinated deferrable debt		(3,327)		1,384		(1,943)		(6,658)		2,771		(3,887)
Subordinated certificates		(271)		305		34		(375)		137		(238)
Long-term notes payable		(5,040)		4,196		(844)		(10,695)		10,308		(387)
Total interest expense on debt		(4,419)		13,022		8,603		(13,984)		31,968		17,984
Debt issuance costs		-		123		123		-		195		195
Fee expense		-		230		230		-		(212)		(212)
Total interest expense	$	(4,419)	$	13,375	$	8,956	$	(13,984)	$	31,951	$	17,967
Derivative cash settlements (4)	$	1,597	$	(5,612)	$	(4,015)	$	2,882	$	(9,719)	$	(6,837)
Adjusted interest expense (5)		(2,822)		7,763		4,941		(11,102)		22,232		11,130

(1) Calculated using the following formula: (current period average balance – prior-year average balance) x prior-year average rate.

(2) Calculated using the following formula: (current period average rate – prior-year average rate) x current period average balance.

(3) The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change.

(4) For derivative cash settlements, variance due to average volume represents the change in derivative cash settlements that resulted from the change in the average notional amount of derivative contracts outstanding. Variance due to average rate represents the change in derivative cash settlements that resulted from the net difference between the average rate paid and the average rate received for interest rate swaps during the period.

(5) See Non-GAAP Financial Measures for further explanation of the adjustment we make in our financial analysis to include the derivative cash settlements in interest expense.

During the three and six months ended November 30, 2013, the average balance of debt outstanding increased by 8 percent and 9 percent, respectively, compared to the prior-year periods in order to fund the overall growth in our balance sheet. Despite the increase in average debt outstanding, total interest expense decreased by 5 percent compared with the prior-year periods. The lower interest rates and tighter credit spreads available in the capital markets allowed us to refinance maturing debt at a lower cost. Specifically, the decrease in interest expense for the three and six months ended November 30, 2013 is

37

due to the 45 basis-point and 47 basis-point reduction in the total weighted average cost of debt, respectively. The lower average interest rate on debt is primarily due to the refinancing of $340 million of 8 percent medium-term notes in the second quarter of fiscal year 2013 and an overall decrease in the average volume of collateral trust bonds outstanding partially offset by an increase in the average volume of subordinated deferrable debt. We funded the refinancing of higher cost medium-term notes as well as the overall growth in our balance sheet with a mix of lower-cost short-term debt, medium-term notes, and notes payable issued under the Guaranteed Underwriter Program and our agreement with the Federal Agricultural Mortgage Corporation. Short-term debt is our lowest cost of funding, with an average cost of 15 basis points and 14 basis points for the three and six months ended November 30, 2013, respectively. Our utilization of short-term debt increased from 18 percent to 21 percent and 20 percent of average total debt during the three and six months ended November 30, 2013, respectively, compared with the prior-year periods, while the weighted average rate paid for these instruments during the same periods decreased slightly.

Adjusted interest expense, which includes all derivative cash settlements, was $185 million and $369 million for the three and six months ended November 30, 2013, respectively, compared with $190 million and $380 million for three and six months ended November 30, 2012, respectively. The decrease in adjusted interest expense during the three and six months ended November 30, 2013 was due to the lower interest expense noted above, partially offset by an increase in derivative cash settlements expense during the three and six months ended November 30, 2013. See Non-GAAP Financial Measures for further explanation of the adjustment we make in our financial analysis to include all derivative cash settlements in interest expense.

Net Interest Income

The following tables represent a summary of the effect on net interest income and adjusted net interest income from changes in the components of total interest income and total interest expense described above. The following tables also summarize the net yield and adjusted net yield and the changes to net interest income and adjusted net interest income due to changes in average balances versus changes to average rate/cost.

		Average interest rates – Assets and Liabilities
		For the three months ended November 30,
		2013		2012		2013		2012
(dollar amounts in thousands)		Interest income (expense)				Average yield (cost)
Total interest income	$	239,254	$	241,630		4.47	%	4.98	%
Total interest expense		(165,345)		(174,301	)	(3.22	)	(3.67	)
Net interest income/Net yield	$	73,909	$	67,329		1.25	%	1.31	%

		Average interest rates – Assets and Liabilities
		For the six months ended November 30,
		2013		2012		2013		2012
(dollar amounts in thousands)		Interest income (expense)				Average yield (cost)
Total interest income	$	480,325	$	481,715		4.52	%	4.92	%
Total interest expense		(332,930)		(350,897	)	(3.24	)	(3.71	)
Net interest income/Net yield	$	147,395	$	130,818		1.28	%	1.21	%

		Average interest rates – Assets and Liabilities
		For the three months ended November 30,
		2013		2012		2013		2012
(dollar amounts in thousands)		Interest income (expense)				Average yield (cost)
Total interest income	$	239,254	$	241,630		4.47	%	4.98	%
Total adjusted interest expense		(184,816)		(189,757	)	(3.60	)	(4.00	)
Adjusted net interest income/Adjusted net yield (1)	$	54,438	$	51,873		0.87	%	0.98	%

		Average interest rates – Assets and Liabilities
		For the six months ended November 30,
		2013		2012		2013		2012
(dollar amounts in thousands)		Interest income (expense)				Average yield (cost)
Total interest income	$	480,325	$	481,715		4.52	%	4.92	%
Total adjusted interest expense		(369,086)		(380,216	)	(3.59	)	(4.02	)
Adjusted net interest income/Adjusted net yield (1)	$	111,239	$	101,499		0.93	%	0.90	%

(1) See Non-GAAP Financial Measures for further explanation of the adjustment we make in our financial analysis to include the derivative cash settlements in interest expense, which affects adjusted net interest income.

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		Analysis of changes in net interest income
		For the three months ended November 30, 2013 vs. 2012						For the six months ended November 30, 2013 vs. 2012
		Change due to (3)						Change due to (3)
(dollar amounts in thousands)		Average volume (1)		Average rate (2)		Net change		Average volume (1)		Average rate (2)		Net change
Increase in net interest income	$	9,077	$	(2,497)	$	6,580	$	13,660	$	2,917	$	16,577
Increase in adjusted net interest income		10,674		(8,109)		2,565		16,542		(6,802)		9,740

(1) Calculated using the following formula: (current period average balance – prior-year average balance) x prior-year average rate.

(2) Calculated using the following formula: (current period average rate – prior-year average rate) x current period average balance.

(3) The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change.

Net interest income for the three and six months ended November 30, 2013, increased by 10 percent and 13 percent, respectively, compared with the prior-year periods due to the reduction to interest expense. The primary factor driving the reduction to interest expense was our refinancing of maturing term debt with lower cost debt during fiscal year 2013 and 2014. We maintained a higher average balance of commercial paper, medium-term notes and long-term notes payable, which have a lower weighted-average cost, in our overall funding mix.

Adjusted net interest income for the three and six months ended November 30, 2013, increased by 5 percent and 10 percent, respectively, compared with the prior-year periods primarily due to the reduction to interest expense, partially offset by higher derivative cash settlements expense compared with the prior-year periods. See Non-GAAP Financial Measures for further explanation of the adjustment we make in our financial analysis to include all derivative cash settlements in determining our adjusted interest expense which, in turn, affects adjusted net interest income.

Provision for Loan Losses

The provision for loan losses during the three months ended November 30, 2013 was $1 million compared to a recovery of $4 million during the prior-year period. The loan loss provision during the three months ended November 30, 2013, was due to an increase to the allowance held for general loans of $2 million offset by a decrease in the qualitative component of the general reserve of $1 million. The loan loss recovery during the three months ended November 30, 2012, was primarily due to a reduction of $3 million in the allowance held for impaired loans.

The loan loss provision for the six months ended November 30, 2013 and 2012, was $2 million and $5 million, respectively. The loan loss provision during the six months ended November 30, 2013, was due to an increase to the allowance held for general loans of $1 million and an increase in the qualitative component of the general reserve of $1 million. The loan loss provision of $5 million for the six months ended November 30, 2012 was driven primarily by the overall increase in the balance of loans outstanding and a slight deterioration in certain borrowers’ internal risk ratings.

Non-interest Income

Non-interest income decreased by $42 million for the three months ended November 30, 2013, compared with the prior-year period, primarily due to the increase in derivative losses of $27 million and the decrease in fee and other income of $13 million.

Non-interest income increased by $89 million for the six months ended November 30, 2013, compared with the prior-year period, primarily due to the increase in derivative gains of $104 million partly offset by the decrease in fee and other income of $13 million. The reduction in fee income for both periods is due to the $13 million prepayment fee received on a capital expenditures loan in September 2012.

The derivative (losses) gains line item includes income and losses recorded for our interest rate swaps as summarized below:

		For the three months ended November 30,							For the six months ended November 30,
(dollar amounts in thousands)		2013		2012			Net Change		2013		2012		Net Change
Derivative cash settlements	$	(19,471)	$	(15,456	)	$	(4,015)	$	(36,156)	$	(29,319)	$	(6,837)
Derivative forward value		(11,309)		11,690			(22,999)		111,760		961		110,799
Derivative (losses) gains	$	(30,780)	$	(3,766	)	$	(27,014)	$	75,604	$	(28,358)	$	103,962

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We currently use two types of interest rate exchange agreements:  (i) we pay a fixed rate and receive a variable rate and (ii) we pay a variable rate and receive a fixed rate. The following chart provides a breakout of the average notional amount outstanding by type of interest rate exchange agreement and the weighted average interest rate paid and received for cash settlements:

		For the three months ended November 30,
		2013						2012
(dollar amounts in thousands)		Average notional balance	Weighted- average rate paid		Weighted- average rate received			Average notional balance	Weighted- average rate paid		Weighted- average rate received
Pay fixed-receive variable	$	5,371,581	3.36	%	0.24	%	$	5,752,385	3.63	%	0.37	%
Pay variable-receive fixed		2,925,440	0.96		4.06			3,500,440	1.19		4.72
Total	$	8,297,021	2.52		1.59		$	9,252,825	2.69		2.03

		For the six months ended November 30,
		2013						2012
(dollar amounts in thousands)		Average notional balance	Weighted- average rate paid		Weighted- average rate received			Average notional balance	Weighted- average rate paid		Weighted- average rate received
Pay fixed-receive variable	$	5,372,466	3.37	%	0.25	%	$	5,651,883	3.66	%	0.41	%
Pay variable-receive fixed		3,019,703	1.00		4.17			3,655,084	1.23		4.67
Total	$	8,392,169	2.52		1.66		$	9,306,967	2.71		2.08

During the three and six months ended November 30, 2013, the weighted-average rate we paid on our interest rate swap agreements was 93 basis points and 86 basis points, respectively, higher than the weighted-average rate we received, compared with 66 basis points and 63 basis points, respectively, higher than the weighted-average rate we received during the prior-year period. The primary reason for the increase in the weighted-average outflow was the reduction in the average notional amount for our pay variable-receive fixed interest rate swaps, due to a total of $775 million of pay variable-receive fixed interest rate swaps that matured since November 30, 2012.

The derivative forward value represents the change in fair value of our interest rate swaps during the reporting period due to changes in the estimate of future interest rates over the remaining life of our derivative contracts. The derivative forward value recorded for the three and six months ended November 30, 2013 decreased by $23 million and increased by $111 million, respectively, compared with the prior-year periods. For the three months ended November 30, 2013, the derivative value forward loss of $11 million was due to the downward shift and steepening of the estimated yield curve for our swaps of 14 basis points and 9 basis points, respectively. For the six months ended November 30, 2013, the derivative value forward gain of $112 million was due to the downward shift and steepening of the estimated yield curve for our swaps of 35 basis points and 58 basis points, respectively. During the six months ended November 30, 2013, the increase in fair value for our pay fixed-receive variable interest rate swaps outweighed the decrease in fair value for pay variable-receive fixed swaps as pay fixed-receive variable interest rate swaps represented 64 percent of our derivative contracts and they are more sensitive to changes in the estimated yield curve as they have a higher weighted-average maturity than our pay variable-receive fixed interest rate swaps. For the six months ended November 30, 2013, the fair value of pay variable-receive fixed swaps declined as a result of swap maturities and remaining tenors within the pay variable-receive fixed swap portfolio.

Non-interest Expense

Non-interest expense decreased by $5 million and $4 million during the three and six months ended November 30, 2013, respectively, compared with prior-year periods, primarily driven by a decrease in other expenses due to a payment of $4 million made in the prior-year periods related to the Innovative Communication Corporation bankruptcy.

Net Income

The changes in the items described above resulted in net income of $25 million and $183 million for the three and six months ended November 30, 2013, respectively, compared with net income of $60 million and $73 million for the same prior-year periods. The adjusted net income, which excludes the effect of the derivative forward value, was $36 million and $71 million for the three and six months ended November 30, 2013, respectively, compared with the adjusted net income of $48 million and $72 million, repectively, for the same prior-year periods. Based on the adjusted net income, adjusted TIER was 1.20 and 1.19 , respectively, for the three and six months ended November 30, 2013 compared with an adjusted TIER of 1.26 and 1.19 for the same prior-year periods, repectively. See Non-GAAP Financial Measures for further explanation of the adjustments we make in our financial analysis to net income.

40

Net Income Attributable to the Noncontrolling Interest

The net income or loss attributable to the noncontrolling interest represents 100 percent of the results of operations of RTFC and NCSC as the members of RTFC and NCSC own or control 100 percent of the interest in their respective companies. Noncontrolling interest income for the three and six months ended November 30, 2013 was $67 thousand and $3 million, respectively, compared with $1 million for the prior-year periods. Fluctuations in net income and loss are primarily due to fluctuations in the fair value of NCSC’s derivative instruments.

Ratio of Earnings to Fixed Charges

The following table provides the calculation of the ratio of earnings to fixed charges. For the three and six months ended November 30, 2013 and 2012, the fixed-charge coverage ratio was the same as our TIER ratio.

		For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)		2013		2012		2013		2012
Net income	$	24,992	$	60,081	$	183,258	$	72,727
Add: fixed charges		165,345		174,301		332,930		350,897
Earnings available for fixed charges	$	190,337	$	234,382	$	516,188	$	423,624
Total fixed charges:
Interest on all debt (including amortization of discount
and issuance costs)	$	165,345	$	174,301	$	332,930	$	350,897
Ratio of earnings to fixed charges		1.15		1.34		1.55		1.21

Financial Condition

Loan and Guarantee Portfolio Assessment

Loan Programs

We are a cost-based lender that offers long-term fixed- and variable-rate loans and line of credit variable-rate loans. Borrowers choose between a variable interest rate or a fixed interest rate for periods of one to 35 years. When a selected fixed interest rate term expires, the borrower may select another fixed-rate term or the variable rate.

The following table summarizes loans outstanding by type and by member class:

(dollar amounts in thousands)		November 30, 2013				May 31, 2013				Increase/
Loans by type (1):		Amount	%			Amount	%			(decrease)
Long-term loans:
Long-term fixed-rate loans	$	18,149,347	89	%	$	17,918,268	88	%	$	231,079
Long-term variable-rate loans		691,568	3			782,006	4			(90,438)
Loans guaranteed by RUS		204,465	1			210,815	1			(6,350)
Total long-term loans		19,045,380	93			18,911,089	93			134,291
Line of credit loans		1,333,050	7			1,385,228	7			(52,178)
Total loans	$	20,378,430	100	%	$	20,296,317	100	%	$	82,113
Loans by member class (1):
CFC:
Distribution	$	15,019,692	74	%	$	14,941,192	74	%	$	78,500
Power supply		4,094,415	20			4,007,669	20			86,746
Statewide and associate		65,207	-			70,956	-			(5,749)
CFC total		19,179,314	94			19,019,817	94			159,497
RTFC		466,863	2			503,359	2			(36,496)
NCSC		732,253	4			773,141	4			(40,888)
Total	$	20,378,430	100	%	$	20,296,317	100	%	$	82,113

(1) Includes loans classified as restructured and non-performing.

The balance of loans outstanding increased by $82 million during the six months ended November 30, 2013 primarily due to an increase of $79 million in CFC distribution loans, an increase of $87 million in CFC power supply loans partly offset by a decrease of $77 million in NCSC and RTFC loans.

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During the six months ended November 30, 2013, $480 million of CFC long-term fixed-rate loans repriced. Of this total, $420 million selected a new long-term fixed rate; $32 million selected the long-term variable rate; $11 million selected a new

rate offered as part of our loan sale program and were sold by CFC with CFC continuing to service the loans sold; and $17 million were prepaid in full.

The following table summarizes loans and guarantees outstanding by member class:

		November 30, 2013				May 31, 2013				Increase/
(dollar amounts in thousands)		Amount	% of Total			Amount	% of Total			(decrease)
CFC:
Distribution	$	15,244,213	71	%	$	15,186,457	71	%	$	57,756
Power supply		4,908,306	23			4,818,569	23			89,737
Statewide and associate		70,604	-			77,904	-			(7,300)
CFC total		20,223,123	94			20,082,930	94			140,193
RTFC		469,167	2			507,070	2			(37,903)
NCSC		780,369	4			819,088	4			(38,719)
Total loans and guarantees	$	21,472,659	100	%	$	21,409,088	100	%	$	63,571

Credit Concentration

The service territories of our electric and telecommunications members are located throughout the United States and its territories, including 49 states, the District of Columbia and two U.S. territories. At November 30, 2013 and May 31, 2013, loans outstanding to members in any one state or territory did not exceed 16 percent and 15 percent, respectively, of total loans outstanding, respectively.

At November 30, 2013 and May 31, 2013, the total exposure outstanding to any one borrower or controlled group did not exceed 2.3 percent and 2.2 percent, respectively, of total loans and guarantees outstanding. At November 30, 2013  and May 31, 2013, the 10 largest borrowers included four distribution systems and six power supply systems.

The following table represents the exposure to the 10 largest borrowers as a percentage of total exposure presented by type of exposure and by company:

		November 30, 2013					May 31, 2013					Increase/
(dollar amounts in thousands)		Amount	% of Total				Amount	% of Total				(decrease)
Total by exposure type:
Loans	$	3,082,603		14	%	$	2,981,627		14	%	$	100,976
Guarantees		371,772		2			374,340		2			(2,568)
Total credit exposure to 10 largest borrowers	$	3,454,375		16	%	$	3,355,967		16	%	$	98,408
Total by company:
CFC	$	3,376,091		16	%	$	3,240,755		15	%	$	135,336
NCSC		78,284		-			115,212		1			(36,928)
Total credit exposure to 10 largest borrowers	$	3,454,375		16	%	$	3,355,967		16	%	$	98,408

Security Provisions

Except when providing line of credit loans, we typically lend to our members on a senior secured basis. Long-term loans are typically secured on parity with other secured lenders (primarily RUS), if any, by all assets and revenue of the borrower with exceptions typical in utility mortgages. Line of credit loans are generally unsecured. Guarantee reimbursement obligations are typically secured on parity with other secured creditors by substantially all assets and revenue of the borrower or by the underlying financed asset. In addition to the collateral pledged to secure our loans, borrowers are also required to set rates charged to customers to achieve certain financial ratios. At November 30, 2013 and May 31, 2013, $2,174 million and $2,243 million out of $20,378 million and $20,296 million, respectively, of total loans outstanding were unsecured, representing 11 percent of total loans outstanding.

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Pledged Loans and Loans on Deposit

The following table summarizes our secured debt or debt requiring collateral on deposit, the excess collateral pledged and our unencumbered loans:

(dollar amounts in thousands)		November 30, 2013		May 31, 2013
Total loans to members	$	20,378,430	$	20,296,317
Less: Total secured debt or debt requiring
collateral on deposit		(11,587,546)		(11,380,734	)
Excess collateral pledged or on deposit (1)		(1,882,258)		(1,825,020	)
Unencumbered loans	$	6,908,626	$	7,090,563
Unencumbered loans as a percentage of total loans		34	%	35	%

(1) Excludes cash collateral pledged to secure debt. Unless and until there is an event of default, we can withdraw excess collateral as long as there is 100 percent coverage of the secured debt. If there is an event of default under most of our indentures, we can only withdraw this excess collateral if we substitute cash of equal value.

Non-performing and Restructured Loans

The following table presents a summary of non-performing and restructured loans as a percentage of total loans and total loans and guarantees outstanding:

(dollar amounts in thousands)		November 30, 2013			May 31, 2013
Non-performing loans (1)	$	10,794		$	15,497
Percent of loans outstanding		0.05	%		0.08	%
Percent of loans and guarantees outstanding		0.05			0.07
Restructured loans	$	7,584		$	46,953
Percent of loans outstanding		0.04	%		0.23	%
Percent of loans and guarantees outstanding		0.04			0.22
Total non-performing and restructured loans	$	18,378		$	62,450
Percent of loans outstanding		0.09	%		0.31	%
Percent of loans and guarantees outstanding		0.09			0.29
Total non-accrual loans	$	18,378		$	23,081
Percent of loans outstanding		0.09	%		0.11	%
Percent of loans and guarantees outstanding		0.09			0.11

(1) All loans classified as non-performing were on non-accrual status.

A borrower is classified as non-performing when any one of the following criteria is met:

·   principal or interest payments on any loan to the borrower are past due 90 days or more;

·   as a result of court proceedings, repayment on the original terms is not anticipated; or

·   for some other reason, management does not expect the timely repayment of principal and interest.

Once a borrower is classified as non-performing, we typically place the loan on non-accrual status and reverse all accrued and unpaid interest back to the date of the last payment.

At November 30, 2013 and May 31, 2013, non-performing loans totaled $11 million, or 0.1 percent, of loans outstanding and $15 million, or 0.1 percent, of loans outstanding, respectively. One borrower in this group is currently in bankruptcy. The members of the borrower filed a disclosure statement and draft plan of liquidation on October 18, 2013. Certain secured noteholders filed a disclosure statement and draft plan of reorganization on December 17, 2013. Each disclosure statement and plan is subject to certain changes, approval of the bankruptcy court and voting by impaired creditors. A status conference and hearing on both disclosure statements is scheduled for January 14, 2014. Another borrower in this group is contesting a ruling that it is required to repay state USF payments received. There is one other borrower in this group that is currently seeking a buyer for its system, as it is not anticipated that it will have sufficient cash flow to repay its loans without the proceeds from the sale of the business. It is currently anticipated that even with the sale of the business, there will not be sufficient funds to repay the full amount owed. We have approval rights with respect to the sale of this company.

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At November 30, 2013 and May 31, 2013, we had restructured loans totaling $8 million, or 0.04 percent, of loans outstanding and $47 million, or 0.2 percent, of loans outstanding, respectively, all of which were performing according to their restructured terms. No interest income was accrued on restructured loans during the three months ended November 30, 2013 compared to $8 million of interest income during the prior-year period. Approximately $0.1 million of interest income was accrued on restructured loans during the six months ended November 30, 2013, compared with $13 million of interest income in the prior-year period. One of the restructured loans totaling $39 million at May 31, 2013, was refinanced during the first quarter of fiscal year 2014 with the new loan classified as performing at November 30, 2013. This loan was on accrual status since the time of restructuring. At November 30, 2013, all restructured loans were on non-accrual status.

Allowance for Loan Losses

We maintain an allowance for loan losses at a level estimated by management to provide adequately for probable losses inherent in the loan portfolio. Activity in the allowance for loan losses is summarized below including a disaggregation by company of the allowance for loan losses held at CFC:

(dollar amounts in thousands)		As of and for the six months ended November 30, 2013
Balance at May 31, 2013	$	54,325
Provision for loan losses		2,374
Net charge-offs		(1,500	)
Balance at November 30, 2013	$	55,199
`
Loan loss allowance by company:
CFC	$	42,762
RTFC		7,859
NCSC		4,578
Total	$	55,199
As a percentage of total loans outstanding		0.27	%
As a percentage of total non-performing loans outstanding		511.39
As a percentage of total restructured loans outstanding		727.83
As a percentage of total loans on non-accrual		300.35

Our loan loss allowance increased by $1 million from May 31, 2013 to November 30, 2013, primarily due to an increase in the allowance held for general loans of $1 million and an increase in the qualitative component of the general reserve by $1 million offset by net charge-offs of $1.5 million, due primarily to the sale of one of our impaired loans during the six months ended November 30, 2013. See Provision for Loan Losses in the Results of Operations section for further discussion. On a quarterly basis, we review all non-performing and restructured borrowers, as well as certain additional borrowers selected based on known facts and circumstances, to determine if the loans to the borrowers are impaired and/or to determine if there are changes to a previously impaired loan. We calculate a borrower’s impairment based on the expected future cash flows or the fair value of the collateral securing our loans to the borrower if cash flow cannot be estimated. As events related to the borrower take place and economic conditions and our assumptions change, the impairment calculations will change.

At November 30, 2013 and May 31, 2013, there was a total specific loan loss allowance balance of $2 million and $3 million, respectively, related to impaired loans totaling $18 million and $62 million, respectively.

Based on our analysis, we believe we have an adequate loan loss allowance for our exposure related to non-performing and restructured loans at November 30, 2013.

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Liabilities and Equity

Outstanding Debt

The following table breaks out our debt outstanding by type of debt:

(dollar amounts in thousands)		November 30, 2013		May 31, 2013			Increase/ (decrease)
Commercial paper
sold through dealers, net of discounts	$	1,876,868	$	2,009,884		$	(133,016)
Commercial paper
sold directly to members, at par		1,011,155		812,141			199,014
Commercial paper
sold directly to non-members, at par		25,006		39,298			(14,292)
Select notes		588,590		358,390			230,200
Daily liquidity fund		606,586		680,419			(73,833)
Bank bid notes		150,000		150,000			-
Collateral trust bonds		5,859,390		5,962,681			(103,291)
Notes payable		5,586,311		5,274,415			311,896
Medium-term notes		2,947,546		3,091,512			(143,966)
Subordinated deferrable debt		400,000		400,000			-
Membership certificates		644,757		644,757			-
Loan and guarantee certificates		728,217		733,895			(5,678)
Member capital securities		387,750		387,750			-
Total debt outstanding	$	20,812,176	$	20,545,142		$	267,034
Percentage of fixed-rate debt (1)		80	%	77	%
Percentage of variable-rate debt (2)		20		23
Percentage of long-term debt		80		80
Percentage of short-term debt		20		20

(1) Includes variable-rate debt that has been swapped to a fixed rate net of any fixed-rate debt that has been swapped to a variable rate.

(2) The rate on commercial paper notes does not change once the note has been issued. However, the rates on new commercial paper notes change daily, and commercial paper notes generally have maturities of less than 90 days. Therefore, commercial paper notes are classified as variable-rate debt. Also includes fixed-rate debt that has been swapped to a variable rate net of any variable-rate debt that has been swapped to a fixed rate.

During the six months ended November 30, 2013, total debt outstanding increased by $267 million primarily due to funding of the $82 million increase in loans outstanding and $224 million increase in cash and time deposits. Total commercial paper, select notes, daily liquidity fund and bank bid notes outstanding represented 20 percent of total debt at November 30, 2013 and May 31, 2013. To take advantage of the current low interest rates on short-term debt, we intend to continue to maximize the use of commercial paper in our funding portfolio mix.

During the six months ended November 30, 2013, the CFC Board of Directors authorized management to execute the call of our 7.5 percent member capital securities held by CFC members. As of November 30, 2013, notice was provided to members for the early call of $86 million of the 7.5 percent member capital securities. The Board of Directors also authorized management to offer members the option to reinvest the proceeds from the early call of the 7.5 percent member capital securities, into a new series of 5 percent member capital securities.

Equity

At November 30, 2013, total equity increased by $137 million from May 31, 2013, primarily due to net income of $183 million for the six months ended November 30, 2013, partially offset by the board authorized patronage capital retirement of $41 million.

In May 2013, the CFC Board of Directors authorized the allocation of $1 million of fiscal year 2013 net earnings to the cooperative educational fund. In July 2013, the CFC Board of Directors authorized the allocation of the fiscal year 2013 net earnings as follows: $138 million to the members’ capital reserve and $81 million to members in the form of patronage capital. In July 2013, the CFC Board of Directors authorized the retirement of allocated net earnings totaling $41 million, representing 50 percent of the fiscal year 2013 allocation. This amount was returned to members in cash in October 2013. Future allocations and retirements of net earnings may be made annually as determined by the CFC Board of Directors with due regard for CFC’s 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 cooperative law.

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Off-Balance Sheet Obligations

Guarantees

The following table breaks out our guarantees outstanding by type of guarantee and by company:

(dollar amounts in thousands)		November 30, 2013		May 31, 2013		Increase/ (decrease)
Total by guarantee type:
Long-term tax-exempt bonds	$	526,990	$	547,970	$	(20,980)
Letters of credit		451,594		447,683		3,911
Other guarantees		115,645		117,118		(1,473)
Total	$	1,094,229	$	1,112,771	$	(18,542)
Total by company:
CFC	$	1,043,809	$	1,063,113	$	(19,304)
RTFC		2,304		3,711		(1,407)
NCSC		48,116		45,947		2,169
Total	$	1,094,229	$	1,112,771	$	(18,542)

In addition to the letters of credit listed in the table, under master letter of credit facilities in place at November 30, 2013, we may be required to issue up to an additional $172 million in letters of credit to third parties for the benefit of our members. As of November 30, 2013, all of our master letter of credit facilities were subject to material adverse change clauses at the time of issuance. Also, at November 30, 2013 we had hybrid letter of credit facilities totaling $1,371 million that represent commitments that may be used for the issuance of letters of credit or line of credit loan advances, at the option of a borrower, and are included in unadvanced loan commitments for line of credit loans reported in Note 3, Loans and Commitments. Hybrid letter of credit facilities subject to material adverse change clauses at the time of issuance totaled $352 million at November 30, 2013. 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 time the loan was approved and confirm that the borrower is currently in compliance with the letter of credit terms and conditions. The remaining commitment under hybrid letter of credit facilities of $1,019 million may be used for the issuance of letters of credit as long as the borrower is in compliance with the terms and conditions of the facility.

At November 30, 2013, we were the liquidity provider for a total of $578 million of variable-rate tax-exempt bonds issued for our member cooperatives. As liquidity provider on these $578 million of tax-exempt bonds, we are required to purchase bonds that are tendered or put by investors. Investors provide notice to the remarketing agent that they will tender or put a certain amount of bonds at the next interest rate reset date. If the remarketing agent is unable to sell such bonds to other investors by the next interest rate reset date, we have unconditionally agreed to purchase such bonds. On a total of $453 million of the bonds for which we are liquidity provider, we also provide a guarantee of all principal and interest, which is shown in the chart above as a tax-exempt bond guarantee. On a total of $125 million of tax-exempt bonds, our obligation as liquidity provider is in the form of a letter of credit which is reflected in our letters of credit. During the six months ended November 30, 2013, we were not required to perform as liquidity provider pursuant to these obligations.

At November 30, 2013 and May 31, 2013, 63 percent of total guarantees were secured by a mortgage lien on substantially all of the system’s assets and future revenue.

The decrease in total guarantees during the six months ended November 30, 2013 is primarily due to a net decrease to the total amount of indemnifications of tax benefit transfers and letters of credit outstanding. At November 30, 2013 and May 31, 2013, we recorded a guarantee liability totaling $24 million and $25 million, respectively, which represents the contingent and non-contingent exposure related to guarantees and liquidity obligations associated with members’ debt.

The following table summarizes the off-balance sheet obligations at November 30, 2013, and the related maturities by fiscal year and thereafter as follows:

		Maturities of guaranteed obligations
	Outstanding
(dollar amounts in thousands)	balance	2014	2015	2016	2017	2018	Thereafter
Guarantees (1)	$  1,094,229	$  146,201	$  270,443	$  27,185	$  19,866	$  137,151	$  493,383

(1) At November 30, 2013, we are the guarantor and liquidity provider for $453 million of tax-exempt bonds issued for our member cooperatives. We have also issued letters of credit to provide standby liquidity for an additional $125 million of tax-exempt bonds.

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Contingent Off-Balance Sheet Obligations

Unadvanced Loan Commitments

Unadvanced commitments represent approved and executed loan contracts for which the funds have not been advanced. At November 30, 2013 and May 31, 2013, we had the following amount of unadvanced commitments on loans to our borrowers.

(dollar amounts in thousands)		November 30, 2013	% of Total			May 31, 2013	% of Total
Long-term	$	5,134,559	37	%	$	4,718,162	35	%
Line of credit		8,880,648	63			8,704,586	65
Total	$	14,015,207	100	%	$	13,422,748	100	%

A total of $1,948 million and $1,703 million of unadvanced commitments at November 30, 2013 and May 31, 2013, respectively, represented unadvanced commitments related to committed lines of credit that are not subject to a material adverse change clause at the time of each 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 facility. The remaining available amounts at November 30, 2013 and May 31, 2013 are conditional obligations because they are generally subject to material adverse change clauses. 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.

Unadvanced commitments related to line of credit loans are typically revolving facilities for periods not to exceed five years. It is our experience that unadvanced commitments related to line of credit loans are usually not fully drawn. We believe these conditions will continue for the following reasons:

·   electric cooperatives generate a significant amount of cash from the collection of revenue from their customers, so they usually do not need to draw down on loan commitments to supplement operating cash flow;

·   the majority of the line of credit unadvanced commitments provide backup liquidity to our borrowers; and

·   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 at the time of advance.

In our experience, unadvanced commitments related to term loans may not be fully drawn and borrowings occur in multiple transactions over an extended period of time. We believe these conditions will continue for the following reasons:

·   electric cooperatives typically execute loan contracts to cover multi-year work plans and, as such, it is expected that advances on such loans will occur over a multi-year period;

·   electric cooperatives generate a significant amount of cash from the collection of revenue from their customers, thus operating cash flow is available to reduce the amount of additional funding needed for capital expenditures and maintenance;

·   we generally do not charge our borrowers a fee on long-term unadvanced commitments; and

·   long-term unadvanced commitments generally expire five years from the date of the loan agreement.

Unadvanced commitments that are subject to a material adverse change clause are classified as contingent liabilities. Based on the conditions to advance funds described above, the majority of our unadvanced loan commitments do not represent off-balance sheet liabilities and have not been included with guarantees in our off-balance sheet disclosures above. We do, however, record a reserve for credit losses associated with our unadvanced commitments for committed facilities that are not subject to a material adverse change clause.

The following table summarizes the available balance under committed lines of credit at November 30, 2013, and the related maturities by fiscal year and thereafter as follows:

	Available	Notional maturities of committed lines of credit
(dollar amounts in thousands)	balance	2014	2015	2016	2017	2018	Thereafter
Committed lines of  credit	$ 1,947,800	$     44,048	$    63,776	$  61,000	$   636,111	$  894,080	$      248,785

Ratio Analysis

Leverage Ratio

The leverage ratio is calculated by dividing the sum of total liabilities and guarantees outstanding by total equity. Based on this formula, the leverage ratio at November 30, 2013 was 23.80-to-1, a decrease from 27.58-to-1 at May 31, 2013. The decrease in the leverage ratio is due to the increase of $137 million in total equity and the decrease of $19 million in total guarantees, partially offset by the increase of $222 million in total liabilities as discussed under the Liabilities and Equity section of Financial Condition and under Off-Balance Sheet Obligations.

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For covenant compliance on our revolving credit agreements and for internal management purposes, the leverage ratio calculation is adjusted to exclude derivative liabilities, debt used to fund loans guaranteed by RUS, subordinated deferrable debt and subordinated certificates from liabilities; uses members’ equity rather than total equity; and adds subordinated deferrable debt and subordinated certificates to calculate adjusted equity.

At November 30, 2013 and May 31, 2013, the adjusted leverage ratio was 6.16-to-1 and 6.11-to-1, respectively. See Non-GAAP Financial Measures for further explanation and a reconciliation of the adjustments we make to our leverage ratio calculation. The increase to the adjusted leverage ratio was due to the increase of $312 million in adjusted liabilities, partially offset by the increase of $21 million in adjusted equity and the decrease of $19 million in guarantees as discussed under the Liabilities and Equity section of Financial Condition and under Off-Balance Sheet Obligations.

Debt-to-Equity Ratio

The debt-to-equity ratio is calculated by dividing the sum of total liabilities outstanding by total equity. The debt-to-equity ratio based on this formula at November 30, 2013 was 22.64-to-1, a decrease from 26.21-to-1 at May 31, 2013. The decrease in the debt-to-equity ratio is due to the increase of $137 million in total equity, partially offset by the increase of $222 million in total liabilities as discussed under the Liabilities and Equity section of Financial Condition.

For internal management purposes, the debt-to-equity ratio calculation is adjusted to exclude derivative liabilities, debt used to fund loans guaranteed by RUS, subordinated deferrable debt and subordinated certificates from liabilities; uses members’ equity rather than total equity; and adds subordinated deferrable debt and subordinated certificates to determine adjusted equity. At November 30, 2013 and May 31, 2013, the adjusted debt-to-equity ratio was 5.82-to-1 and 5.76-to-1, respectively. See Non-GAAP Financial Measures for further explanation and a reconciliation of the adjustments made to the debt-to-equity ratio calculation. The increase in the adjusted debt-to-equity ratio is due to the increase of $312 million in adjusted liabilities, partially offset by the increase of $21 million in adjusted equity.

Liquidity and Capital Resources

The following section discusses our expected sources and uses of liquidity. At November 30, 2013, we expect that our current sources of liquidity will allow us to issue the debt required to fund our operations over the next 12 to 18 months.

The table below shows the projected sources and uses of cash by quarter through May 31, 2015. In analyzing our projected liquidity position, we track key items identified in the chart below. The long-term debt maturities represent the scheduled maturities of our outstanding term debt for the period presented. The long-term loan advances represent our current best estimate of the member demand for our loans, the amount and the timing of which are subject to change. The long-term loan amortization and repayments represent the scheduled long-term loan amortization for the outstanding loans at November 30, 2013, as well as our current estimate for the repayment of long-term loans. The estimate of the amount and timing of long-term loan repayments is subject to change. We assumed the issuance of commercial paper, medium-term notes and other long-term debt, including collateral trust bonds and private placement of term debt, to maintain matched funding within our loan portfolio and to allow our revolving lines of credit to provide backup liquidity for our outstanding commercial paper. Commercial paper repayments in the table below do not represent scheduled maturities but rather the assumed use of excess cash to pay down the commercial paper balance.

	Projected uses of liquidity				Projected sources of liquidity					Cumulative
					Long-term	Debt Issuance				excess
(dollar amounts in millions)	Long-term debt maturities	Debt repayment- commercial  paper	Long-term  loan advances	Total uses of liquidity	loan amortization & repayment	Commercial paper	Other long-term debt	Medium term notes	Total sources of liquidity	sources over uses of liquidity (1)
2Q14										$    1,128
3Q14	$        748	$             -	$      324	$    1,072	$          302	$          75	$      350	$     175	$      902	958
4Q14	812	-	336	1,148	268	100	400	175	943	753
1Q15	541	100	280	921	314	-	375	175	864	696
2Q15	108	505	134	747	300	-	-	175	475	424
3Q15	468	265	298	1,031	339	-	350	175	864	257
4Q15	31	365	188	584	280	-	150	175	605	278
Totals	$     2,708	$     1,235	$   1,560	$     5,503	$       1,803	$        175	$   1,625	$  1,050	$   4,653

(1) Cumulative excess sources over uses of liquidity includes cash, investments and time deposits.

The chart above represents our best estimate of the funding requirements and how we expect to manage such funding requirements through May 31, 2015. These estimates will change on a quarterly basis based on the factors described above.

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Sources of Liquidity

Capital Market Debt Issuance

As a well-known seasoned issuer, we have the following effective shelf registration statements on file with the U.S. Securities and Exchange Commission for the issuance of debt:

·   unlimited amount of collateral trust bonds until September 2016;

·   unlimited amount of medium-term notes, member capital securities and subordinated deferrable debt until November 2014; and

·   daily liquidity fund for a total of $20,000 million with a $3,000 million limitation on the aggregate principal amount outstanding at any time until April 2016.

While we register member capital securities and the daily liquidity fund with the Securities and Exchange Commission, these securities are not available for sale to the general public. Medium-term notes are available for sale to both the general public and members. In November 2013, we issued $250 million of 3-year floating-rate medium-term notes in registered offerings.

Commercial paper issued through dealers and bank bid notes totaled $2,027 million and represented 10 percent of total debt outstanding at November 30, 2013. We intend to maintain the balance of dealer commercial paper and bank bid notes at 15 percent or less of total debt outstanding during fiscal year 2014. Our bank lines of credit may be used for general corporate purposes; however, we use them primarily as backup liquidity for dealer and member commercial paper.

In June 2013, we issued $400 million of 2.35 percent collateral trust bonds due 2020, and in November 2013, we issued $400 million of 3.40 percent collateral trust bonds due 2023. On December 16, 2013, we redeemed $150 million of our $600 million 4.75 percent collateral trust bonds due March 1, 2014. The principal and accrued distributions at the redemption date were paid with a combination of cash on hand and other sources of liquidity including issuance of commercial paper. The premium and unamortized issuance costs totaling $1.4 million will be recorded during the third quarter of fiscal 2014.

Private Debt Issuance

We have access to liquidity from private debt issuances through a note purchase agreement with the Federal Agricultural Mortgage Corporation. At November 30, 2013 and May 31, 2013, we had secured notes payable of $1,529 million and $1,542 million, respectively, outstanding to the Federal Agricultural Mortgage Corporation under a note purchase agreement totaling $3,900 million. Under the terms of our March 2011 note purchase agreement, we can borrow up to $3,900 million at any time from the date of the agreement through January 11, 2016 and thereafter automatically extend the agreement on each anniversary date of the closing for an additional year, unless prior to any such anniversary date, the Federal Agricultural Mortgage Corporation provides CFC with a notice that the draw period will not be extended beyond the remaining term. The agreement with the Federal Agricultural Mortgage Corporation is a revolving credit facility that allows us to borrow, repay and re-borrow funds at any time through maturity or from time to time as market conditions permit, provided that the principal amount at any time outstanding under the note purchase agreement is not more than the total available under the agreement. Each borrowing under a note purchase agreement is evidenced by a secured note setting forth the interest rate, maturity date and other related terms as we may negotiate with the Federal Agricultural Mortgage Corporation at the time of each such borrowing. We may select a fixed rate or variable rate at the time of each advance with a maturity as determined in the applicable pricing agreement. At November 30, 2013, we had up to $2,371 million available under this agreement, subject to market conditions for debt issued by the Federal Agricultural Mortgage Corporation.

At November 30, 2013 and May 31, 2013, we had $3,999 million and $3,674 million, respectively, of unsecured notes payable outstanding under bond purchase agreements with the Federal Financing Bank and a bond guarantee agreement with RUS issued under the Guaranteed Underwriter Program, which supports the Rural Economic Development Loan and Grant program and provides guarantees to the Federal Financing Bank. On July 18, 2013, we borrowed $325 million under our committed loan facilities from the Federal Financing Bank as part of this program at a weighted average interest rate of 2.49 percent with a repricing period ranging from 10 to 15 years and a final maturity of 20 years. On November 21, 2013, we closed on a $500 million commitment from RUS to guarantee a loan from the Federal Financing Bank as part of the Guaranteed Underwriter Program that is available for advance through October 15, 2016. Advances under this facility have a 20 year maturity repayment period. At November 30, 2013, we had up to $924 million available under committed loan facilities from the Federal Financing Bank as part of this program.

Member Loan Repayments

We expect long-term loan repayments from scheduled loan amortization and prepayments to be $1,184 million over the next 12 months.

Member Loan Interest Payments

During the six months ended November 30, 2013, interest income on the loan portfolio was $471 million, representing an average rate of 4.63 percent compared with 4.95 percent for the six months ended November 30, 2012. For the past three

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fiscal years, interest income on the loan portfolio has averaged $963 million. At November 30, 2013, 90 percent of the total loans outstanding had a fixed rate of interest, and 10 percent of loans outstanding had a variable rate of interest.

Bank Revolving Credit Agreements

At November 30, 2013 and May 31, 2013, we had $3,345 million and $3,100 million, respectively, of commitments under revolving credit agreements. We may request letters of credit for up to $100 million under each agreement in place at November 30, 2013, which then reduces the amount available under the facility. Our bank lines of credit may be used for general corporate purposes; however, we use them primarily as backup liquidity for dealer and member commercial paper.

The following table presents the total available and the outstanding letters of credit under our revolving credit agreements:

		Total available				Letters of credit outstanding
(dollar amounts in thousands)		November 30, 2013		May 31, 2013		November 30, 2013		May 31, 2013	Maturity	Facility fee per year (1)
Three-year agreement	$	219,000	$	219,000	$	-	$	-	March 21, 2014	15 basis points
Three-year agreement		1,006,000		916,000		-		-	October 28, 2016	10 basis points
Four-year agreement		1,087,500		1,007,500		-		-	October 28, 2017	10 basis points
Five-year agreement		1,030,609		954,012		1,891		3,488	October 28, 2018	10 basis points
Total	$	3,343,109	$	3,096,512	$	1,891	$	3,488

(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 October 28, 2013, we amended our $1,006 million three-year, $1,088 million four-year, and $1,033 million five-year revolving credit agreements to extend the maturity dates for the three-year, four-year, and five-year revolving credit agreements to October 28, 2016, 2017 and 2018, respectively. The other terms of the facilities remain unchanged.

The revolving credit agreements do not contain a material adverse change clause or ratings triggers that limit the banks’ obligations to fund under the terms of the agreements, but we must be in compliance with their other requirements to draw down on the facilities, including financial ratios. For further discussion see the Compliance with Debt Covenants section.

Member Investments

The table below shows the components of our member investments included in total debt outstanding:

		November 30, 2013					May 31, 2013					Increase/
(dollar amounts in thousands)		Amount		% of Total (1)			Amount		% of Total (1)			(decrease)
Commercial paper	$	1,011,155		35	%	$	812,141		28	%	$	199,014
Select notes		586,090		100			353,190		99			232,900
Daily liquidity fund		606,586		100			680,419		100			(73,833)
Medium-term notes		560,278		19			574,108		19			(13,830)
Members’ subordinated certificates		1,760,724		100			1,766,402		100			(5,678)
Total	$	4,524,833				$	4,186,260				$	338,573
Percentage of total debt outstanding		22	%				20	%

(1) Represents the percentage of each line item outstanding to our members.

Member investments averaged $4,044 million outstanding over the last three years. We view member investments as a more stable source of funding than capital market issuances.

Cash, Investments and Time Deposits

At November 30, 2013, cash, investments and time deposits totaled $1,128 million. The interest rate earned on these investments and time deposits is sufficient to cover the cost of the underlying borrowed funds. This total represents an additional source of liquidity that is available to support our operations.

Cash Flows from Operations

For the six months ended November 30, 2013, cash flows provided by operating activities were $95 million compared with $96 million for the prior-year period. Our cash flows from operating activities are driven primarily by a combination of cash flows from operations and the timing and amount of loan interest payments we received compared with interest payments we made on our debt.

Compliance with Debt Covenants

At November 30, 2013, we were in compliance with all covenants and conditions under our revolving credit agreements and senior debt indentures.

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The following represents our required and actual financial ratios under the revolving credit agreements:

		Actual
	Requirement	November 30, 2013	May 31, 2013
Minimum average adjusted TIER over the six most recent fiscal quarters (1)	1.025	1.27	1.27
Minimum adjusted TIER for the most recent fiscal year (1) (2)	1.05	1.29	1.29
Maximum ratio of adjusted senior debt to total equity (1)	10.00	5.74	5.85

(1) In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody’s Investors Service and Standard & Poor’s Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

(2) We must meet this requirement to retire patronage capital.

The revolving credit agreements prohibit liens on loans to members except liens:

·   under our indentures,

·   related to taxes that are not delinquent or contested,

·   stemming from certain legal proceedings that are being contested in good faith,

·   created by CFC to secure guarantees by CFC of indebtedness the interest on which is excludable from the gross income of the recipient for federal income tax purposes,

·   granted by any subsidiary to CFC, and

·   to secure other indebtedness of CFC of up to $7,500 million plus an amount equal to the incremental increase in CFC’s allocated Guaranteed Underwriter Program obligations, provided that the aggregate amount of such indebtedness may not exceed $10,000 million. As of November 30, 2013, the amount of our secured indebtedness for purposes of this provision of all three revolving credit agreements was $5,548 million.

The revolving credit agreements limit new investments in foreclosed assets held by CAH to $275 million without consent by the required banks. At November 30, 2013, these investments did not exceed this limit.

The following represents our required and actual financial ratios as defined under our 1994 collateral trust bonds indenture and our medium-term notes indentures in the United States markets:

		Actual
	Requirement	November 30, 2013	May 31, 2013
Maximum ratio of adjusted senior debt to total equity (1)	20.00	6.50	6.72

(1) The ratio calculation includes the adjustments made to the leverage ratio in the Non-GAAP Financial Measures section, with the exception of the adjustments to exclude the non-cash impact of derivative financial instruments and adjustments from total liabilities and total equity.

We are required to pledge collateral equal to at least 100 percent of the outstanding balance of debt issued under our collateral trust bond indentures and note purchase agreements with the Federal Agricultural Mortgage Corporation. In addition, we are required to maintain collateral on deposit equal to at least 100 percent of the outstanding balance of debt outstanding to the Federal Financing Bank under the Guaranteed Underwriter program of the USDA, which supports the Rural Economic Development Loan and Grant program, for which distribution and power supply loans may be deposited. See Pledging of Loans and Loans on Deposit in Note 3, Loans and Commitments, for additional information related to collateral.

The following table summarizes the amount of collateral pledged or on deposit as a percentage of the related debt outstanding under the debt agreements noted above.

	Requirement				Actual
Debt agreement	Debt indenture minimum		Revolving credit agreements maximum		November 30, 2013		May 31, 2013
Collateral trust bonds 1994 indenture	100	%	150	%	110	%	112%
Collateral trust bonds 2007 indenture	100		150		124		125
Federal Agricultural Mortgage Corporation	100		150		111		116
Clean Renewable Energy Bonds Series 2009A	100		150		113		118
Federal Financing Bank Series (1) (2)	100		150		111		106

(1) Represents collateral on deposit as a percentage of the related debt outstanding.

(2) All pledge agreements previously entered into with RUS and U.S. Bank National Association were consolidated into one amended, restated and consolidated pledge agreement in December 2012.

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Uses of Liquidity

Loan Advances

Loan advances are either from new loans approved to borrowers or from the unadvanced portion of loans previously approved. At November 30, 2013, unadvanced loan commitments totaled $14,015 million. Of that total, $1,948 million represented unadvanced commitments related 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. New advances of $628 million or 28 percent under these committed line of credit loans would be advanced at CFC’s standard rates and, therefore, any increase in CFC’s costs to obtain funding required to make the advance could be passed on to the borrower. The other $1,320 million or 72 percent of committed line of credit loans represent loan syndications where the pricing is set at a spread over a market index as agreed upon by all of the participating banks and market conditions at the time of syndication. The remaining $12,067 million of unadvanced loan commitments at November 30, 2013, were generally subject to material adverse change clauses. Prior to making an advance on these facilities, we would confirm that there has been no material adverse change in the borrowers’ business or condition, financial or otherwise, 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 imposition of borrower-specific restrictions, or by additional conditions that must be met prior to advancing funds.

Since we generally do not charge a fee for the borrower to have an unadvanced amount on a loan facility that is subject to a material adverse change clause, our borrowers tend to request amounts in excess of their immediate estimated loan requirements. It has been our history that we do not see significant loan advances from the large amount of long-term unadvanced loan amounts that are subject to material adverse change clauses at the time of the loan advance. We have a very low historical average utilization rate on all our line of credit facilities, including committed line of credit facilities. Unadvanced commitments related to line of credit loans are typically revolving facilities for periods not to exceed five years. Long-term unadvanced commitments generally expire five years from the date of the loan agreement. These reasons, together with the other limitations on advances as described above, all contribute to our expectation that the majority of the unadvanced commitments reported will expire without being fully drawn upon and that the total commitment amount does not necessarily represent future cash funding requirements at November 30, 2013.

We currently expect to make long-term loan advances totaling approximately $1,074 million to our members over the next 12 months.

Interest Expense on Debt

For the six months ended November 30, 2013, interest expense on debt was $325 million, representing an average cost of 3.16 percent compared with 3.62 percent for the six months ended November 30, 2012. For the past three fiscal years, interest expense on debt has averaged $746 million. At November 30, 2013, 80 percent of outstanding debt had a fixed interest rate and 20 percent had a variable interest rate.

Principal Repayments on Long-Term Debt

The principal amount of medium-term notes, collateral trust bonds, long-term notes payable, subordinated deferrable debt and membership subordinated certificates maturing by fiscal year and thereafter is as follows:

		Amount
(dollar amounts in thousands)		Maturing (1)
May 31, 2014	$	1,571,350
May 31, 2015		1,163,539
May 31, 2016		1,475,343
May 31, 2017		890,068
May 31, 2018		752,661
Thereafter		10,572,789
Total	$	16,425,750

(1) Excludes loan subordinated certificates totaling $127 million that amortize annually based on the outstanding balance of the related loan and $1 million in payments not received on certificates subscribed and unissued. There are many items that affect the amortization of a loan, such as loan conversions, loan repricing at the end of an interest rate term and prepayments; therefore, an amortization schedule cannot be maintained for these certificates. Over the past three years, annual amortization on these certificates has averaged $24 million. In fiscal year 2013, amortization represented 18 percent of amortizing loan subordinated certificates outstanding.

Patronage Capital Retirements

CFC has made annual retirements of allocated net earnings in 34 of the last 35 years. In July 2013, the CFC Board of Directors approved the allocation of $81 million from fiscal year 2013 net earnings to CFC’s members in the form of patronage capital and authorized the retirement of allocated net earnings totaling $41 million, respresenting 50 percent of the fiscal year 2013 allocation. This amount was returned to members in cash in October 2013. The remaining portion of

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allocated net earnings will be retained by CFC for 25 years under guidelines adopted by the CFC Board of Directors in June 2009. The 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 regulation.

Market Risk

Our primary market risks are liquidity risk, interest rate risk and counterparty risk as a result of entering into derivative financial instruments.

Liquidity Risk

We face liquidity risk in funding our loan portfolio and refinancing our maturing obligations. Our Asset Liability Committee monitors liquidity risk by establishing and monitoring liquidity targets, as well as strategies and tactics to meet those targets, and ensuring that sufficient liquidity is available for unanticipated contingencies.

We face liquidity risk in the funding of our loan portfolio based on member demand for new loans, although as presented in our projected sources and uses of liquidity chart on page 48, we expect over the next six quarters that repayments on our long-term loans will exceed long-term loan advances by an estimated $243 million.

At November 30, 2013, we had $4,258 million of commercial paper, select notes, daily liquidity fund and bank bid notes scheduled to mature during the next 12 months. We expect to continue to maintain member investments in commercial paper, select notes and the daily liquidity fund at recent levels of approximately $2,204 million. Dealer commercial paper and bank bid notes decreased from $2,160 million at May 31, 2013 to $2,027 million at November 30, 2013. We expect that the dealer commercial paper balance will fluctuate to offset changes in demand from our members. We intend to maintain the current level of commercial paper outstanding while favorable market conditions exist. We intend to limit the balance of dealer commercial paper and bank bid notes outstanding to 15 percent or less of total debt outstanding. At November 30, 2013, 15 percent of total debt outstanding was $3,122 million. In order to access the commercial paper markets at current levels, we believe we need to maintain our current ratings for commercial paper of P1 from Moody’s Investors Service and A1 from Standard & Poor’s Corporation.

We use our bank lines of credit primarily as backup liquidity for dealer and member commercial paper. At November 30, 2013, we had $3,343 million in available lines of credit with financial institutions. We expect to be in compliance with the covenants under our revolving credit agreements; therefore, we could draw on these facilities to repay dealer or member commercial paper that cannot be rolled over in the event of market disruptions.

At November 30, 2013, we had long-term debt maturing in the next 12 months totaling $2,209 million. In addition to our access to the dealer and member commercial paper markets as discussed above, we believe we will be able to refinance these maturing obligations because:

·   Based on our funding sources available and past history, we believe we will meet our obligation to refinance the remaining $607 million of medium-term notes sold through dealers and $417 million of medium-term notes sold to members that mature over the next 12 months with new medium-term notes including those in the retail notes market.

·   We expect to maintain the ability to obtain funding through the capital markets. During the first half of fiscal year 2014, we issued $486 million of medium-term notes and $800 million of collateral trust bonds in registered offerings.

·   We can borrow up to $3,900 million under a note purchase agreement with the Federal Agriculture Mortgage Corporation at any time through January 11, 2016, subject to market conditions for debt issued by the Federal Agricultural Mortgage Corporation. We had up to $2,371 million available under this revolving note purchase agreement at November 30, 2013.

·   We had up to $924 million available under committed loan facilities from the Federal Financing Bank at November 30, 2013. A total of $424 million was available for advance through October 15, 2015 and a total of $500 million was available for advance through October 16, 2016. CFC is required to deposit collateral satisfactory to RUS pursuant to the terms of the facilities. Advances may have a maturity date of up to 20 years from the date of the advance. The spread we pay over the applicable treasury rate is locked in under this program. During the six months ended November 30, 2013, we borrowed $325 million under our committed loan facilities with the Federal Financing Bank.

At November 30, 2013, we were the liquidity provider for a total of $578 million of variable-rate tax-exempt bonds issued for our member cooperatives. As liquidity provider on these $578 million of tax-exempt bonds, we are required to purchase bonds that are tendered or put by investors. Investors provide notice to the remarketing agent that they will tender or put a

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certain amount of bonds at the next interest rate reset date. If the remarketing agent is unable to sell such bonds to other investors by the next interest rate reset date, we have unconditionally agreed to purchase such bonds. On a total of $453 million of the bonds for which we are liquidity provider, we also provide a guarantee of all principal and interest. On a total of $125 million of tax-exempt bonds, our obligation as liquidity provider is in the form of a letter of credit which is reflected in our letters of credit. During the six months ended November 30, 2013, we were not required to perform as liquidity provider pursuant to these obligations.

At November 30, 2013, we had a total of $452 million of letters of credit outstanding for the benefit of our members. That total includes $125 million for the purpose of providing liquidity for pollution control bonds which is also mentioned in the paragraph above. The remaining $327 million represents obligations for which we may be required to advance funds based on various trigger events included in the letters of credit. If we are required to advance funds, the amount we advance becomes an obligation of the member upon whose application we issued the letter of credit.

We expect that our current sources of liquidity, along with our $301 million of cash on hand, $26 million of investments and $800 million of time deposits at November 30, 2013, will allow us to meet our obligations and to fund our operations over the next 12 to 18 months.

Interest Rate Risk

Our interest rate risk exposure is related to the funding of the fixed-rate loan portfolio. Our Asset Liability Committee monitors interest rate risk by meeting at least monthly to review the following information: national economic forecasts, forecasts for the federal funds rate and the interest rates that we set, interest rate gap analysis, liquidity position, schedules of loan and debt maturities, short- and long-term funding needs, anticipated loan demands, credit concentration status, derivatives portfolio and financial forecast. The Asset Liability Committee also discusses the composition of fixed-rate versus variable-rate lending, new funding opportunities, changes to the nature and mix of assets and liabilities for structural mismatches and interest rate swap transactions.

Matched Funding Practice

We provide our members with many options on loans with regard to interest rates, the term for which the selected interest rate is in effect, and the ability to convert or prepay the loan. Long-term loans typically have maturities of up to 35 years. Borrowers may select fixed interest rates for periods of one year through the life of the loan. Each time borrowers select a rate, it is at our current market rate for that type of loan. We do not match fund the majority of our fixed-rate loans with a specific debt issuance at the time the loans are advanced. To monitor and mitigate interest rate risk in the funding of fixed-rate loans, we perform a monthly interest rate gap analysis, a comparison of fixed-rate assets repricing or maturing by year to fixed-rate liabilities and members’ equity maturing by year (see table below). Fixed-rate liabilities include debt issued at a fixed rate as well as variable-rate debt swapped to a fixed rate using interest rate swaps. Fixed-rate debt swapped to a variable rate using interest rate swaps is excluded from the analysis since it is used to match fund the variable-rate loan pool. With the exception of members’ subordinated certificates, which are generally issued at rates below our long-term cost of funding and with extended maturities, and commercial paper, our liabilities have average maturities that closely match the repricing terms (but not the maturities) of our fixed-interest-rate loans.

We fund the amount of fixed-rate assets that exceed fixed-rate debt and members’ equity with short-term debt, primarily commercial paper. We also have the option to enter pay fixed-receive variable interest rate swaps. Our funding objective is to manage the matched funding of asset and liability repricing terms within a range of total assets excluding derivative assets deemed appropriate by the Asset Liability Committee based on the current environment and extended outlook for interest rates. Due to the flexibility we offer our borrowers, there is a possibility of significant changes in the composition of the fixed-rate loan portfolio, and the management of the interest rate gap is very fluid. We may use interest rate swaps to adjust the interest rate gap based on our needs for fixed-rate or variable-rate funding as changes arise. The interest rate risk is deemed minimal on variable-rate loans since the loans are eligible to be repriced at least monthly, therefore minimizing the variance to the cost of variable-rate debt used to fund the loans. At November 30, 2013 and May 31, 2013, 10 percent and 11 percent, respectively, of loans carried variable interest rates.

Our interest rate gap analysis also allows us to analyze the effect on the overall adjusted TIER of issuing a certain amount of debt at a fixed rate for various maturities before the issuance of the debt. See Non-GAAP Financial Measures for further explanation and a reconciliation of the adjustments to TIER.

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The following table shows the scheduled amortization and repricing of fixed-rate assets and liabilities outstanding at November 30, 2013.

Interest Rate Gap Analysis

(Fixed-Rate Assets/Liabilities)

As of November 30, 2013

(dollar amounts in millions)		May 31, 2014 or prior			June 1, 2014 to May 31, 2016			June 1, 2016 to May 31, 2018			June 1, 2018 to May 31, 2023			June 1, 2023 to May 31, 2033			Beyond June 1, 2033			Total
Assets amortization and repricing	$	988		$	4,089		$	3,152		$	4,653		$	4,143		$	1,311		$	18,336
Liabilities and members’ equity:
Long-term debt	$	1,028		$	2,324		$	3,069		$	4,217		$	3,122		$	488		$	14,248
Subordinated certificates		19			69			54			261			1,282			130			1,815
Members’ equity (1)		-			-			-			55			264			596			915
Total liabilities and members’ equity	$	1,047		$	2,393		$	3,123		$	4,533		$	4,668		$	1,214		$	16,978
Gap (2)	$	(59)		$	1,696		$	29		$	120		$	(525	)	$	97		$	1,358
Cumulative gap		(59)			1,637			1,666			1,786			1,261			1,358
Cumulative gap as a % of total assets		(0.26)	%		7.30	%		7.43	%		7.96	%		5.62	%		6.05	%
Cumulative gap as a % of adjusted total assets (3)		(0.27)			7.39			7.52			8.07			5.70			6.13

(1) Includes the portion of the loan loss allowance and subordinated deferrable debt allocated to fund fixed-rate assets and excludes non-cash adjustments from the accounting for derivative financial instruments.

(2) Assets less liabilities and members’ equity.

(3) Adjusted total assets represent total assets in the condensed consolidated balance sheets less derivative assets.

At November 30, 2013, we had $18,336 million of fixed-rate assets amortizing or repricing, funded by $14,248 million of fixed-rate liabilities maturing during the next 30 years and $2,730 million of members’ equity and members’ subordinated certificates, a portion of which does not have a scheduled maturity. The difference of $1,358 million, or 6.05 percent of total assets and 6.13 percent of total assets excluding derivative assets, represents the fixed-rate assets maturing during the next 30 years in excess of the fixed-rate debt and members’ equity. Our Asset Liability Committee believes that the difference in the matched funding at November 30, 2013 as a percentage of total assets less derivative assets is appropriate based on the extended outlook for interest rates and allows the flexibility to maximize funding opportunities in the current low interest rate environment. Funding fixed-rate loans with short-term debt presents a liquidity risk of being able to roll over the short-term debt until we issue term debt to fund the fixed-rate loans through their repricing or maturity date. Factors that mitigate this risk include our maintenance of liquidity available at November 30, 2013 through committed revolving credit agreements totaling $3,343 million with domestic and foreign banks, $924 million under committed loan facilities from the Federal Financing Bank, and, subject to market conditions, up to $2,371 million under a revolving note purchase agreement with the Federal Agriculture Mortgage Corporation.

Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We use derivatives such as interest rate swaps and treasury rate locks to mitigate interest rate risk. These derivatives are used when they provide a lower cost of funding or minimize interest rate risk as part of our overall interest rate matching strategy. As an end user and not a swap dealer, we have not entered into derivative financial instruments for investing, speculating or trading purposes in the past and do not anticipate doing so in the future. At November 30, 2013 and May 31, 2013, there were no foreign currency derivative instruments outstanding.

Counterparty Risk

We are exposed to counterparty risk related to the performance of the parties with which we entered into financial transactions, primarily for derivative instruments and cash and time deposits that we have with various financial institutions. To mitigate this risk, we only enter into these transactions with financial institutions with investment-grade ratings. Our cash and time deposits with financial institutions have an original maturity of less than one year. For our derivative instruments, at November 30, 2013 and May 31, 2013, the highest percentage concentration of total notional exposure to any one counterparty was 21 percent and 20 percent of total derivative instruments, respectively. At the time counterparties are selected to participate in our exchange agreements, the counterparty must be a participant in one of our revolving credit agreements. In addition, the derivative instruments executed for each counterparty are based on key characteristics such as the following: notional concentration, credit risk exposure, tenor, bid success rate, total credit commitment and credit ratings. At November 30, 2013, our derivative instrument counterparties had credit ratings ranging from AA- to BBB+ as assigned by Standard & Poor’s Corporation and Aa2 to

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Baa2 as assigned by Moody’s Investors Service. Based on the fair market value of our derivative instruments at November 30, 2013, there were three counterparties that would be required to make a payment to us totaling $89 million if all of our derivative instruments were terminated on that day. The largest amount owed to us by a single counterparty was $68 million, or 77 percent of the total exposure to us, at November 30, 2013.

Rating Triggers

Some of our interest rate swaps have credit risk-related contingent features referred to as rating triggers. Rating triggers are not separate financial instruments and are not required to be accounted for separately as derivatives.

At November 30, 2013, the following notional amounts of derivative instruments had rating triggers based on our senior unsecured credit ratings from Moody’s Investors Service or Standard & Poor’s Corporation falling to a level specified in the applicable agreements and are grouped into the categories below. In calculating the payments and collections required upon termination, we netted the agreements for each counterparty, as allowed by the underlying master agreements. At November 30, 2013, our senior unsecured credit rating from Moody’s Investors Service and Standard & Poor’s Corporation was A2 and A, respectively. At November 30, 2013, both Moody’s Investors Service and Standard & Poor’s Corporation had our ratings on stable outlook.

		Notional		Our required		Amount we		Net
(dollar amounts in thousands)		amount		payment		would collect		total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	1,500	$	(40)	$	-	$	(40)
fall below Baa1/BBB+ (1)		6,627,731		(162,986)		88,745		(74,241)
Total	$	6,629,231	$	(163,026)	$	88,745	$	(74,281)

(1) Stated senior unsecured credit ratings are for Moody’s Investors Service and Standard & Poor’s Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

In addition to the rating triggers listed above, at November 30, 2013, we had a total notional amount of $450 million of derivative instruments with one counterparty that would require the pledging of collateral totaling $11 million (the fair value of such derivative instruments excluding credit risk) if our senior unsecured ratings from Moody’s Investors Service were to fall below Baa2 or if our ratings from Standard & Poor’s Corporation were to fall below BBB. The aggregate fair value of all interest rate swaps with rating triggers that were in a net liability position at November 30, 2013, including credit risk, was $171 million.

At November 30, 2013, the credit rating for two counterparties is below the rating trigger level in the interest rate swap contracts with these counterparties. As a result, we have the option to terminate all interest rate swaps with these counterparties. At November 30, 2013, the interest rate swap contracts with these counterparties have a total notional amount of $789 million. If we were to decide to terminate the interest rate swaps with these counterparties, the contracts would be settled based on the fair value at the date of termination. At November 30, 2013, we estimate that we would have to make a payment of approximately $25 million to settle the interest rate swaps with these counterparties. We use our interest rate swaps as part of our matched funding strategy and do not generally terminate such agreements early. At this time, we have not provided notice to either counterparty that we intend to terminate the interest rate swaps. We will continue to evaluate the overall credit worthiness of these counterparties and to monitor our overall matched funding position.

For additional information about the risks related to our business, see Item 1A. Risk Factors.

Non-GAAP Financial Measures

We make certain adjustments to financial measures in assessing our financial performance that are not in accordance with GAAP. These non-GAAP adjustments fall primarily into two categories:  (i) adjustments related to the calculation of the TIER and (ii) adjustments related to the calculation of the leverage and debt-to-equity ratios. These adjustments reflect management’s perspective on our operations, and in several cases, adjustments used to measure covenant compliance under our revolving credit agreements. Therefore, we believe these are useful financial measures for investors. We refer to our non-GAAP financial measures as “adjusted” throughout this document.

56

Adjustments to Net Income and the Calculation of TIER

The following table provides a reconciliation between interest expense and net interest income, and these financial measures adjusted to include the impact of derivatives. Refer to Non-GAAP Financial Measures in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended May 31, 2013 for an explanation of why these adjustments to net income and the calculation of the TIER ratio reflect management’s perspective on our operations and why we believe these are useful financial measures for investors.

		For the three months ended November 30,					For the six months ended November 30,
(dollar amounts in thousands)		2013		2012			2013		2012
Interest expense	$	(165,345)	$	(174,301	)	$	(332,930)	$	(350,897	)
Derivative cash settlements		(19,471)		(15,456	)		(36,156)		(29,319	)
Adjusted interest expense	$	(184,816)	$	(189,757	)	$	(369,086)	$	(380,216	)
Net interest income	$	73,909	$	67,329		$	147,395	$	130,818
Derivative cash settlements		(19,471)		(15,456	)		(36,156)		(29,319	)
Adjusted net interest income	$	54,438	$	51,873		$	111,239	$	101,499
Net income	$	24,992	$	60,081		$	183,258	$	72,727
Derivative forward value		11,309		(11,690	)		(111,760)		(961	)
Adjusted net income	$	36,301	$	48,391		$	71,498	$	71,766

TIER using GAAP financial measures is calculated as follows:

	Interest expense + net income prior to cumulative
TIER =	effect of change in accounting principle
	Interest expense

Our adjusted TIER is calculated as follows:

Adjusted TIER =	Adjusted interest expense + adjusted net income
	Adjusted interest expense

The following table presents our TIER and adjusted TIER.

	For the three months ended November 30,				For the six months ended November 30,
	2013		2012		2013		2012
TIER		1.15		1.34		1.55		1.21
Adjusted TIER		1.20		1.26		1.19		1.19

57

Adjustments to the Calculation of Leverage and Debt-to-Equity Ratios

The following table provides a reconciliation between the liabilities and equity used to calculate the leverage and debt-to-equity ratios and these financial measures adjusted to exclude the non-cash effects of derivatives and foreign currency adjustments, to subtract debt used to fund loans that are guaranteed by RUS from total liabilities, and to subtract from total liabilities, and add to total equity, debt with equity characteristics. Refer to Non-GAAP Financial Measures in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the year ended May 31, 2013 for an explanation of why these adjustments to the calculation of leverage and debt-to-equity ratios reflect management’s perspective on our operations and why we believe these are useful financial measures for investors.

(dollar amounts in thousands)		November 30, 2013		May 31, 2013
Liabilities	$	21,482,628	$	21,260,390
Less:
Derivative liabilities		(397,695)		(475,278	)
Debt used to fund loans guaranteed by RUS		(204,465)		(210,815	)
Subordinated deferrable debt		(400,000)		(400,000	)
Subordinated certificates (1)		(1,760,724)		(1,766,402	)
Adjusted liabilities	$	18,719,744	$	18,407,895
Total equity	$	948,736	$	811,261
Less:
Prior-year cumulative derivative forward
value and foreign currency adjustments		224,722		366,026
Year-to-date derivative forward value income		(111,760)		(141,304	)
Accumulated other comprehensive income (2)		(6,801)		(7,287	)
Plus:
Subordinated certificates (1)		1,760,724		1,766,402
Subordinated deferrable debt		400,000		400,000
Adjusted equity	$	3,215,621	$	3,195,098
Guarantees	$	1,094,229	$	1,112,771

(1) Includes $123 million and $37 million of members’ subordinated certificates classified in short-term debt at November 30, 2013 and May 31, 2013, respectively.

(2) Represents the accumulated other comprehensive income related to derivatives. Excludes $4 million of accumulated other comprehensive loss and $1 million of accumulated other comprehensive income related to the unrecognized gains (losses) on our investments at November 30, 2013 and May 31, 2013, respectively.

The leverage and debt-to-equity ratios using GAAP financial measures are calculated as follows:

Leverage ratio =	Liabilities + guarantees outstanding
	Total equity
Debt-to-equity ratio =	Liabilities
	Total equity

The adjusted leverage and debt-to-equity ratios are calculated as follows:

Adjusted leverage ratio =	Adjusted liabilities + guarantees outstanding
	Adjusted equity

Adjusted debt-to-equity ratio =	Adjusted liabilities
	Adjusted equity

The following table provides the calculated ratio for leverage and debt-to-equity, as well as the adjusted ratio calculations.

	November 30, 2013	May 31, 2013
Leverage ratio	23.80	27.58
Adjusted leverage ratio	6.16	6.11
Debt-to-equity ratio	22.64	26.21
Adjusted debt-to-equity ratio	5.82	5.76

58

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

See Market Risk discussion beginning on page 53.

Item 4. Controls and Procedures.

At the end of the period covered by this report, senior management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on this evaluation process, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting that occurred during the three months ended November 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.		OTHER INFORMATION
Item 1A.	Risk Factors.

Refer to Part I, Item 1A. Risk Factors in our Form 10-K for the year ended May 31, 2013 for information regarding factors that could affect our results of operations, financial condition and liquidity. There have been no material changes to our risk factors described in our Form 10-K for the year ended May 31, 2013.

Item 5. Other Information.

None.

Item 6. Exhibits.

3.1	–	Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to Registration Statement No. 2-46018, filed October 12, 1972.
3.2	–	Amended Bylaws as approved by the CFC Board of Directors and members on March 7, 2011. Incorporated by reference to Exhibit 3.2 to our Form 10-Q filed on April 13, 2011.
10.1	–	Series G Bond Purchase Agreement between the Registrant, Federal Financing Bank and Rural Utilities Service dated as of November 21, 2013 for up to $500,000,000.
10.2	–	Supplement No. 1 to Amended, Restated and Consolidated Bond Guarantee Agreement dated as of November 21, 2013 between the Registrant and the Rural Utilities Service.
10.3	–	Series G Future Advance Bond from the Registrant to the Federal Financing Bank dated as of November 21, 2013 for up to $500,000,000 maturing on October 15, 2036.
10.4	–	Amendment No.2 dated October 28, 2013 to the Revolving Credit Agreement dated March 21, 2011 originally expiring on March 21, 2014.
10.5	–	Amendment No.2 dated October 28, 2013 to the Revolving Credit Agreement dated October 21, 2011 originally expiring on October 21, 2015.
10.6	–	Amendment No.2 dated October 28, 2013 to the Revolving Credit Agreement dated October 21, 2011 originally expiring on October 21, 2016.
31.1	–	Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	–	Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	–	Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	–	Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.

59

101.INS	–	XBRL Instance Document
101.SCH	–	XBRL Taxonomy Extension Schema Document
101.CAL	–	XBRL Taxonomy Calculation Linkbase Document
101.LAB	–	XBRL Taxonomy Label Linkbase Document
101.PRE	–	XBRL Taxonomy Presentation Linkbase Document
101.DEF	–	XBRL Taxonomy Definition Linkbase Document

60

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATIONAL RURAL UTILITIES COOPERATIVE

     FINANCE CORPORATION

/s/ J. ANDREW DON                                         

J. Andrew Don

Senior Vice President and Chief Financial Officer

/s/ ROBERT E. GEIER

Robert E. Geier

Controller

(Principal Accounting Officer)

January 13, 2014

61

EX-10.1

RUS

SERIES G BOND PURCHASE AGREEMENT

by and among

FEDERAL FINANCING BANK,

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,

and

ADMINISTRATOR of the RURAL UTILITIES SERVICE

made as of

November 21, 2013

RUS

TABLE OF CONTENTS
				Page
TITLE/PARTIES			1
RECITAL PARAGRAPHS			1
ARTICLE 1  DEFINITIONS AND RULES OF INTERPRETATION			2
	Section 1.1  Definitions		2
	Section 1.2  Rules of Interpretation		6
ARTICLE 2  FFB COMMITMENT TO PURCHASE THE BOND			6
ARTICLE 3  COMMITMENT CONDITIONS			6
	Section 3.1  Commitment Amount Limit		6
	Section 3.2  Borrower Instruments		6
	Section 3.3  RUS Instruments		7
ARTICLE 4  OFFER OF THE BOND FOR PURCHASE			7
	Section 4.1  Delivery of Borrower Instruments to RUS		8
	Section 4.2  Delivery of Principal Instruments by RUS to
		FFB	8
ARTICLE 5  PURCHASE OF THE BOND BY FFB			8
	Section 5.1  Acceptance or Rejection of Principal
		Instruments	8
	Section 5.2  Purchase		9
ARTICLE 6  LOST, STOLEN, DESTROYED, OR MUTILATED BOND			9
	Section 6.1  Borrower's Agreement		9
	Section 6.2  RUS's Agreement		10

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	Section 6.3  FFB's Agreement			10
ARTICLE 7  ADVANCES				10
	Section 7.1  Commitment			10
	Section 7.2  Treasury Policies Applicable to Advances			10
	Section 7.3  Conditions to Making Advances			11
	Section 7.4  Amount and Timing of Advances			13
	Section 7.5  Type of Funds and Means of Advance			14
	Section 7.6  Interest Rate Applicable to Advances			14
	Section 7.7  Interest Rate Confirmation Notices			15
	Section 7.8  Borrower's Agreement			15
ARTICLE 8  REPRESENTATIONS AND WARRANTIES BY THE BORROWER				15
ARTICLE 9  BILLING BY FFB				16
	Section 9.1  Billing Statements to the Borrower and
			RUS	16
	Section 9.2  Failure to Deliver or Receive Billing
		Statements No Release		16
	Section 9.3  FFB Billing Determinations Conclusive			16
ARTICLE 10  PAYMENTS TO FFB AND RUS				17
	Section 10.1  Manner and Timing of Payment			17
	Section 10.2  Application of Payments			17
ARTICLE 11  BORROWER'S PRIVILEGES TO PREPAY OR REFINANCE
	ADVANCES			17
	Section 11.1  Automatic Application or Required

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		Election	17
	Section 11.2  "Market Value Prepayment/Refinancing
		Privilege"	18
	Section 11.3  "Fixed Premium Prepayment/Refinancing
		Privilege"	19
	Section 11.4  New Notices and Billing Statements After
		Refinancings	22
ARTICLE 12  BOND SERVICING AND RELATED DUTIES AND RIGHTS			23
	Section 12.1  Custody of Bond		23
	Section 12.2  RUS Duties as Bond Servicer and Guarantor		23
	Section 12.3  Bond Servicing Fee		24
	Section 12.4  Liability and Rights of RUS as Guarantor		24
	Section 12.5  Bond Payments Made by RUS		24
ARTICLE 13  AGREEMENTS AND OTHER RIGHTS OF RUS			26
	Section 13.1  Delivery of Replacement Certificates
		Specifying Authorized RUS Officials	26
	Section 13.2  Certain Agreements of RUS and FFB		26
	Section 13.3  Reimbursement		27
	Section 13.4  Effect of RUS's Nonperformance		27
	Section 13.5  Right of RUS to Purchase Advances and
		Bonds	27
ARTICLE 14  EFFECTIVE DATE, TERM, SURVIVAL			28
	Section 14.1  Effective Date		28
	Section 14.2  Term of Commitment to Make Advances		28
	Section 14.3  Survival		28

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ARTICLE 15  MISCELLANEOUS		29
	Section 15.1  Notices	29
	Section 15.2  Amendments	31
	Section 15.3  Successors and Assigns	31
	Section 15.4  Sale or Assignment of Bond	31
	Section 15.5  Forbearance Not a Waiver	33
	Section 15.6  Rights Confined to Parties	33
	Section 15.7  Governing Law	33
	Section 15.8  Severability	34
	Section 15.9  Headings	34
	Section 15.10  Counterparts	34
SIGNATURES		35
EXHIBIT A	FORM OF ADVANCE REQUEST
EXHIBIT B	FORM OF BOND
EXHIBIT C	FORM OF CERTIFICATE SPECIFYING AUTHORIZED BORROWER OFFICIALS
EXHIBIT D	FORM OF CERTIFICATE SPECIFYING AUTHORIZED RUS OFFICIALS
EXHIBIT E	FORM OF OPINION OF BORROWER’S COUNSEL re: BORROWER’S INSTRUMENTS
EXHIBIT F	FORM OF OPINION OF RUS’s COUNSEL re: RUS GUARANTEE
EXHIBIT G	FORM OF RUS CERTIFICATE
EXHIBIT H	FORM OF RUS GUARANTEE

BOND PURCHASE AGREEMENT-page iv

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SERIES G BOND PURCHASE AGREEMENT made as of November 21, 2013, by and among the FEDERAL FINANCING BANK ("FFB"), a body corporate and instrumentality of the United States of America, the NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (the "Borrower"), a cooperative association organized and existing under the laws of the District of Columbia, and the ADMINISTRATOR of the RURAL UTILITIES SERVICE ("RUS"), a Rural Development agency of the United States Department of Agriculture.

WHEREAS, RUS is authorized, pursuant to the Guarantee Authority (as hereinafter defined), to guarantee loans that meet the requirements of the Guarantee Authority; and

WHEREAS, FFB is authorized, under section 6(a) of the FFB Act (as hereinafter defined), to make commitments to purchase, and to purchase on terms and conditions determined by FFB, any obligation that is issued, sold, or guaranteed by an agency of the United States of America; and

WHEREAS, FFB is entering into this Series G Bond Purchase Agreement, as authorized by section 6(a) of the FFB Act, setting out, among other things, FFB's agreement to purchase, pursuant to the FFB Act, the Bond (as hereinafter defined) to be issued by the Borrower, when the terms and conditions specified herein have been satisfied, as hereinafter provided; and

WHEREAS, RUS has determined that the Borrower meets the qualifications for being a "lender," as that term is used in the Guarantee Authority, and for being a "Guaranteed Lender," as that term is used in the regulations promulgated by RUS to carry out the Guarantee Authority; and

WHEREAS, RUS is authorized to enter into this Series G Bond Purchase Agreement; and

WHEREAS, the Borrower is authorized to enter into this Series G Bond Purchase Agreement.

NOW, THEREFORE, for and in consideration of the mutual agreements herein contained and for other good and valuable

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consideration, the receipt and sufficiency of which is hereby acknowledged, FFB, RUS, and the Borrower agree as follows:

ARTICLE 1

DEFINITIONS AND RULES OF INTERPRETATION

Section 1.1  Definitions.

As used in this Agreement, the following terms shall have the respective meanings specified in this section 1.1, unless the context clearly requires otherwise.

"Advance" shall mean an advance of funds made by FFB under the Bond in accordance with the provisions of article 7 of this Agreement.

"Advance Identifier" shall mean, for each Advance, the particular sequence of letters and numbers constituting the Bond Identifier plus the particular sequence of additional numbers assigned by FFB to the respective Advance in the interest rate confirmation notice relating to such Advance delivered by FFB in accordance with section 7.7 of this Agreement.

"Advance Request" shall mean a letter from a Borrower requesting an Advance under the Bond, in the form of letter attached as Exhibit A to this Agreement.

"Advance Request Approval Notice" shall mean the written notice from RUS located at the end of an Advance Request advising FFB that such Advance Request has been approved on behalf of RUS.

"Bond" shall mean a future advance bond of the Borrower payable to FFB, in the form of bond that is attached as Exhibit B to this Agreement, as such bond may be amended, supplemented, and restated from time to time in accordance with its terms.

"Bond Guarantee Agreement" shall mean the Amended, Restated and Consolidated Bond Guarantee Agreement dated as of December 13, 2012, as supplemented by Supplement No. 1 dated as of even date herewith,made between RUS and the Borrower, as such agreement may be amended, supplemented, and restated from time to time in accordance with its terms.

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"Bond Identifier" shall mean the particular sequence of letters and numbers assigned by FFB to the Bond in the Principal Instruments acceptance notice relating to the Bond delivered by FFB in accordance with section 5.1 of this Agreement.

"Borrower Instruments" shall have the meaning specified in section 3.2.1 of this Agreement.

"Business Day" shall mean any day on which FFB and the Federal Reserve Bank of New York are both open for business.

"Certificate Specifying Authorized Borrower Officials" shall mean a certificate of the Borrower specifying the names and titles of those officials of the Borrower who are authorized to execute and deliver from time to time Advance Requests on behalf of the Borrower, and containing the original signature of each of those officials, substantially in the form of the Certificate Specifying Authorized Borrower Officials attached as Exhibit C to this Agreement.

"Certificate Specifying Authorized RUS Officials" shall mean a certificate specifying the names and titles of those officials of RUS who are authorized to execute and deliver Advance Request Approval Notices from time to time on behalf of RUS and setting out the original signature of each of those authorized officials, and specifying the name and title of those officials of RUS who are authorized to confirm telephonically the authenticity of the Advance Request Approval Notices from time to time on behalf of RUS and setting out the telephone number of each of those authorized officials, in the form of the Certificate Specifying Authorized RUS Officials attached as Exhibit D to this Agreement.

"FFB Act" shall mean the Federal Financing Bank Act of 1973 (Pub. L. No. 93-224, 87 Stat. 937, codified at 12 U.S.C. § 2281 et seq.), as amended.

"FFB Financing Options Fee" shall mean the fee, expressed in terms of a basis point increment in the basic interest rate established for an Advance, payable by the Borrower to the Holder if the Borrower elects to have a Fixed Premium Prepayment/Refinancing Privilege apply to such Advance, as described in section 11.3 of this Agreement.

"First Call Date" shall have the meaning specified in section 11.3.2(a) of this Agreement.

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"Fixed Premium Prepayment/Refinancing Privilege" shall have the meaning specified in section 11.3.1 of this Agreement.

"Governmental Authority" shall mean any federal, state, county, municipal, or regional authority, or any other entity of a similar nature, exercising any executive, legislative, judicial, regulatory, or administrative function of government. 

"Guarantee Authority" shall mean section 313A of the Rural Electrification Act of 1936, as amended (codified at 7 U.S.C. § 940c-1).

"Holder" shall mean FFB, for so long as it shall be the holder of the Bond, and any successor or assignee of FFB, for so long as such successor or assignee shall be the holder of the Bond.

"Loan Commitment Amount" shall mean $500,000,000.00.

"Market Value Premium (or Discount)" shall have the meaning specified in section 11.2 of this Agreement.

"Market Value Prepayment/Refinancing Privilege" shall have the meaning specified in section 11.2 of this Agreement.

"Maturity Date" shall have the meaning specified in section 7.3.1(a)(5) of this Agreement.

"No-Call Period" shall have the meaning specified in section 11.3.2 of this Agreement.

"Opinion of Borrower's Counsel re: Borrower Instruments" shall mean an opinion of counsel from the General Counsel of the Borrower, substantially in the form of opinion that is attached as Exhibit E to this Agreement.

"Opinion of RUS's Counsel re: RUS Guarantee" shall mean an opinion of counsel from the Acting General Counsel of the Department of Agriculture to the Administrator of RUS, substantially in the form of opinion that is attached as Exhibit F to this Agreement.

"Payment Date" shall mean January 15, April 15, July 15, and October 15 of each year.

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"Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, trust company, unincorporated organization or Governmental Authority.

"Pledge Agreement" shall mean the Amended, Restated and Consolidated Pledge Agreement dated as of December 13, 2012, made among the Borrower, RUS, and U.S. Bank National Association, a national association, as such agreement may be amended, supplemented, and restated from time to time in accordance with its terms.

"Principal Instruments" shall have the meaning specified in section 4.2 of this Agreement.

"Requested Advance Amount" shall have the meaning specified in section 7.3.1(a)(2) of this Agreement.

"Requested Advance Date" shall have the meaning specified in section 7.3.1(a)(3) of this Agreement.

"RUS Certificate" shall mean a certificate relating to the RUS Guarantee and other matters, in the form of certificate that is attached as Exhibit G to this Agreement.

"RUS Guarantee" shall mean a guarantee of the Bond issued by RUS, in the form of guarantee that is attached as Exhibit H to this Agreement.

"RUS Instruments" shall have the meaning specified in section 3.3.1 of this Agreement.

"this Agreement" shall mean this Series G Bond Purchase Agreement between FFB, RUS, and the Borrower.

"Uncontrollable Cause" shall mean, for FFB, an unforeseeable cause beyond the control and without the fault of FFB, being:  act of God, fire, flood, severe weather, epidemic, quarantine restriction, explosion, sabotage, act of war, act of terrorism, riot, civil commotion, lapse of the statutory authority of the United States Department of the Treasury to raise cash through the issuance of Treasury debt instruments, disruption or failure of the Treasury Financial Communications System, closure of the Federal Government, or an unforeseen or unscheduled closure or evacuation of the FFB offices; and shall mean, for RUS, an unforeseeable cause beyond the control and without the fault of RUS, being:  act of God, fire, flood, severe weather, epidemic, quarantine restriction, explosion, sabotage, act

BOND PURCHASE AGREEMENT-page 5

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of war, act of terrorism, riot, civil commotion, closure of the Federal Government, or an unforeseen or unscheduled closure or evacuation of the RUS offices.

Section 1.2  Rules of Interpretation.

Unless the context shall otherwise indicate, the terms defined in section 1.1 of this Agreement shall include the plural as well as the singular and the singular as well as the plural.  The words "herein," "hereof," and "hereto," and words of similar import, refer to this Agreement as a whole.

ARTICLE 2

FFB COMMITMENT TO PURCHASE THE BOND

Subject to the terms and conditions of this Agreement, FFB agrees to purchase the Bond that is offered by the Borrower to FFB for purchase under this Agreement.

ARTICLE 3

COMMITMENT CONDITIONS

FFB shall be under no obligation to purchase the Bond under this Agreement unless and until each of the conditions specified in this article 3 has been satisfied.

Section 3.1  Commitment Amount Limit.

The maximum principal amount of the Bond that is offered for purchase shall not exceed the Loan Commitment Amount.

Section 3.2  Borrower Instruments.

3.2.1  Borrower Instruments.  FFB shall have received from the Borrower the following instruments (such instruments being, collectively, the "Borrower Instruments"):

(a) an original counterpart of this Agreement, duly executed by the Borrower; and

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(b) the original Bond, duly executed by the Borrower.

3.2.2  Opinion of Borrower's Counsel re: Borrower Instruments.  FFB shall have received from the Borrower an Opinion of Borrower's Counsel re: Borrower Instruments.

3.2.3  Certificate Specifying Authorized Borrower Officials.  FFB shall have received from the Borrower a completed and signed Certificate Specifying Authorized Borrower Officials.

Section 3.3  RUS Instruments.

3.3.1  RUS Instruments.  FFB shall have received from RUS the following instruments (such instruments being, collectively, the "RUS Instruments"):

(a) an original counterpart of this Agreement, duly executed by RUS;

(b) the original RUS Guarantee relating to the Bond, duly executed by RUS; and

(c) an original RUS Certificate relating to the RUS Guarantee and other matters, duly executed by RUS.

3.3.2  Opinion of RUS's Counsel re: RUS Guarantee. FFB shall have received a copy of the Opinion of RUS's Counsel re: RUS Guarantee.

3.3.3  Certificate Specifying Authorized RUS Officials. FFB shall have received from RUS a completed and signed Certificate Specifying Authorized RUS Officials.

ARTICLE 4

OFFER OF THE BOND FOR PURCHASE

The Bond that is to be offered to FFB for purchase under this Agreement shall be offered in accordance with the procedures described in this article 4.

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Section 4.1  Delivery of Borrower Instruments to RUS. 

The Borrower shall deliver to RUS, for redelivery to FFB, the following:

(a) all of the Borrower Instruments, each duly executed by the Borrower;

(b) an Opinion of Borrower's Counsel re: Borrower Instruments; and

(c) a completed and signed Certificate Specifying Authorized Borrower Officials.

Section 4.2  Delivery of Principal Instruments by RUS to FFB.

RUS shall deliver to FFB all of the following instruments (collectively being the "Principal Instruments":

(a) all of the instruments described in section 4.1 of this Agreement;

(b) all of the RUS Instruments, each duly executed by RUS;

(c) a copy of the Opinion of RUS's Counsel re: RUS Guarantee; and

(d) a completed and signed Certificate Specifying Authorized RUS Officials.

ARTICLE 5

PURCHASE OF THE BOND BY FFB

Section 5.1  Acceptance or Rejection of Principal Instruments. 

Within 5 Business Days after delivery to FFB of the Principal Instruments relating to the Bond that is offered for purchase under this Agreement, FFB shall deliver by facsimile transmission (fax) to RUS one of the following:

(a) an acceptance notice, which notice shall:

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(1) state that the Principal Instruments meet the terms and conditions detailed in article 3 of this Agreement, or are otherwise acceptable to FFB; and

(2) assign a Bond Identifier to the Bond for use by the Borrower and RUS in all communications to FFB making reference to the Bond; or

(b) a rejection notice, which notice shall state that one or more of the Principal Instruments does not meet the terms and conditions of this Agreement and specify how such instrument or instruments does not meet the terms and conditions of this Agreement.

Section 5.2  Purchase.

FFB shall not be deemed to have accepted the Bond offered for purchase under this Agreement until such time as FFB shall have delivered an acceptance notice accepting the Principal Instruments relating to the Bond; provided, however, that in the event that FFB shall make an Advance under the Bond, then FFB shall be deemed to have accepted the Bond offered for purchase.

ARTICLE 6

LOST, STOLEN, DESTROYED, OR MUTILATED BOND

Section 6.1  Borrower's Agreement.

In the event that the Bond purchased under this Agreement shall become lost, stolen, destroyed, or mutilated, the Borrower shall, upon the written request of FFB, execute and deliver, in replacement thereof, a new Bond of like tenor, dated and bearing interest from the date to which interest has been paid on such lost, stolen, destroyed, or mutilated Bond or, if no interest has been paid thereon, dated the same date as such lost, stolen, destroyed, or mutilated Bond.  Upon delivery of such replacement Bond, the Borrower shall be released and discharged from any further liability on account of the lost, stolen, or destroyed Bond.  If the Bond being replaced has been mutilated, such mutilated Bond shall be surrendered to the Borrower for cancellation.

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Section 6.2  RUS's Agreement.

In the event that the Borrower delivers a replacement Bond for a lost, stolen, destroyed, or mutilated Bond, as provided in section 6.1 of this Agreement, RUS shall execute and deliver an RUS Guarantee of the replacement Bond in replacement of the RUS Guarantee of the lost, stolen, destroyed, or mutilated Bond.

Section 6.3  FFB's Agreement.

FFB agrees that, upon delivery by RUS of a replacement RUS Guarantee as provided in section 6.2 of this Agreement, RUS shall be released and discharged from any further liability on account of the RUS Guarantee of the lost, stolen, destroyed, or mutilated Bond.

ARTICLE 7

ADVANCES

Section 7.1  Commitment. 

Subject to the terms and conditions of this Agreement, FFB agrees to make Advances under the Bond for the account of the Borrower.

Section 7.2 Treasury Policies Applicable to Advances.

Each of the Borrower and RUS understands and consents to the following Treasury financial management policies generally applicable to all advances of funds:

(a) each Advance will be requested by the Borrower, and each Advance Request will be approved by RUS, only at such time and in such amount as shall be necessary to meet the immediate payment or disbursing need of the Borrower;

(b) Advances for investment purposes, other than to make loans permitted by the Guarantee Authority, will not be requested by the Borrower or approved by RUS; and

(c) all interest earned on any lawful and permitted investment of Advances, other than loans permitted by the Guarantee Authority to be made, in excess of the interest accrued on such Advances, the fee

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payable under paragraph 9 of the Bond accrued on such Advances, and the guarantee fee payable on such Advances under article IV of the Bond Guarantee Agreement, will be remitted to FFB.

Section 7.3  Conditions to Making Advances.
 

FFB shall be under no obligation to make any Advance under the Bond unless and until each of the conditions specified in this section 7.3 is satisfied.

7.3.1  Advance Requests.  For each Advance, the Borrower shall have delivered to RUS, for review and approval before being forwarded to FFB, an Advance Request, which Advance Request:

(a) shall specify, among other things:
 

(1) the particular "Bond Identifier" that FFB assigned to this Bond (as provided in section 5.1 of this Agreement;

(2) the particular amount of funds that the Borrower requests to be advanced (such amount being the "Requested Advance Amount" for the respective Advance);

(3) the particular calendar date that the Borrower requests to be the date on which the respective Advance is to be made (such date being the "Requested Advance Date" for such Advance), which date must be a Business Day;

(4) the particular bank account to which the Borrower requests that the respective Advance be made;

(5) the particular calendar date that the Borrower selects to be the date on which the respective Advance is to mature (such date being the "Maturity Date" for such Advance), which date must meet all of the following criteria:

(A) the Maturity Date for the respective Advance must be a "Payment Date" (as that term is defined in paragraph 7 of the Bond);

(B) the Maturity Date for the respective Advance may not be a date that will occur after the twentieth anniversary of the

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Requested Advance Date specified in the respective Advance Request;

(C) the Maturity Date for the respective Advance may not be a date that will occur after the particular date specified on page 1 of the Bond as being the "Final Maturity Date"; and

(D) the period of time between the Requested Advance Date for the respective Advance and the Maturity Date for such Advance may not be less than the period from the Requested Advance Date (if such date is a Payment Date) or the Payment Date immediately following the Requested Advance Date (if the Requested Advance Date is not a Payment Date) to the next Payment Date;

(6) the particular method for the repayment of principal of the respective Advance that the Borrower elects to apply to such Advance from among the three principal repayment methods described in paragraph 8(b) of the Bond; and

(7) with respect to each Advance for which the Borrower selects a Maturity Date that will occur on or after the fifth anniversary of the Requested Advance Date specified in the respective Advance Request, the particular prepayment/ refinancing privilege that the Borrower elects to apply to the respective Advance (i.e. either the Market Value Prepayment/Refinancing Privilege described in section 11.2 of this Agreement or the Fixed Premium Prepayment/Refinancing Privilege described in section 11.3 of this Agreement); and

(b) shall have been duly executed by an official of the Borrower whose name and signature appear on the Certificate Specifying Authorized Borrower Officials delivered by the Borrower to FFB pursuant to section 3.2.3 of this Agreement; and

(c) shall have been received by FFB not later than the third Business Day before the Requested Advance Date specified in such Advance Request.

7.3.2  Advance Request Approval Notice.  For each Advance, RUS shall have delivered to FFB the Borrower's executed Advance Request, together with RUS's executed

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Advance Request Approval Notice, which Advance Request Approval Notice:

(a) shall have been duly executed on behalf of RUS by an official of RUS whose name and signature appear on the Certificate Specifying Authorized RUS Officials delivered to FFB pursuant to section 3.3.3  of this Agreement; and

(b) shall have been received by FFB not later than the third Business Day before the Requested Advance Date specified in such Advance Request.

7.3.3  Telephonic Confirmation of Authenticity of Advance Request Approval Notices.  For each Advance, FFB shall have obtained telephonic confirmation of the authenticity of the related Advance Request Approval Notice from an official of RUS (a) whose name, title, and telephone number appear on the Certificate Specifying Authorized RUS Officials that has been delivered by RUS to FFB pursuant to section 3.3.3 of this Agreement; and (b) who is not the same official of RUS who executed the Advance Request Approval Notice on behalf of RUS.

7.3.4  Bond Maximum Principal Amount Limit.  At the time of making any Advance under the Bond, the amount of such Advance, when added to the aggregate amount of all Advances previously made under the Bond, shall not exceed the maximum principal amount of the Bond.

7.3.5  Conditions Specified in Other Agreement.  Each of the conditions specified in the Bond Guarantee Agreement as being conditions to making Advances under the Bond shall have been satisfied or waived in writing.

Section 7.4  Amount and Timing of Advances.

FFB shall make each Advance in the Requested Advance Amount specified in the respective Advance Request and on the Requested Advance Date specified in the respective Advance Request, subject to satisfaction of the conditions specified in section 7.3 of this Agreement and subject to the following additional limitations:

(a) in the event that the Requested Advance Date specified in the respective Advance Request is not a Business Day, FFB shall make the respective Advance on the first day thereafter that is a Business Day;

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(b) in the event that the respective Advance Request and the related Advance Request Approval Notice are not received by FFB on or before the third Business Day before the Requested Advance Date specified in such Advance Request, FFB shall make the respective Advance as soon as practicable thereafter, but in any event not later than the third Business Day after the date on which the Requested Advance Date and the related Advance Request Approval Notice are received by FFB, unless the Borrower delivers to FFB and RUS a written cancellation of such Advance Request or a replacement Advance Request specifying a Requested Advance Date later than the expiration of the applicable advance notice period; and

(c) in the event that an Uncontrollable Cause prevents FFB from making the respective Advance on the Requested Advance Date specified in the respective Advance Request, FFB shall make such Advance as soon as such Uncontrollable Cause ceases to prevent FFB from making such Advance, unless the Borrower delivers to FFB and RUS a written cancellation of such Advance Request or a replacement Advance Request specifying a Requested Advance Date later than when such Uncontrollable Cause ceases to prevent FFB from making such Advance.  

Section 7.5  Type of Funds and Means of Advance.

Each Advance shall be made in immediately available funds by electronic funds transfer to such bank account(s) as shall have been specified in the respective Advance Request.

Section 7.6  Interest Rate Applicable to Advances.

7.6.1  Initial Rate Determinations.  The rate of interest applicable to each Advance made under the Bond shall be established as provided in paragraph 6 of the Bond, subject to section 7.6.2 of this Agreement.

7.6.2  Rate Re-determinations.  In the event the Borrower elects to extend the maturity of all or any portion of the outstanding principal amount of any Advance, as provided in paragraph 15 of the Bond, or to refinance all or any portion of the outstanding principal amount of any Advance, as provided in paragraph 17 of the Bond, then the rate of interest applicable to the outstanding principal amount of such Advance shall be re-determined by FFB in

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accordance with the terms of paragraph 15 or 17 of the Bond, as the case may be.

Section 7.7  Interest Rate Confirmation Notices.

7.7.1  Initial Rates.  After making each Advance, FFB shall deliver, by facsimile transmission, to the Borrower and RUS written confirmation of the making of the respective Advance, which confirmation shall:

(a) state the date on which such Advance was made;

(b) state the interest rate applicable to such Advance; and

(c) assign an Advance Identifier to such Advance for use by the Borrower and RUS in all communications to FFB making reference to such Advance.

7.7.2  Re-determined Rates.  In the event that the rate of interest applicable to the outstanding principal amount of any Advance is re-determined as provided in section 7.6.2. of this Agreement, FFB shall deliver, by facsimile transmission, to the Borrower and RUS written confirmation of the re-determination of such interest rate, which confirmation shall state the date on which the applicable interest rate was re-determined for such Advance and the re-determined interest rate.

Section 7.8  Borrower's Agreement.

The Borrower hereby agrees that each Advance made by FFB in accordance with an RUS-approved Advance Request delivered to FFB shall reduce, by the amount of the respective Advance made, FFB's remaining commitment in section 7.1 of this Agreement to make Advances under the Bond.

ARTICLE 8

REPRESENTATIONS AND WARRANTIES BY THE BORROWER

The Borrower makes to FFB each of the representations and warranties made by the Borrower to RUS in paragraphs (a), (b), (c), (d), (e), (f), (g), and (j) of section 8.2 of the Bond Guarantee Agreement, and each of those representations and

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warranties of the Borrower are incorporated herein by reference as if set out in full herein.

ARTICLE 9

BILLING BY FFB

Section 9.1  Billing Statements to the Borrower and RUS.

After making each Advance, FFB shall prepare a billing statement detailing the amounts owed on the respective Advance and when such amounts are due.  FFB shall deliver, by facsimile transmission, each such billing statement to the Borrower and RUS.

Section 9.2  Failure to Deliver or Receive Billing Statements No Release.

Failure on the part of FFB to deliver any billing statement or failure on the part of the Borrower or RUS to receive any billing statement shall not, however, relieve the Borrower of any of its payment obligations under the Bond or this Agreement or relieve RUS from any of its payment obligations under the RUS Guarantee or this Agreement.

Section 9.3  FFB Billing Determinations Conclusive.

9.3.1  Acknowledgment and Consent.  The Borrower and RUS each acknowledge that FFB has described to it the rounding methodology employed by FFB in calculating the amount of accrued interest owed at any time on the Bond, and the Borrower and RUS each consent to this methodology.

9.3.2  Agreement.  The Borrower and RUS each agree that any and all determinations made by FFB shall be conclusive and binding upon the Borrower and RUS with respect to the amount of accrued interest owed on the Bond determined using this rounding methodology.

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ARTICLE 10

PAYMENTS TO FFB AND RUS

Section 10.1  Manner and Timing of Payment.

Each amount that becomes due and owing on the Bond purchased under this Agreement shall be paid when and as due, as provided in the Bond.

Section 10.2  Application of Payments.

10.2.1  Priority of Payments.  Each payment made on the Bond shall be applied, first, to the payment of Late Charges (if any) payable under paragraphs 11 and 18 of the Bond, then to the payment of premiums (if any) payable under paragraphs 16 and 17 of the Bond, then to the payment of unpaid accrued interest, then on account of outstanding principal, and then to the payment of the fee payable under paragraph 9 of the Bond.

10.2.2  Agreement between FFB and RUS.  RUS agrees to transfer to FFB payments received by RUS under the Bond in such amounts as may be necessary to conform with the priority of payment requirements contained in section 10.2.1 of this Agreement.

ARTICLE 11

BORROWER'S PRIVILEGES TO PREPAY OR REFINANCE ADVANCES

Section 11.1  Automatic Application or Required Election.

The prepayment/refinancing privilege described in section 11.2 of this Agreement shall apply automatically to each Advance that has a Maturity Date that will occur before the fifth anniversary of the Requested Advance Date specified in the respective Advance Request.  With respect to each Advance for which the Borrower has selected a Maturity Date that will occur on or after the fifth anniversary of the Requested Advance Date specified in the respective Advance Request, the Borrower must elect, at the time of requesting the respective Advance, the particular prepayment/refinancing privilege that is to apply to such Advance from between the options described in sections 11.2 and 11.3 of this Agreement.

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Section 11.2  "Market Value Prepayment/Refinancing Privilege".

If the prepayment/refinancing privilege described in this section 11.2 applies to an Advance (such privilege being the  "Market Value Prepayment/Refinancing Privilege"), the Borrower shall have the privilege to prepay such Advance (as provided in paragraph 16 of the Bond) or to refinance such Advance (as provided in paragraph 17 of the Bond) at a prepayment or refinancing price that will include, in either case, a premium (or discount credit) equal to the difference between:

(a) the price for such Advance that would, if such Advance (including all unpaid interest accrued thereon through the date of prepayment or refinancing, as the case may be) were purchased by a third party and held to the "Maturity Date" applicable to the Advance, produce a yield to the third-party purchaser for the period from the date of purchase to such Maturity Date substantially equal to the interest rate that would be set on a loan from the Secretary of the Treasury to FFB to purchase an obligation having a payment schedule identical to the payment schedule of such Advance for the period from the date of prepayment or refinancing, as the case may be, to such Maturity Date; and

(b) the sum of:

(1) the outstanding principal amount of such Advance on the date of prepayment or refinancing, as the case may be; and

(2) all unpaid interest accrued on such Advance through the date of prepayment or refinancing, as the case may be,

(the difference between the price described in paragraph (a) of this section 11.2 and the sum of the amounts described in paragraph (b) of this section 11.2 being the "Market Value Premium (or Discount)"; if the price described in paragraph (a) is greater than the sum of the amounts described in paragraph (b), that difference is the premium; if the price described in paragraph (a) is less than the sum of the amounts described in paragraph (b), that difference is the discount credit).  The price described in paragraph (a) of this section 11.2 shall be calculated by the United States Department of the Treasury as of the close of business on the second Business Day before the date of prepayment or refinancing, as the

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 case may be, using standard calculation methods of the United States Department of the Treasury.  FFB shall provide the Borrower and RUS with written notice of the price described in paragraph (a) of this section 11.2 promptly upon completing the calculation.

Section 11.3  "Fixed Premium Prepayment/Refinancing Privilege".

11.3.1 Required Election and Selection.  If the prepayment/refinancing privilege described in this section 11.3 applies to such Advance (such privilege being the "Fixed Premium Prepayment/Refinancing Privilege"), the Borrower shall have the privilege to prepay such Advance (as provided in paragraph 16 of the Bond) or to refinance such Advance (as provided in paragraph 17 of the Bond) at a prepayment or refinancing price that will include, in either case, a fixed premium determined by FFB at the time of such prepayment or refinancing, based on both the no-call period election described in section 11.3.2 of this Agreement and the premium selection described in section 11.3.3 of this Agreement made by the Borrower at the time of requesting such Advance.

11.3.2  "No-Call Period Election".  First, the Borrower must elect whether or not the Fixed Premium Prepayment/ Refinancing Privilege that is to apply to the respective Advance shall include a 5-year period during which such Advance shall not be eligible for any prepayment or refinancing (such time period being a "No-Call Period").  The options are:

(a) "yes" -- the Borrower elects to have the Fixed Premium Prepayment/Refinancing Privilege include a 5-year No-Call Period, i.e., the Borrower shall have the privilege to prepay the respective Advance (as provided in paragraph 16 of the Bond) or to refinance such Advance (as provided in paragraph 17 of the Bond) on or after (but not before):

(1) the fifth anniversary of the Requested Advance Date for such Advance (if such fifth anniversary date is a Payment Date); or

(2) the first Payment Date to occur after the fifth anniversary of the Requested Advance Date for such Advance (if such fifth anniversary date is not a Payment Date),

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(in either case, such date being the "First Call Date" for such Advance); or

(b) "no" -- the Borrower elects to have the Fixed Premium Prepayment/Refinancing Privilege not include a 5-year No-Call Period, i.e., the Borrower shall have the privilege to prepay the respective Advance (as provided in paragraph 16 of the Bond) or to refinance such Advance (as provided in paragraph 17 of the Bond) on any Business Day.

11.3.3  "Premium Selection".  Second, the Borrower must select the particular fixed premium that will be required in connection with any prepayment or refinancing of the respective Advance.  The options are:

(a) "10 percent premium declining over 10 years" -- the price for any prepayment or refinancing of the respective Advance shall include a premium equal to 10 percent of the amount of principal being prepaid or refinanced, as the case may be, multiplied by a fraction:

(1) the numerator of which is the number of Payment Dates that occur between:

(A) in the case of a prepayment, the date of prepayment (if such date is a Payment Date) or the Payment Date immediately preceding the date of prepayment (if the date of prepayment is not a Payment Date), and, in the case of a refinancing, the date of refinancing, which date, in either case, shall be included in computing the number of Payment Dates; and

(B) the tenth anniversary of the applicable First Call Date (if the Borrower elected to have the prepayment/refinancing privilege include a 5-year No-Call Period) or the tenth anniversary of the Requested Advance Date (if the Borrower elected to have the prepayment/refinancing privilege not include a 5-year No-Call Period), which date, in either case, shall be excluded in computing the number of Payment Dates; and

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(2) the denominator of which is 40,

and no premium on or after the tenth anniversary of the applicable First Call Date (if the Borrower elected to have the prepayment/refinancing privilege include a 5-year No-Call Period) or the tenth anniversary of the Requested Advance Date (if the Borrower elected to have the prepayment/refinancing privilege not include a 5-year No-Call Period);

(b) "5 percent premium declining over 5 years" -- the price for any prepayment or refinancing of the respective Advance shall include a premium equal to 5 percent of the amount of principal being prepaid or refinanced, as the case may be, multiplied by a fraction:

(1) the numerator of which is the number of Payment Dates that occur between:

(A) in the case of a prepayment, the date of prepayment (if such date is a Payment Date) or the Payment Date immediately preceding the date of prepayment (if the date of prepayment is not a Payment Date), and, in the case of a refinancing, the date of refinancing, which date, in either case, shall be included in computing the number of Payment Dates; and

(B) the fifth anniversary of the applicable First Call Date (if the Borrower elected to have the prepayment/refinancing privilege include a 5-year No-Call Period) or the fifth anniversary of the Requested Advance Date (if the Borrower elected to have the prepayment/refinancing privilege not include a 5-year No-Call Period), which date, in either case, shall be excluded in computing the number of Payment Dates; and

(2) the denominator of which is 20,

and no premium on or after the fifth anniversary of the applicable First Call Date (if the Borrower elected to have the prepayment/refinancing privilege include a 5-year No-Call Period) or the fifth anniversary of the Requested Advance Date (if the Borrower elected to have

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 the prepayment/refinancing privilege not include a 5-year No-Call Period); or

(c) "par" -- the price for any prepayment or refinancing of the respective Advance shall include no premium.

11.3.4  Standard for Calculating FFB Financing Options Fee for Fixed-Premium Prepayment/Refinancing Privilege.  The fee assessed by FFB and payable by the Borrower to have the Fixed-Premium Prepayment/Refinancing Privilege described in this section 11.3 to apply to any Advance (such fee being an "FFB Financing Options Fee") shall be established on the basis of the determination made by FFB described in paragraph 6(d) of the Bond.

11.3.5  Calculation and Notification of FFB Financing Options Fee for Fixed-Premium Prepayment/Refinancing Privilege.  FFB shall make the determination described in section 11.3.4 of this Agreement for each Advance to which the Borrower has elected to have the Fixed-Premium Prepayment/Refinancing Privilege apply, at the time of the establishment of the particular basic interest rate that is to apply to the respective Advance.  After making such determination for each Advance, FFB shall notify the Borrower and RUS of the particular FFB Financing Options Fee (expressed in terms of a basis point increment) that is assessed by FFB and payable by such Borrower for such Fixed-Premium Prepayment/Refinancing Privilege in the particular interest rate confirmation notice relating to such Advance to be delivered by FFB in accordance with section 7.7 of this Agreement.

Section 11.4  New Notices and Billing Statements After Refinancings.

In the event of a refinancing of any Advance, FFB shall provide the Borrower and RUS with a new interest rate confirmation notice and a new billing statement reflecting the new interest rate applicable to such Advance.

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ARTICLE 12

BOND SERVICING AND RELATED DUTIES AND RIGHTS

Section 12.1  Custody of Bond.

Subject to section 15.4 of this Agreement, RUS shall have custody, as agent for FFB, of the original Bond that has been purchased by FFB under this Agreement until all amounts that are owed under the Bond have been paid in full or until such time as actual possession of the original Bond has been requested by FFB. If FFB requests RUS for actual possession of the original Bond, RUS shall promptly deliver the original Bond to FFB.

Section 12.2  RUS Duties as Bond Servicer and Guarantor.

12.2.1  Bond Servicing To Be Performed by RUS.  Bond servicing shall be performed by RUS, as agent for FFB, for so long as FFB shall be the Holder of the Bond.  Payment by FFB for RUS's servicing of the Bond shall be made in accordance with section 12.3 hereof.

12.2.2  Bond Servicing Duties.  As a part of servicing the Bond, RUS shall:

(a) serve as principal point of contact for the Borrower with respect to any questions that the Borrower may have about its borrowings from FFB;

(b) hold, as agent for FFB, the original Bond in accordance with the terms of section 12.1 hereof;

(c) prepare and deliver to the Borrower billing statements, which billing statements shall reflect the terms of the billing statements prepared by FFB and delivered to RUS showing amounts owed with respect to each Advance made under the Bond;

(d) collect, as agent for FFB, all amounts paid by the Borrower under the Bond; and

(e) turn over to FFB all amounts collected under clause (d) of this section 12.2.2 when and as due under the Bond.

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Section 12.3  Bond Servicing Fee.

RUS shall be compensated for performing the bond servicing described in this article 12 by deducting from the fee assessed by FFB under paragraph 9 of the Bond and collected by RUS an amount equal to the cost to RUS, as determined by RUS, of performing the bond servicing, provided, however, that the cost to RUS of performing bond servicing for any time period shall not exceed the fee assessed by FFB under paragraph 9 of the Bond for the same time period.

Section 12.4  Liability and Rights of RUS as Guarantor.

12.4.1  Liability as Guarantor.  If the Bond is in payment default, RUS shall be liable to FFB in accordance with the terms of the RUS Guarantee, without regard to the sufficiency of the security or the remedies RUS may enforce against the Borrower.

12.4.2  Rights as Guarantor.  In consideration of the RUS Guarantee, RUS shall have the sole authority (vis-a-vis FFB), if the Bond is in payment default, in respect of acceleration of the Bond, the exercise of other available remedies, and the disposition of sums or property recovered.

Section 12.5  Bond Payments Made by RUS.

12.5.1  General.  RUS and FFB understand and agree that RUS, in its combined capacity as both bond servicer and guarantor of the Bond, shall pay to FFB all amounts due and owing under the Bond, when and as those amounts are due and payable under the terms of the Bond.
 

(a) Bond Servicing Payments.  As bond servicer, RUS shall make payments by turning over to FFB, when and as due under the Bond, all amounts that have been collected by RUS under section 12.2.2(d) of this Agreement.

(b) Bond Guarantee Payments.  As guarantor, RUS shall pay to FFB, when and as due under the Bond, the difference, if any, between the amounts that are owed to FFB under the terms of the Bond and the amounts that have been collected under section 12.2.2(d) of this Agreement.

12.5.2  RUS Payments To Be Made by Book Transfer.  RUS shall make each payment under section 12.5.1 of this Agreement by internal transfer of funds on the books of the

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United States Department of the Treasury from the account of RUS to the account of FFB specified by FFB from time to time.

12.5.3  Late Charges.  Subject to section 12.5.4 of this Agreement, in the event that RUS shall fail to make any payment under section 12.5.1 of this Agreement when and as that payment by RUS to FFB is due (any such amount being then an "Overdue Amount"), the amount payable shall be that Overdue Amount with interest thereon (such interest being the "Late Charge").  The Late Charge shall accrue from the scheduled date of payment for the Overdue Amount (taking into account any Business Day adjustments under the Bond) to the actual date on which payment is made.  The Late Charge applicable to RUS shall be calculated in the same manner as Late Charges applicable to the Borrower are calculated under the Bond.

12.5.4  Uncontrollable Cause.  In the event that RUS is prevented by an Uncontrollable Cause from making any payment under section 12.5.1 of this Agreement at the time or in the manner as RUS is required to make that payment, then RUS shall make that payment as soon as the respective Uncontrollable Cause ceases to prevent RUS from making that payment.  The amount that is then due and owing that is not paid due to an Uncontrollable Cause for RUS shall bear interest at the 91-day loan rate then established by FFB based on a determination made by the Secretary of the Treasury pursuant to section 6(b) of the FFB Act, such rate being subject to re-determination at 91-day intervals if the amount due and owing is not paid.

12.5.5  No Modification of Times for Payment. Nothing in section 12.5.3 or section 12.5.4 of this Agreement shall be construed as permitting or implying that RUS may, without the prior written consent of FFB, modify, extend, alter, or affect in any manner whatsoever (except as explicitly provided herein) the right of FFB to receive any and all payments on account of the Bond when and as due under the Bond.

12.5.6  Bond Assignment upon Payment in Full.  Upon payment by RUS to FFB of all amounts required to be paid by RUS to FFB under section 12.5.1 of this Agreement with respect to the Bond , FFB shall assign and transfer to RUS all rights held by FFB in that Bond.

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ARTICLE 13

AGREEMENTS AND OTHER RIGHTS OF RUS

Section 13.1  Delivery of Replacement Certificates Specifying Authorized RUS Officials.

13.1.1  Annual Replacement Certificates.  Promptly after the commencement of each fiscal year, RUS shall deliver to FFB a Certificate Specifying Authorized RUS Officials, updated as appropriate, in replacement of the original such certificate delivered pursuant to section 4.2(d) hereof.

13.1.2  Replacement Certificates within any Fiscal Year.  RUS may at any time within any fiscal year deliver to FFB a revised Certificate Specifying Authorized RUS Officials, updated as appropriate, in replacement of the annual certificate delivered pursuant to section 13.1.1 hereof.

Section 13.2  Certain Agreements of RUS and FFB.

13.2.1  Agent for Compliance Purposes.  In the event that FFB shall become subject to any duties under any applicable law or regulation solely because of its providing or having provided financing under the Bond, RUS shall serve as agent for FFB to the fullest extent permitted under that law or regulation in connection with satisfying the requirements of that law or regulation.

13.2.2  RUS's Agreement Regarding Its Appointment as Agent for FFB.  Recognizing the legitimate needs of FFB to ensure that RUS, as compliance agent for FFB, has performed all duties to which FFB becomes subject under any applicable law or regulation solely because of providing or having provided financing under the Bond, and with RUS and FFB expressing their intent to cooperate in connection with the exchange of information related thereto, RUS agrees:

(a) to deliver to representatives of FFB or its designate, when requested to do so by FFB or its designate, actual possession of the original of any certificate, report, document, or paper collected or prepared by RUS, as compliance agent for FFB; or

(b) at the option of FFB, to permit representatives of FFB or its designate, during reasonable business hours, to have access to, and to inspect and make copies of, any and all certificates, reports, documents, or papers collected or prepared by RUS, as compliance agent for FFB.

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13.2.3  Litigation Cooperation.  When requested to do so by FFB, RUS shall cooperate with FFB in the prosecution or defense of any litigation that FFB may institute against any Person other than RUS or to which FFB is named as a party, as the case may be, arising out of FFB providing or having provided financing under the Bond.

Section 13.3  Reimbursement.

13.3.1  RUS's Agreement to Reimburse.  To the extent permitted by applicable law and subject to the availability of funds, RUS agrees to reimburse FFB (but not any successor, assignee or transferee of FFB) for any and all liabilities, losses, costs, or expenses of any nature that may be imposed upon, incurred by, or asserted against FFB by any Person other than RUS in any way relating to or arising out of FFB providing or having provided financing under the Bond, but specifically excluding any liability, loss, cost or expense relating to or arising out of any sale, assignment, or other transfer by FFB, pursuant to section 15.4 hereof, of all or any part of the Bond.

13.3.2  RUS's Agreement to Seek Appropriations.  In the event that no funds are available to RUS at the time that RUS needs funds to reimburse FFB as contemplated by section 13.3.1 hereof, RUS agrees that it will diligently seek to obtain additional appropriations for that purpose.

13.3.3  FFB's Agreement to Deliver Notice.  Solely for the purpose of assisting RUS in mitigating the extent of any reimbursement contemplated by section 13.3.1 hereof, FFB agrees that it will deliver notice to RUS of any and all liabilities, losses, costs, or expenses imposed upon, incurred by, or asserted against FFB promptly after FFB has actual knowledge of the imposition, incurrence, or assertion of such liability, loss, cost, or expense.

Section 13.4  Effect of RUS's Nonperformance.

In the event that RUS shall fail to fulfill any of its agreements in this article 13, FFB shall nevertheless continue to make Advances under the Bond before the date of the respective failure.

Section 13.5  Right of RUS to Purchase Advances and Bonds.

13.5.1  RUS's Right.  Notwithstanding the provisions of the Bond, RUS may purchase from FFB all or any portion of any Advance that has been made under the Bond, or may purchase from FFB the Bond in its entirety, in either case in the same manner, at the same price, and subject to the same limitations as shall be applicable, under the terms of

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the Bond, to a prepayment by the Borrower of all or any portion of any Advance that has been made under the Bond, or a prepayment by the Borrower of the Bond in its entirety, as the case may be.

13.5.2  Borrower's Acknowledgement of RUS's Right.  Notwithstanding the provisions of the Bond, the Borrower acknowledges that RUS may purchase from FFB all or any portion of any Advance that has been made under the Bond, or may purchase from FFB the Bond in its entirety, in the same manner, at the same price, and subject to the same limitations as shall be applicable, under the terms of the Bond, to a prepayment by the Borrower of all or any portion of any Advance made under the Bond, or a prepayment by the Borrower of the Bond in its entirety, as the case may be.

ARTICLE 14

EFFECTIVE DATE, TERM, SURVIVAL

Section 14.1  Effective Date.

This Agreement shall be effective as of the date first above written.

Section 14.2  Term of Commitment to Make Advances.

The obligation of FFB under this Agreement to make Advances under the Bond issued by the Borrower shall expire on the "Last Day for an Advance" specified in the Bond.

Section 14.3  Survival.

14.3.1  Representations, Warranties, and Certifications.  All representations, warranties, and certifications made by the Borrower in this Agreement, or in any agreement, instrument, or certificate delivered pursuant hereto, shall survive the execution and delivery of this Agreement, the purchasing of the Bond hereunder, and the making of Advances thereunder.

14.3.2  Remainder of Agreement.  Notwithstanding the occurrence and passage of the Last Day for an Advance, the remainder of this Agreement shall remain in full force and effect until all amounts owed under this Agreement and the Bond purchased by FFB under this Agreement have been paid in full.

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ARTICLE 15

MISCELLANEOUS

Section 15.1  Notices. 

15.1.1  Addresses of the Parties. All notices and other communications hereunder or under the Bond to be made to any party shall be in writing and shall be addressed as follows:

To FFB:

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Attention:  Manager

Telephone No.  (202) 622-2470

Facsimile No.    (202) 622-0707

To the Borrower:

National Rural Utilities Cooperative

  Finance Corporation

20701 Cooperative Way

Dulles, VA  20166

Attention:  Chief Financial Officer

Telephone:  (703) 467-1872

Facsimile:  (703) 467-5178

with a copy to:

National Rural Utilities Cooperative

  Finance Corporation

20701 Cooperative Way

Dulles, VA  20166

Attention:  General Counsel
 

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Telephone:  (703) 467-7404

Facsimile:  (703) 467-5651

To RUS:

Rural Utilities Service

U.S. Department of Agriculture

1400 Independence Avenue, SW

Washington, DC  20250

Attention:  Administrator

Telephone:  (202) 720-9540

Facsimile:  (202) 720-1725

The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to each other party hereto.

15.1.2  Permitted Means of Delivery.  A properly addressed Advance Request, Advance Request Approval Notice, other notice, or other communication to FFB shall be deemed to have been delivered if it is sent by facsimile (fax) transmission.  A properly addressed notice or other communication to the Borrower shall be deemed to have been delivered if it is sent by facsimile (fax) transmission.  A properly addressed Advance Request, notice, or other communication to RUS shall be deemed to have been delivered if it is sent by facsimile (fax) transmission, provided that RUS shall receive the original of such faxed Advance Request, notice, or other communication within 5 Business Days.

15.1.3  Effective Date of Delivery.  A properly addressed notice or other communication shall be deemed to have been "delivered" for purposes of this Agreement:

(a) if made by personal delivery, on the date of such personal delivery;

(b) if mailed by first class mail, registered or certified mail, express mail, or by any commercial overnight courier service, on the date that such mailing is received;

(c) if sent by facsimile (fax) transmission:

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(1) if the transmission is received and receipt confirmed before 4:00 p.m. (Washington, DC, time) on any Business Day, on the date of such transmission; and

(2) if the transmission is received and receipt confirmed after 4:00 p.m. (Washington, DC, time) on any Business Day or any day that is not a Business Day, on the next Business Day.

15.1.4  Notices to FFB to Contain FFB Identification References.  All notices to FFB making any reference to either the Bond or any Advance made thereunder shall identify the Bond or such Advance by the Bond Identifier or the respective Advance Identifier, as the case may be, assigned by FFB to the Bond or such Advance.

Section 15.2  Amendments.

15.2.1  This Agreement.  No provision of this Agreement may be amended, modified, supplemented, waived, discharged, or terminated orally but only by an instrument in writing duly executed by each of the parties hereto.

15.2.2  Bond Guarantee Agreement.  RUS and the Borrower agree that they will not enter into any amendment, modification, or waiver of section 9.9 of the Bond Guarantee Agreement, or the consequences of a breach thereof, without the prior written consent of FFB.

Section 15.3  Successors and Assigns. 

This Agreement shall be binding upon and inure to the benefit of each of FFB, the Borrower, and RUS, and each of their respective successors and assigns.

Section 15.4  Sale or Assignment of Bond.

15.4.1  Sale or Assignment Permitted.  Subject to the agreement in the immediately following sentence, FFB may sell, assign, or otherwise transfer all or any part of the Bond or any participation share thereof.  FFB agrees not to sell, assign, or otherwise transfer all or any part of the Bond or all or any part of the right to receive the principal of and interest on the Bond or any participation share thereof to a purchaser, assignee, or transferee that is not an agency or instrumentality of the United States or a trust fund or other government account under the authority or control of the United States or any officer or officers

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 thereof until such time as FFB and RUS have agreed upon mutually satisfactory arrangements for the servicing of the right to receive principal and interest payments on the Bond or Bonds and for making claims under the RUS Guarantee when FFB is not the Holder.

15.4.2  Notice of Sale, Etc.  FFB will deliver to the Borrower and RUS written notice of any sale, assignment, or other transfer of the Bond promptly after any such sale, assignment, or other transfer.

15.4.3  Manner of Payment after Sale.  Any sale, assignment, or other transfer of all or any part of the Bond may provide that, following such sale, assignment, or other transfer, payments on the Bond, with the exception of the fee described in paragraph 9 of the Bond, shall be made in the manner specified by the respective purchaser, assignee, or transferee, as the case may be.  Payments of the fee described in paragraph 9 of the Bond shall be made in the manner specified by FFB in the written notice of the sale, assignment, or other transfer delivered by FFB to the Borrower and RUS as provided in section 15.4.2 of this Agreement.

15.4.4  Replacement Bonds.

(a) Borrower's Agreement.  The Borrower agrees:

(1) to issue a replacement Bond or Bonds with the same aggregate principal amount, interest rate, maturity, and other terms as each respective Bond or Bonds sold, assigned, or transferred pursuant to section 15.4.1 of this Agreement; provided, however, that, when requested by the respective purchaser, assignee, or transferee, such replacement Bond or Bonds shall provide that payments thereunder shall be made in the manner specified by such purchaser, assignee, or transferee; and provided, further, however, that upon delivery of such replacement Bond, the Borrower shall be released and discharged from any further liability on account of the sold, assigned, or transferred Bond; and provided, further, however, that the Bond being replaced shall be surrendered to the Borrower for cancellation; and

(2) to effect the change in ownership on its records and on the face of each such replacement

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Bond issued, upon receipt of each Bond or Bonds so sold, assigned, or transferred.

(b) RUS's Agreement.  If FFB elects to sell, assign, or transfer all or any part of the Bond or any participation share thereof, and if the respective purchaser, assignee, or transferee requests the Borrower to issue a replacement Bond or Bonds as provided in section 15.4.4(a) of this Agreement, RUS agrees that it will, upon the written request of FFB, execute and deliver an RUS Guarantee of the replacement Bond in replacement of the RUS Guarantee of the sold, assigned, or transferred Bond.

(c) FFB's Agreement.  FFB agrees that, upon delivery by RUS of a replacement RUS Guarantee as provided in section 15.4.4(b) of this Agreement, RUS shall be released and discharged from any further liability on account of the RUS Guarantee of the sold, assigned, or transferred Bond.

Section 15.5  Forbearance Not a Waiver.

Any forbearance on the part of FFB from enforcing any term or condition of this Agreement shall not be construed to be a waiver of such term or condition or acquiescence by FFB in any failure on the part of Borrower to comply with or satisfy such term or condition.

Section 15.6  Rights Confined to Parties.

Nothing expressed or implied herein is intended or shall be construed to confer upon, or to give to, any Person other than FFB, the Borrower, and RUS, and their respective successors and permitted assigns, any right, remedy, or claim under or by reason of this Agreement or of any term, covenant, or condition hereof, and all of the terms, covenants, conditions, promises, and agreements contained herein shall be for the sole and exclusive benefit of FFB, the Borrower, and RUS, and their respective successors and permitted assigns.

Section 15.7  Governing Law.

This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the United States of America and not the law of the several States.

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Section 15.8  Severability.

Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not of itself invalidate or render unenforceable such provision in any other jurisdiction.

Section 15.9  Headings.

The descriptive headings of the various articles, sections, and subsections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.

Section 15.10  Counterparts. 

This Agreement may be executed in separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute but one and the same instrument.

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IN WITNESS WHEREOF, FFB, the Borrower, and RUS have each caused this Agreement to be executed as of the day and year first above mentioned.

FEDERAL FINANCING BANK

   ("FFB")

By:    /s/ GARY GRIPPO

Name:  Gary Grippo

Title:    Vice President and Treasurer

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

   (the "Borrower")

By:     _______________________

Name:  Sheldon C. Petersen

Title:   Governor and 

 Chief Executive Officer

ADMINISTRATOR of the

RURAL UTILITIES SERVICE

   ("RUS")

By:     _______________________

Name:   John C. Padalino

Title:    Administrator

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IN WITNESS WHEREOF, FFB, the Borrower, and RUS have each caused this Agreement to be executed as of the day and year first above mentioned.

FEDERAL FINANCING BANK

   ("FFB")

By: _______________________

Name: Gary Grippo

Title: Vice President and Treasurer

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

   (the "Borrower")

By: /s/ SHELDON C. PETERSEN

Name: Sheldon C. Petersen

Title:   Governor and

 Chief Executive Officer

ADMINISTRATOR of the

RURAL UTILITIES SERVICE

   ("RUS")

By: _______________________

Name: John C. Padalino

Title: Administrator

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IN WITNESS WHEREOF, FFB, the Borrower, and RUS have each caused this Agreement to be executed as of the day and year first above mentioned.

FEDERAL FINANCING BANK

   ("FFB")

By: _______________________

Name: Gary Grippo

Title: Vice President and Treasurer

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

   (the "Borrower")

By: _______________________

Name: Sheldon C. Petersen

Title: Governor and

                   Chief Executive Officer

ADMINISTRATOR of the

RURAL UTILITIES SERVICE

   ("RUS")

By: /s/ JOHN C. PADALINO

Name: John C. Padalino

Title: Administrator

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EXHIBIT A

TO

BOND PURCHASE AGREEMENT

FORM

OF

ADVANCE REQUEST

RUS

ADVANCE REQUEST

(RUS APPROVAL REQUIRED)

****************************************************************

REFER TO RURAL UTILITIES SERVICE (RUS) REGULATIONS AND INSTRUCTIONS FOR A DESCRIPTION OF (1) THE OTHER FORMS AND MATERIALS THAT ARE REQUIRED IN CONNECTION WITH EACH REQUEST FOR AN ADVANCE, AND (2) THE TIME LIMITS FOR SUBMITTING THOSE FORMS AND MATERIALS AND THIS ADVANCE REQUEST TO RUS.

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM (TOGETHER WITH ALL OTHER FORMS AND MATERIAL REQUIRED BY RUS) TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

****************************************************************

ADVANCE REQUEST (RUS APPROVAL REQ ' D) - page 1

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ADVANCE REQUEST

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________1

The undersigned, as an authorized officer of the Borrower, hereby requests FFB to make an advance of funds ("this Advance") under, pursuant to, and in accordance with the applicable terms of the Bond.

The undersigned further requests that this Advance be made as follows:

 1.           Requested Advance Amount: $_____________________2

 2.           Requested Advance Date: _____________________3

1Insert the Bond Identifier that FFB assigned to the Bond (as provided in section 5.1(a)(2) of the Bond Purchase Agreement referred to in the Bond).

2Insert the particular amount of funds that the Borrower requests to be advanced, which amount must satisfy the condition specified in section 7.3.4 of the Bond Purchase Agreement referred to in the Bond.

3Insert the particular calendar date that the Borrower requests to be date on which this Advance is to be made, which date must meet the criteria for Requested Advance Dates specified in section 7.3.1(a)(3) of the Bond Purchase Agreement referred to in the Bond.

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3.           Wire Instructions:

A.  CORRESPONDENT BANK (if any) FOR PAYEE'S BANK:

Name of financial institution                ______________________________

Address of financial institution           ______________________________

ABA number of financial institution    ______________________________

B.  PAYEE'S BANK AND ACCOUNT:

Name of financial institution                ______________________________

Address of financial institution           _____________________________

ABA number of financial institution    ______________________________

Account name     ______________________________

Account number ______________________________

Taxpayer ID number ______________________________

4.           Maturity Date:  _____________________4

5. Principal Repayment Method:

[SELECT 1 OF THE FOLLOWING 3 METHODS FOR THE REPAYMENT OF PRINCIPAL.]

"P" for the "equal principal installments" method

"G" for "graduated principal installments" method

4Insert the particular calendar date that the Borrower selects to be the date on which this Advance is to mature, which date must meet all of the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

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"L" for the "level debt service" method

6.           Prepayment/Refinancing Privilege:

If (and only if) the Borrower selects, as the "Maturity Date" for this Advance, a date that will occur on or after the fifth anniversary of the "Requested Advance Date," then the Borrower must elect 1 of the following 2 alternative prepayment/refinancing privileges.

Alternative Prepayment/Refinancing 5

Privileges:

      "M" for the "Market Value Prepayment/      

Refinancing Privilege

      "F" for the "Fixed Premium Prepayment/

                 Refinancing Privilege

If (and only if) the Borrower elects the "Fixed Premium Prepayment/ Refinancing Privilege," then the Borrower must elect 1 of the following 2 alternative no-call period options.

Alternative No-Call Period Options: 6

"Y" for "yes," if the privilege is   

to include a 5-year No-Call Period
 

"N" for "no," if the privilege is not

                   to include a 5-year No-Call Period

5Insert in the box "M" if the Borrower elects to have the Market Value Prepayment/Refinancing Privilege apply to this Advance. Insert in the box "F" if the Borrower elects to have a Fixed Premium Prepayment/Refinancing Privilege apply to this Advance.

        6Insert in the box "Y" if the Borrower elects to have the Fixed Premium Prepayment/Refinancing Privilege include a 5-year No-Call Period during which this Advance will not be eligible for prepayment or refinancing. Insert in the box "N" if the Borrower elects to have the Fixed Premium Prepayment/Refinancing Privilege not include any 5-year No-Call Period, i.e. this Advance will be eligible for prepayment or refinancing on any Business day.

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If (and only if) the Borrower elects the "Fixed Premium Prepayment/ Refinancing Privilege, then the borrower must select 1 of the following 3 alternative premium options.

Alternative Premium Options: 7

   "X" for 10% premium declining over

10 years                                                                                                                         

   "V" for 5% premium declining over

  5 years

   "P" for par (no premium)

7Insert in the box "X" if the Borrower selects a 10% premium declining over 10 years as the premium option for the Fixed Premium Prepayment/Refinancing Privilege that is to apply to this Advance. Insert in the box "V" if the Borrower selects a 5% premium declining over 5 years as the premium option for the Fixed Premium Prepayment/Refinancing Privilege that is to apply to this Advance. Insert in the box "P" if the Borrower selects par (no premium) as the premium option for the Fixed Premium Prepayment/Refinancing Privilege that is to apply to this Advance.

ADVANCE REQUEST (RUS APPROVAL REQ ' D)  - page 5

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The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Advance Request on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________
 

Date:   _______________________

NOTICE OF RUS APPROVAL OF

ADVANCE REQUEST

Notice is hereby given to FFB that the preceding Advance Request made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

 FOR ACCOUNTING  USE ONLY:    RUS Budget  Account  Number    ____________   ADMINISTRATOR of the RURAL UTILITIES SERVICE, acting through his or her duly authorized designee

By:     _______________________

Name:   ______________________

Title:  _______________________

Date:   ______________________

ADVANCE REQUEST (RUS APPROVAL REQ ' D) - page 6

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EXHIBIT B

TO

BOND PURCHASE AGREEMENT

FORM

OF

BOND

RUS

  FOR FFB USE ONLY:    Bond Identifier:    CFC-0007    Purchase Date:    November 21, 2013       Bond Date November 21, 2013 Place of Issue Washington, DC Last Day for an Advance (¶3) October 15, 2016 Maximum Principal Amount (¶4) $500,000,000.00  Final Maturity Date (¶5) October 15, 2036

FUTURE ADVANCE BOND

SERIES G

1. Promise to Pay.

FOR VALUE RECEIVED, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (the "Borrower," which term includes any successors or assigns) promises to pay the FEDERAL FINANCING BANK ("FFB"), a body corporate and instrumentality of the United States of America (FFB, for so long as it shall be the holder of this Bond, and any successor or assignee of FFB, for so long as such successor or assignee shall be the holder of this Bond, being the "Holder"), at the times, in the manner, and with interest at the rates to be established as hereinafter provided, such amounts as may be advanced from time to time by FFB to the Borrower under this Bond (each such amount being an "Advance", and more than one such amount being "Advances").

2. Reference to Certain Agreements.

(a)  Bond Purchase Agreement.  This Bond is the "Bond" referred to in, and entitled to the benefits of, the Series G Bond Purchase Agreement dated as of even date herewith, made by and among FFB, the Borrower, and the Administrator of the Rural

BOND - page 1

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Utilities Service, a Rural Development agency of the United States Department of Agriculture ("RUS") (such agreement, as it may be amended, supplemented, and restated from time to time in accordance with its terms, being the "Bond Purchase Agreement").

(b) Bond Guarantee Agreement.  This Bond is the "Bond" referred to in, and entitled to the benefits of, the Amended, Restated and Consolidated Bond Guarantee Agreement dated as of December 13, 2012, as supplemented by Supplement No. 1 dated as of even date herewith, made between RUS and the Borrower (such agreement, as it may be amended, supplemented, and restated from time to time in accordance with its terms, being the "Bond Guarantee Agreement").

(c) Pledge Agreement.  This Bond is the "Bond" referred to in the Amended, Restated and Consolidated Pledge Agreement dated as of December 13, 2012, made among the Borrower, RUS, and U.S. Bank Trust National Association, a national association (such agreement, as it may be amended, supplemented, and restated from time to time in accordance with its terms, being the "Pledge Agreement").

3. Advances; Advance Requests; RUS Approval Requirement; Last Day for an Advance.

(a) Subject to the terms and conditions of the Bond Purchase Agreement, FFB shall make Advances to the Borrower from time to time under this Bond, in each case upon delivery to FFB of a written request by the Borrower for an Advance under this Bond, in the form of request attached to the Bond Purchase Agreement as Exhibit A thereto (each such request being an "Advance Request") and completed as prescribed in section 7.3.1 of the Bond Purchase Agreement.

(b) To be effective, an Advance Request must first be delivered to RUS for approval and be approved by RUS in writing, and such Advance Request, together with written notification of RUS's approval thereof (each such notification being an "Advance Request Approval Notice"), must be received by FFB consistent with the advance notice requirements prescribed in sections 7.3.1(c) and 7.3.2(b) of the Bond Purchase Agreement.

(c) FFB shall make each requested Advance on the particular calendar date that the Borrower requested in the respective Advance Request to be the date on which the respective Advance is to be made (such date being the "Requested Advance Date" for such Advance), subject to the provisions of the Bond Purchase Agreement describing certain circumstances under which a requested Advance shall be made on a later date; provided, however, that no Advance shall be made under this Bond after the particular date specified on page 1 of this Bond as being the "Last Day for an Advance."

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4. Principal Amount of Advances; Maximum Principal Amount.

The principal amount of each Advance shall be the particular dollar amount that the Borrower specified in the respective Advance Request as the "Requested Advance Amount" for the respective Advance; provided, however, that the aggregate principal amount of all Advances made under this Bond shall not exceed the particular amount specified on page 1 of this Bond as being the "Maximum Principal Amount."

5. Maturity Dates for Advances.

Subject to paragraph 15 of this Bond, each Advance shall mature on the particular calendar date that the Borrower selected in the respective Advance Request to be the date on which the respective Advance is to mature (such date being the "Maturity Date" for such Advance), provided that such Maturity Date meets all of the criteria for Maturity Dates prescribed in section 7.3.1(a)(5) of the Bond Purchase Agreement.

6. Computation of Interest on Advances.

(a) Subject to paragraphs 11 and 16 of this Bond, interest on the outstanding principal of each Advance shall accrue from the date on which the respective Advance is made to the date on which such principal is due.

(b) Interest on each Advance shall be computed on the basis of (1) actual days elapsed from (but not including) the date on which the respective Advance is made (for the first payment of interest due under this Bond for such Advance) or the date on which the payment of interest was last due (for all other payments of interest due under this Bond for such Advance), to (and including) the date on which the payment of interest is next due; and (2) a year of 365 days (except in calendar years including February 29, when the basis shall be a 366-day year).

(c) The basic interest rate for each Advance shall be established by FFB, as of the date on which the respective Advance is made, on the basis of the determination made by the Secretary of the Treasury pursuant to section 6(b) of the Federal Financing Bank Act of 1973, as amended (codified at 12 U.S.C. § 2281 et seq.) (the "FFB Act"); provided, however, that the shortest maturity used as the basis for any rate determination shall be the remaining maturity of the most recently auctioned  United States Treasury bills having the shortest maturity of all United States Treasury bills then being regularly auctioned.
 

         (d) In the event that (1) the Borrower has selected for any Advance a Maturity Date that will occur on or after the fifth anniversary of the Requested Advance Date for such Advance, and (2) the Borrower has elected for such Advance a prepayment/ refinancing privilege described in section 11.3 of the Bond

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 Purchase Agreement, then the interest rate for such Advance shall also include a price (expressed in terms of a basis point increment to the applicable basic interest rate) for the particular prepayment/refinancing privilege that the Borrower selected, which price shall be established by FFB on the basis of a determination made by FFB as to the difference between (A) the estimated market yield of a notional obligation if such obligation were to (i) be issued by the Secretary of the Treasury, (ii) have a maturity comparable to the maturity of such Advance, and (iii) include a prepayment and refinancing privilege identical to the particular prepayment/refinancing privilege that the Borrower elected for such Advance, and (B) the estimated market yield of a notional obligation if such obligation were to (i) be issued by the Secretary of the Treasury, (ii) have a maturity comparable to the maturity of such Advance, but (iii) not include such prepayment and refinancing privilege.

7.           Payment of Interest; Payment Dates.

Interest accrued on the outstanding principal amount of each Advance shall be due and payable quarterly on January 15, April 15, July 15, and October 15 of each year (each such day being a "Payment Date"), beginning on the first Payment Date to occur after the date on which the respective Advance is made, up through and including the Maturity Date of such Advance; provided, however, that with respect to each Advance that is made in the 30-day period immediately preceding any Payment Date, payments of accrued interest on the outstanding principal amount of the respective Advance shall be due beginning on the second Payment Date to occur after the date on which such Advance is made.

8.           Repayment of Principal; Principal Repayment Options.

(a) The principal amount of each Advance shall be payable in quarterly installments, which installments shall be due beginning on the first Payment Date to occur after the date on which the respective Advance is made, and shall be due on each Payment Date to occur thereafter until the principal amount of the respective Advance is repaid in full on or before the particular date specified on page 1 of this Bond as being the "Final Maturity Date" (such date being the "Final Maturity Date"); provided, however, that with respect to each Advance that is made in the 30-day period immediately preceding any Payment Date, principal installments shall be due beginning on the second Payment Date to occur after the date on which the respective Advance is made.

(b) In the respective Advance Request for each Advance, the Borrower must also select a method for the repayment of principal of such Advance from among the following options:

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(1) "equal principal installments" -- the amount of each quarterly principal installment shall be substantially equal to the amount of every other quarterly principal installment and shall be sufficient, when added to all other such quarterly installments of equal principal, to repay the principal amount of such  Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such  Advance that will occur before the Final Maturity Date);

(2) "graduated principal installments" -- the amount of each of the first one-third (or nearest number of payments that rounds to one-third) of the total number of quarterly principal installments shall be substantially equal to one-half of the amount of each of the remaining quarterly principal installments, and shall be sufficient, when added to all other such quarterly installments of graduated principal, to repay the principal amount of such  Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such  Advance that will occur before the Final Maturity Date); or

(3) "level debt service" -- the amount of each quarterly payment consisting of a principal installment and accrued interest shall be substantially equal to the amount of every other quarterly payment consisting of a principal installment and accrued interest, and shall be sufficient, when added to all other such level quarterly payments consisting of a principal installment and accrued interest, to repay the principal amount of such  Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such  Advance that will occur before the Final Maturity Date).

(c) For each  Advance, the amount of principal that shall be due and payable on each of the dates specified in subparagraph (a) of this paragraph 8 shall be the amount of the principal installment due under a principal repayment schedule for the respective  Advance that is computed in accordance with the principles of the particular method for the repayment of principal that is selected by the Borrower for such  Advance from among the options described in subparagraph (b) of this paragraph 8.  Except at the times described in the immediately following sentence, the method for the repayment of principal that is selected by the Borrower for any  Advance, and the resulting principal repayment schedule that is so computed for such  Advance, may not be changed.  Notwithstanding the foregoing, with respect to each  Advance for which the Borrower has selected a Maturity Date that will occur before the Final Maturity Date, the Borrower may change the particular method for the repayment of principal that was selected by the Borrower for the respective  Advance from either the "equal principal installments" method or the "graduated principal installments"

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 method to the "level debt service" method at the time (if ever) that the Borrower elects to extend the maturity of such  Advance (as provided in paragraph 15 of this Bond), effective as of the effective date of such maturity extension, or at the time (if ever) that the Borrower elects to refinance the outstanding principal amount of such  Advance (as provided in paragraph 18 of this Bond), effective as of the effective date of such refinancing, and the principal repayment schedule for such  Advance shall thereupon be newly computed in accordance with the "level debt service" method for the repayment of principal.  After the Borrower has selected the Final Maturity Date as the Maturity Date for any  Advance, the Borrower may so change the particular method for the repayment of principal of any  Advance, and the principal repayment schedule for such  Advance shall be so newly computed, only at the time (if ever) that the Borrower elects to refinance the outstanding principal amount of such  Advance (as provided in paragraph 18 of this Bond), effective as of the effective date of such refinancing.

(d) With respect to each Advance that has a Maturity Date that will occur before the Final Maturity Date, the entire unpaid principal amount of the respective Advance shall be payable on such Maturity Date, subject to extensions of the maturity of such Advance (as provided in paragraph 15 of this Bond).

(e) Notwithstanding which of the methods for the repayment of principal described in subparagraph (b) of this paragraph 8 is selected by the Borrower for any  Advance, the aggregate of all quarterly payments of principal and interest on such  Advance shall be such as will repay the entire principal amount of such  Advance, and pay all interest accrued thereon, on or before the Final Maturity Date.

9.           Fee.

(a)  A fee to cover expenses and contingencies, assessed by FFB pursuant to section 6(c) of the FFB Act, shall accrue on the outstanding principal amount of each Advance for the period from the date on which the respective Advance is made to the date on which the principal amount of such Advance is due, not taking into account any maturity extensions permitted by paragraph 15 of this Bond (such period being the "Advance Period").

(b) The fee on each Advance shall be:

(1) 22.5 basis points (0.225%)per annum of the unpaid principal balance of such Advance for an Advance Period of a year or less;

(2) 27.5 basis points (0.275%)per annum of the unpaid principal balance of such Advance for an Advance Period greater than a year but no more than 5 years; and

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(3) 35 basis points (0.35%)per annum of the unpaid principal balance of such Advance for an Advance Period greater than 5 years.

(c) The fee on each Advance shall be computed in the same manner as accrued interest is computed under paragraph 6(b) of this Bond, and shall be due and payable at the same times as accrued interest is due and payable under paragraph 7 of this Bond (adjusted as provided in paragraph 10 of this Bond if a Payment Date is not a Business Day).  The fee on each Advance shall be credited to RUS as required by section 505(c) of the Federal Credit Reform Act of 1990, as amended (codified at 2 U.S.C. § 661d(c)).
 

10.           Business Days.

(a) Whenever any Payment Date, the Maturity Date for any Advance, or the Final Maturity Date shall fall on a day on which either FFB or the Federal Reserve Bank of New York is not open for business, the payment that would otherwise be due on such Payment Date, Maturity Date, or Final Payment Date, as the case may be, shall be due on the first day thereafter on which FFB and the Federal Reserve Bank of New York are both open for business (any such day being a "Business Day").

(b) In the event that any Payment Date falls on a day other than a Business Day, then the extension of time for making the payment that would otherwise be due on such Payment Date shall be (1) taken into account in establishing the interest rate for the respective Advance, (2) included in computing interest due in connection with such payment, and (3) excluded in computing interest due in connection with the next payment.

(c) In the event that the Maturity Date for any Advance or the Final Maturity Date falls on a day other than a Business Day, then the extension of time for making the payment that would otherwise be due on such Maturity Date or the Final Maturity, as the case may be, shall be (1) taken into account in establishing the interest rate for such Advance, and (2) included in computing interest due in connection with such payment.

11.  Late Payments.

(a) In the event that any payment of any amount owing under this Bond is not made when and as due (any such amount being then an "Overdue Amount"), then the amount payable shall be such Overdue Amount plus interest thereon (such interest being the "Late Charge") computed in accordance with this subparagraph (a).

(1) The Late Charge shall accrue from the scheduled date of payment for the Overdue Amount (taking into account

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paragraph 10 of this Bond) to the date on which payment is made.

(2) The Late Charge shall be computed on the basis of (A) actual days elapsed from (but not including) the scheduled date of payment for such Overdue Amount (taking into account paragraph 10 of this Bond) to (and including) the date on which payment is made, and (B) a year of 365 days (except in calendar years including February 29, when the basis shall be a 366-day year).

(3) The Late Charge shall accrue at a rate (the "Late Charge Rate") equal to one and one-half times the rate to be determined by the Secretary of the Treasury taking into consideration the prevailing market yield on the remaining maturity of the most recent auctioned 13-week United States Treasury bills.

(4) The initial Late Charge Rate shall be in effect until the earlier to occur of either (A) the date on which payment of the Overdue Amount and the amount of accrued Late Charge is made, or (B) the first Payment Date to occur after the scheduled date of payment for such Overdue Amount.  In the event that the Overdue Amount and the amount of the accrued Late Charge are not paid on or before such Payment Date, then the amount payable shall be the sum of the Overdue Amount and the amount of the accrued Late Charge, plus a Late Charge on such sum accruing at a new Late Charge Rate to be then determined in accordance with the principles of clause (3) of this subparagraph (a).  For so long as any Overdue Amount remains unpaid, the Late Charge Rate shall be re-determined in accordance with the principles of clause (3) of this subparagraph (a) on each Payment Date to occur thereafter, and shall be applied to the Overdue Amount and all amounts of the accrued Late Charge to the date on which payment of the Overdue Amount and all amounts of the accrued Late Charge is made.

(b) Nothing in subparagraph (a) of this paragraph 11 shall be construed as permitting or implying that the Borrower may, without the written consent of FFB, modify, extend, alter or affect in any manner whatsoever (except as explicitly provided herein) the right of FFB to receive any and all payments on account of this Bond on the dates specified in this Bond.

12.           Final Due Date.

Notwithstanding anything in this Bond to the contrary, all amounts outstanding under this Bond remaining unpaid as of the Final Maturity Date shall be due and payable on the Final Maturity Date.

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13.           Manner of Making Payments.

(a) For so long as FFB is the Holder of this Bond and RUS is the bond servicing agent for FFB (as provided in the Bond Purchase Agreement), each payment under this Bond shall be paid in immediately available funds by electronic funds transfer to the account of the United States Treasury (for credit to the subaccount of RUS, as bond servicing agent for FFB) maintained at the Federal Reserve Bank of New York specified by RUS in a written notice to the Borrower, or to such other account as may be specified from time to time by RUS in a written notice to the Borrower.

(b) In the event that FFB is the Holder of this Bond and RUS is not the bond servicing agent for FFB, each payment under this Bond, with the exception of the fee described in paragraph 9 of this Bond, shall be paid in immediately available funds by electronic funds transfer to the account of the United States Treasury (for credit to the subaccount of FFB) maintained at the Federal Reserve Bank of New York specified by FFB in a written notice to the Borrower, or to such other account as may be specified from time to time by FFB in a written notice to the Borrower.  In the event that FFB is the Holder of this Bond and RUS is not the bond servicing agent for FFB, each payment of the fee described in paragraph 9 of this Bond shall be paid in immediately available funds by electronic funds transfer to the account of the United States Treasury (for credit to the subaccount of RUS) maintained at the Federal Reserve Bank of New York specified from time to time by RUS in a written notice delivered by RUS to the Borrower.

(c) In the event that FFB is not the Holder of this Bond, then each payment under this Bond, with the exception of the fee described in paragraph 9 of this Bond, shall be made in immediately available funds by electronic funds transfer to such account as shall be specified by the Holder in a written notice to the Borrower.  In the event that FFB is not the Holder of this Bond, each payment of the fee described in paragraph 9 of this Bond shall be made in the manner specified by FFB in the written notice delivered by FFB to the Borrower and RUS as provided in section 15.4.2 of the Bond Purchase Agreement.

14.           Application of Payments.

Each payment made on this Bond shall be applied, first, to the payment of Late Charges (if any) payable under paragraphs 11 and 18 of this Bond, then to the payment of premiums (if any) payable under paragraphs 16 and 17 of this Bond, then to the payment of unpaid accrued interest, then on account of outstanding principal, and then to the payment of the fee payable under paragraph 9 of this Bond.

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15.           Maturity Extensions.

(a) With respect to each Advance (1) for which the Borrower has selected a Maturity Date that will occur before the twentieth anniversary of the Requested Advance Date specified in the respective Advance Request, or (2) for which a Maturity Date that will occur before the twentieth anniversary of the Requested Advance Date specified in the respective Advance Request has been determined as provided in subparagraph (b) of this paragraph 15 (each such Maturity Date being an "Interim Maturity Date"), the Borrower may, effective as of such Interim Maturity Date, elect to extend the maturity of all or any portion of the outstanding principal amount of the respective Advance to a new Maturity Date to be selected by the Borrower in the manner and subject to the limitations specified in this subparagraph (a) (each such election being a "Maturity Extension Election"; each such elective extension of the maturity of any Advance that has an Interim Maturity Date being a "Maturity Extension"; and the Interim Maturity Date that is in effect for an Advance immediately before any such elective Maturity Extension being, from and after such Maturity Extension, the "Maturity Extension Effective Date").

(1) Except under the circumstances described in clause (3) of this subparagraph (a), the Borrower shall deliver to FFB (with a copy to RUS) written notification of each Maturity Extension Election, in the form of notification attached to this Bond as Annex 1-A (each such notification being a "Maturity Extension Election Notice"), making reference to the "Advance Identifier" (as that term is defined in the Bond Purchase Agreement) that FFB assigned to such Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(A) the amount of the outstanding principal of the such Advance with respect to which the Borrower elects to extend the maturity; and

(B) the new Maturity Date that the Borrower selects to be in effect for such principal amount after the respective Maturity Extension Effective Date, which date:

(i) may be either (I) a new Interim Maturity Date, or (II) the twentieth anniversary of the Requested Advance Date specified in the original Advance Request (if such twentieth anniversary date is a Payment Date) or the Payment Date immediately preceding such twentieth anniversary date (if such twentieth anniversary date is not a Payment Date); and

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(ii) in the event that the Borrower selects a new Interim Maturity Date as the new Maturity Date for any Advance, must meet the criteria for Maturity Dates prescribed in section 7.3.1(a)(5) of the Bond Purchase Agreement (provided, however, that, for purposes of selecting a new Maturity Date in connection with a Maturity Extension Election, each of the references to the "Requested Advance Date" for the respective Advance in section 7.3.1(a)(5)(D) of the Bond Purchase Agreement shall be deemed to be a reference to the "respective Maturity Extension Effective Date").

(2) To be effective, a Maturity Extension Election Notice must be received by FFB on or before the third Business Day before the Interim Maturity Date in effect for the respective Advance immediately before such Maturity Extension.

(3) In the event that either of the circumstances described in subclause (A) or (B) of the next sentence occurs, then a Maturity Extension Election Notice (in the form of notice attached to this Bond as Annex 1-B), to be effective, must first be delivered to RUS for approval and be approved by RUS in writing, and such Maturity Extension Election Notice, together with written notification of RUS's approval thereof, must be received by FFB on or before the third Business Day before the Interim Maturity Date in effect for the respective Advance immediately before such Maturity Extension.  RUS approval of a Maturity Extension Election Notice will be required under either of the following circumstances:

(A) (i) any payment of any amount owing under this Bond is not made by the Borrower when and as due; (ii) payment is made by RUS in accordance with the guarantee set forth at the end of this Bond; and (iii) RUS delivers notice to both the Borrower and FFB advising each of them that each Maturity Extension Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS; or

(B) FFB at any time delivers written notice to both the Borrower and RUS advising each of them that each Maturity Extension Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS.

(b) With respect to any Advance that has an Interim Maturity Date, in the event that FFB does not receive a Maturity Extension Election Notice (and, if required under subparagraph (a)(3) of this paragraph 15, written notification

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of RUS's approval thereof) on or before the third Business Day before such Interim Maturity Date, then the maturity of such Advance shall be extended automatically in the manner and subject to the limitations specified in this subparagraph (b) (each such automatic extension of the maturity of any Advance that has an Interim Maturity Date also being a "Maturity Extension"; and the Interim Maturity Date that is in effect for an Advance immediately before any such automatic Maturity Extension also being, from and after such Maturity Extension, the "Maturity Extension Effective Date").  The new Maturity Date for such Advance shall be the immediately following Payment Date.  The amount of principal that will have its maturity extended automatically shall be the entire outstanding principal amount of such Advance on such Maturity Extension Effective Date, less the amount of any payment of principal made on such Maturity Extension Effective Date.

(c) In the event that the maturity of any Advance that has an Interim Maturity Date is extended under either subparagraph (a) or (b) of this paragraph 15, then the basic interest rate for such Advance, from and after the respective Maturity Extension Effective Date, shall be the particular rate that is established by FFB, as of such Maturity Extension Effective Date, in accordance with the principles of paragraph 6(c) of this Bond.

(d) In the event that the maturity of any Advance that has an Interim Maturity Date is extended under either subparagraph (a) or (b) of this paragraph 15, then the fee for such Advance, from and after the respective Maturity Extension Effective Date, shall be the particular fee that is assessed by FFB, as of such Maturity Extension Effective Date, with the new Advance Period being the period from the Maturity Extension Effective Date through the new Maturity Date, in accordance with the principles of paragraphs 9(b) and (c) of this Bond.

(e) In the event that (1) the maturity of any Advance that has an Interim Maturity Date is extended under either subparagraph (a) or (b) of this paragraph 15, and (2) the Maturity Date for such extended Advance is a date that will occur before the fifth anniversary of the respective Maturity Extension Effective Date, then the prepayment/refinancing privilege described in section 11.2 of the Bond Purchase Agreement shall apply automatically to such Advance.

(f) In the event that (1) the Borrower makes a Maturity Extension Election with respect to any Advance that has an Interim Maturity Date, and (2) the Borrower selects as the Maturity Date for such extended Advance a new Maturity Date that will occur on or after the fifth anniversary of the respective Maturity Extension Effective Date, then the Borrower must elect a prepayment/refinancing privilege for such extended Advance from between the options described in sections 11.2 and 11.3 of the Bond Purchase Agreement (provided, however, that each of the

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references to "the Requested Advance Date for such Advance" in  section 11.3 of the Bond Purchase Agreement shall be deemed to be a reference to "the respective Maturity Extension Effective Date").  The Maturity Extension Election Notice delivered by the Borrower in connection with each such Maturity Extension Election must also specify the particular prepayment/refinancing privilege that the Borrower elects for the respective extended Advance.  In the event that the Borrower elects for any such extended Advance a prepayment/refinancing privilege described in section 11.3 of the Bond Purchase Agreement, then the interest rate for such extended Advance, from and after the respective Maturity Extension Effective Date, shall include a price (expressed in terms of a basis point increment to the applicable basic interest rate) for the particular prepayment/refinancing privilege that the Borrower elects, which price shall be established by FFB, as of such Maturity Extension Effective Date, in accordance with the principles of paragraph 6(d) of this Bond.

(g) The maturity of each Advance may be extended more than once as provided in this paragraph 15, but upon the twentieth anniversary of the Requested Advance Date specified in the original Advance Request (if such twentieth anniversary date is a Payment Date) or upon the Payment Date immediately preceding such twentieth anniversary date (if such twentieth anniversary date is not a Payment Date), no further Maturity Extensions may occur.

16.  Prepayments.

(a) The Borrower may elect to prepay all or any portion of the outstanding principal amount of any Advance made under this Bond, or to prepay this Bond in its entirety, in the manner, at the price, and subject to the limitations specified in this paragraph 16 (each such election being a "Prepayment Election").

(b) For each Prepayment Election in which the Borrower elects to prepay a particular amount of the outstanding principal of an Advance, the Borrower shall deliver to RUS written notification of the respective Prepayment Election, in the form of notification attached to this Bond as Annex 2-A (each such notification being a "Prepayment Election Notice"), making reference to the Advance Identifier that FFB assigned to the respective Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(1) the particular date on which the Borrower intends to make the prepayment on such Advance (such date being the "Intended Prepayment Date" for such Advance), which date:

(A) must be a Business Day; and

(B) for any Advance for which the Borrower has selected a fixed premium prepayment/refinancing

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privilege that includes a 5-year period during which such Advance shall not be eligible for any prepayment or refinancing (such time period being a "No-Call Period"), may not be a date that will occur before the applicable "First Call Date" determined as provided in section 11.3.2 of the Bond Purchase Agreement (such date being the "First Call Date"); and

(2) the amount of principal of the respective Advance that the Borrower intends to prepay, which amount may be either:

(A) the total outstanding principal amount of such Advance; or

(B) an amount less than the total outstanding principal amount of such Advance (subject to subparagraph (g) of this paragraph 16) (any such amount being a "Portion").

(c) For each Prepayment Election in which the Borrower elects to have a particular amount of funds applied by FFB toward the prepayment of the outstanding principal of an Advance, the Borrower shall deliver to RUS written notification of the respective Prepayment Election, in the form of notification attached to this Bond as Annex 2-B (each such notification also being a "Prepayment Election Notice"), making reference to the Advance Identifier that FFB assigned to the respective Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(1) the particular date on which the Borrower intends to make the prepayment on such Advance (such date being the "Intended Prepayment Date" for such Advance), which date:

(A) must be a Business Day; and

(B) for any Advance for which the Borrower has selected a fixed premium prepayment/refinancing privilege that includes a 5-year No-Call Period, may not be a date that will occur before the applicable First Call Date; and

(2) the particular amount of funds that the Borrower elects to be applied by FFB toward a prepayment of the outstanding principal amount of such Advance.

(d) To be effective, a Prepayment Election Notice must be approved by RUS in writing, and such Prepayment Election Notice, together with written notification of RUS's approval thereof, must be received by FFB on or before the fifth Business Day before the date specified therein as the Intended Prepayment Date for the respective Advance or Portion.

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(e) The Borrower shall pay to FFB a price for the prepayment of any Advance, any Portion of any Advance, or this Bond in its entirety (such price being the "Prepayment Price" for such Advance or Portion or this Bond, as the case may be) determined as follows:

(1) in the event that the Borrower elects to prepay the entire outstanding principal amount of any Advance, then the Borrower shall pay to FFB a Prepayment Price for such Advance equal to the sum of:

(A) the entire outstanding principal amount of such Advance on the Intended Prepayment Date;

(B) all unpaid interest (and Late Charges, if any) accrued on such Advance through the Intended Prepayment Date; and

(C) the amount of the premium or discount credit (if any) that is required under the particular prepayment/refinancing privilege that applies to such Advance as provided in article 11 of the Bond Purchase Agreement;

(2) in the event that the Borrower elects to prepay a Portion of any Advance, then the Borrower shall pay to FFB a Prepayment Price for such Portion that would equal such Portion's pro rata share of the Prepayment Price that would be required for a prepayment of the entire outstanding principal amount of such Advance (determined in accordance with the principles of clause (1) of this subparagraph (e)); and

(3) in the event that the Borrower elects to prepay this Bond in its entirety, then the Borrower shall pay to FFB an amount equal to the sum of the Prepayment Prices for all outstanding Advances (determined in accordance with the principles of clause (1) of this subparagraph (e)).

(f) Payment of the Prepayment Price for any Advance, any Portion of any Advance, or this Bond in its entirety shall be due to FFB before 3:00 p.m. (Washington, DC, time) on the Intended Prepayment Date for such Advance or Portion or this Bond, as the case may be.

(g) Each prepayment of a Portion shall, as to the principal amount of such Portion, be subject to a minimum amount equal to $100,000.00 of principal.

(h) The Borrower may make more than one Prepayment Election with respect to an Advance, each such Prepayment Election being made with respect to a different Portion of such Advance, until such time as the entire principal amount of such Advance is repaid in full.

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17.  Refinancings.

(a) The Borrower may elect to refinance the outstanding principal amount of any Advance (but not any Portion) in the manner, at the price, and subject to the limitations specified in this paragraph 17 (each such election being a "Refinancing Election").

(b) Except under the circumstances described in subparagraph (d) of this paragraph 17, the Borrower shall deliver to FFB (with a copy to RUS) written notification of each Refinancing Election, in the form of notification attached to this Bond as Annex 3-A (each such notification being a "Refinancing Election Notice"), making reference to the Advance Identifier that FFB assigned to the respective Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(1) the particular date on which the Borrower intends to refinance the respective Advance (such date being the "Intended Refinancing Date" for the respective Advance), which date:

(A) must be a Payment Date; and

(B) for any Advance for which the Borrower has selected a prepayment/refinancing privilege that includes a 5-year No-Call Period, may not be a date that will occur before the applicable First Call Date;

(2) the amount of the outstanding principal of the respective Advance that the Borrower elects to refinance (which may not be a Portion); and

(3) the Maturity Date that the Borrower selects to be in effect for such principal amount after such refinancing, which date may be:

(A) the Maturity Date that is in effect for such Advance immediately before such refinancing; or

(B) a new Maturity Date that the Borrower selects in connection with such Refinancing Election, provided that such new Maturity Date meets the criteria for Maturity Dates prescribed in section 7.3.1(a)(5) of the Bond Purchase Agreement (provided, however, that for purposes of selecting a new Maturity Date in connection with a Refinancing Election, each of the references to the "Requested Advance Date" for the respective Advance in section 7.3.1(a)(5)(D) of the Bond Purchase Agreement shall be deemed to be a reference to the "respective Refinancing Effective Date").

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(c) To be effective, a Refinancing Election Notice must be received by FFB on or before the fifth Business Day before the date specified therein as the Intended Refinancing Date.

(d) In the event that either of the circumstances described in clause (1) or (2) of the next sentence shall have occurred, then a Refinancing Election Notice (in the form of notice attached to this Bond as Annex 3-B), to be effective, must first be delivered to RUS for approval and be approved by RUS in writing, and such Refinancing Election Notice, together with written notification of RUS's approval thereof, must be received by FFB on or before the fifth Business Day before the date specified therein to be the Intended Refinancing Date.  RUS approval of a Refinancing Election Notice will be required under either of the following circumstances:

(1) (A) payment of any amount owing under this Bond is not made by the Borrower when and as due; (B) payment is made by RUS in accordance with the guarantee set forth at the end of this Bond; and (C) RUS delivers notice to both the Borrower and FFB advising each of them that each Refinancing Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS; or

(2) FFB at any time delivers written notice to both the Borrower and RUS advising each of them that each Refinancing Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS.

(e) The Borrower shall pay to FFB a price for the refinancing of any Advance (such price being the "Refinancing Price" for such Advance) equal to the sum of:

(1) all unpaid interest (and Late Charges, if any) accrued on such Advance through the Intended Refinancing Date; and

(2) the amount of the premium (if any) that is required under the particular prepayment/refinancing privilege that applies to such Advance as provided in article 11 of the Bond Purchase Agreement.

In the event that (A) the prepayment/refinancing privilege that applies to the particular Advance being refinanced is the privilege described in section 11.2 of the Bond Purchase Agreement, and (B) the Market Value Premium (or Discount) that is to be included in the Refinancing Price for such Advance is a discount on such Advance, then such discount shall be applied by FFB in the manner requested by the Borrower in a written notice delivered by the Borrower to FFB and approved by RUS in writing.

BOND - page 17

RUS

(f) Payment of the Refinancing Price for any Advance shall be due to FFB before 3:00 p.m. (Washington, DC, time) on the Intended Refinancing Date for such Advance.

(g) In the event that a Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB on or before the fifth Business Day before the Intended Refinancing Date specified therein, then the refinancing of the respective Advance shall become effective on such Intended Refinancing Date (in such event, the Intended Refinancing Date being the "Refinancing Effective Date").  In the event that a Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB after the fifth Business Day before the Intended Refinancing Date specified therein, then the refinancing of the respective Advance shall become effective on the fifth Business Day to occur after the day on which such Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB (in such event, the fifth Business Day to occur after the day on which such Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB being the "Refinancing Effective Date"), provided that the Borrower shall have paid to FFB, in addition to the Refinancing Price required under subparagraph (e) of this paragraph 17, the interest accrued from the Intended Refinancing Date through such Refinancing Effective Date.

(h) In the event that the Borrower makes a Refinancing Election with respect to any Advance, the basic interest rate for such Advance, from and after the respective Refinancing Effective Date, shall be the particular rate that is established by FFB, as of such Refinancing Effective Date, in accordance with the principles of paragraph 6(c) of this Bond.

(i) In the event that the Borrower makes a Refinancing Election with respect to any Advance, then the fee for such Advance, from and after the respective Refinancing Effective Date, shall be the particular fee that is assessed by FFB, as of such Refinancing Effective Date, with the new Advance Period being the period from the Refinancing Effective Date through the new Maturity Date, in accordance with the principles of paragraphs 9(b) and (c) of this Bond.

(j) In the event that (1) the Borrower makes a Refinancing Election with respect to any Advance, and (2) the Borrower selects as the Maturity Date for such refinanced Advance either (A) the Maturity Date that is in effect for such Advance immediately before such refinancing, and such Maturity Date will occur before the fifth anniversary of the respective Refinancing Effective Date, or (B) a new Maturity Date that will occur before the fifth anniversary of the respective Refinancing

BOND - page 18

RUS

Effective Date, then the prepayment/refinancing privilege described in section 11.2 of the Bond Purchase Agreement shall apply automatically to such Advance.

(k) In the event that (1) the Borrower makes a Refinancing Election with respect to any Advance, and (2) the Borrower selects as the Maturity Date for such refinanced Advance either (A) the Maturity Date that is in effect for such Advance immediately before such refinancing, and such Maturity Date will occur on or after the fifth anniversary of the respective Refinancing Effective Date, or (B) a new Maturity Date that will occur on or after the fifth anniversary of the respective Refinancing Effective Date, then the Borrower must elect a prepayment/refinancing privilege for such refinanced Advance from between the options described in sections 11.2 and 11.3 of the Bond Purchase Agreement (provided, however, that each of the references to the "Requested Advance Date for such Advance" in section 11.3 of the Bond Purchase Agreement shall be deemed to be a reference to the "respective Refinancing Effective Date").  The Refinancing Election Notice delivered by the Borrower in connection with each such Refinancing Election must also specify the particular prepayment/refinancing privilege that the Borrower elects for the respective refinanced Advance.  In the event that the Borrower elects for any such refinanced Advance a prepayment/refinancing privilege described in section 11.3 of the Bond Purchase Agreement, then the interest rate for such refinanced Advance, from and after the respective Refinancing Effective Date, shall include a price (expressed in terms of a basis point increment to the applicable basic interest rate) for the particular prepayment/refinancing privilege that the Borrower elects, which increment shall be established by FFB, as of such Refinancing Effective Date, in accordance with the principles of paragraph 6(d) of this Bond.

(l) In the event that the Borrower makes a Refinancing Election with respect to any Advance, then the outstanding principal amount of such Advance, after the respective Refinancing Effective Date, shall be due and payable in accordance with this subparagraph (l).

(1) With respect to each Advance to which either the "equal principal installments" method or the "graduated principal installments" method for the repayment of principal applies, the amount of the quarterly principal installments that will be due after the respective Refinancing Effective Date shall be equal to the amount of the quarterly installments of equal principal or graduated principal, as the case may be, that were due in accordance with the principal repayment schedule that applied to such  Advance immediately before the respective Refinancing Effective Date.

(2) With respect to each Advance to which the "level debt service" method for the repayment of principal

BOND - page 19

RUS

applies, the amount of the level quarterly payments consisting of a principal installment and accrued interest that will be due after the respective Refinancing Effective Date shall be newly computed so that the amount of each such quarterly payment consisting of a principal installment and accrued interest (taking into account the new interest rate that applies to such Advance from and after such Refinancing Effective Date) shall be substantially equal to the amount of every other quarterly payment consisting of a principal installment and accrued interest, and shall be sufficient, when added to all other such newly-computed level quarterly payments consisting of a principal installment and accrued interest, to repay the outstanding principal amount of such refinanced Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such refinanced Advance that will occur before the Final Maturity Date).

(3) The quarterly installments of equal principal or graduated principal, or the newly-computed level quarterly payments consisting of a principal installment and accrued interest, as the case may be, shall be due beginning on the first Payment Date to occur after the respective Refinancing Effective Date, and shall be due on each Payment Date to occur thereafter up through and including the earlier to occur of (A) the new Maturity Date that the Borrower selected for such refinanced Advance, on which date the entire unpaid principal amount of such refinanced  Advance shall also be payable, subject to Maturity Extensions (as provided in paragraph 15 of this Note) if the new Maturity Date is an Interim Maturity Date, or (B) the date on which the entire principal amount of such refinanced Advance, and all unpaid interest (and Late Charges, if any) accrued thereon, are paid.
 

(m) The Borrower may make more than one Refinancing Election with respect to any Advance.

18. Rescission of Prepayment Elections and Refinancing Elections; Late Charges for Late Payments.

(a) The Borrower may rescind any Prepayment Election made in accordance with paragraph 16 of this Bond or any Refinancing Election made in accordance with paragraph 17 of this Bond, but only in accordance with this paragraph 18.

(b) The Borrower shall deliver to both FFB and RUS written notification of each rescission of a Prepayment Election or a Refinancing Election (each such notification being an "Election Rescission Notice") specifying the particular Advance for which the Borrower wishes to rescind such Prepayment Election or Refinancing Election, as the case may be, which specification must make reference to both:

BOND - page 20

RUS

(1) the particular Advance Identifier that FFB assigned to such Advance (as provided in the Bond Purchase Agreement); and

(2) the RUS account number for such Advance.

The Election Rescission Notice may be delivered by facsimile transmission to FFB at (202) 622-0707 and to RUS at (202) 720-1401, or at such other facsimile number or numbers as either FFB or RUS may from time to time communicate to the Borrower.

(c) To be effective, an Election Rescission Notice must be received by both FFB and RUS not later than 3:30 p.m. (Washington, DC, time) on the second Business Day before the Intended Prepayment Date or the Intended Refinancing Date, as the case may be.

(d) In the event that the Borrower (1) makes a Prepayment Election in accordance with paragraph 16 of this Bond or a Refinancing Election in accordance with paragraph 17 of this Bond; (2) does not rescind such Prepayment Election or Refinancing Election, as the case may be, in accordance with this paragraph 18; and (3) does not, before 3:00 p.m. (Washington, DC, time) on the Intended Prepayment Date or Intended Refinancing Date, as the case may be, pay to FFB the Prepayment Price described in paragraph 16(e) of this Bond or Refinancing Price described in paragraph 17(e) of this Bond, as the case may be, then a Late Charge shall accrue on any such unpaid amount from the Intended Prepayment Date or Intended Refinancing Date, as the case may be, to the date on which payment is made, computed in accordance with the principles of paragraph 11 of this Bond.

19.           Amendments to Bond.

To the extent not inconsistent with applicable law, this Bond, for so long as FFB or its agent is the holder thereof, shall be subject to modification by such amendments, extensions, and renewals as may be agreed upon from time to time by FFB and the Borrower, with the approval of RUS.

20.           Certain Waivers.

The Borrower hereby waives any requirement for presentment, protest, or other demand or notice with respect to this Bond.

21.           Bond Effective Until Paid.

This Bond shall continue in full force and effect until all principal outstanding hereunder, all interest accrued hereunder, all premiums (if any) payable under paragraphs 16 and 17 of this Bond, all Late Charges (if any) payable under paragraphs 11 and

BOND - page 21

RUS

18 of this Bond, and all fees (if any) payable under paragraph 9 of this Bond have been paid in full.

22. RUS Guarantee of Bond.

Upon execution of the guarantee set forth at the end of this Bond (the "RUS Guarantee"), the payment by the Borrower of all amounts due and payable under this Bond, when and as due, shall be guaranteed by the United States of America, acting through RUS, pursuant to the Rural Electrification Act of 1936, as amended (codified at 7 U.S.C. § 901 et seq.).  In consideration of the RUS Guarantee, the Borrower promises to RUS to make all payments due under this Bond when and as due.

23. Pledge Agreement.

This Bond is one of several Bonds referred to in the Pledge Agreement, wherein the Borrower made provision for the pledge and grant of a security interest in, under certain circumstances described therein, certain property of the Borrower, described therein, to secure the payment of and performance of certain obligations owed to RUS, as set forth in the Pledge Agreement.

24.  Guarantee Payments; Reimbursement.

If RUS makes any payment, pursuant to the RUS Guarantee, of any amount due and payable under this Bond, when and as due, each and every such payment so made shall be deemed to be a payment hereunder; provided, however, that no payment by RUS pursuant to the RUS Guarantee shall be considered a payment for purposes of determining the existence of a failure by the Borrower to perform its obligation to RUS to make all payments under this Bond when and as due.  RUS shall have any rights by way of subrogation, agreement or otherwise which arise as a result of such payment pursuant to the RUS Guarantee.

25. Default and Enforcement.

In case of a default by the Borrower under this Bond or the occurrence of an event of default under the Bond Guarantee Agreement, then, in consideration of the obligation of RUS under the RUS Guarantee, in that event, to make payments to FFB as provided in this Bond, RUS, in its own name, shall have all rights, powers, privileges, and remedies of the holder of this Bond, in accordance with the terms of this Bond, the Bond Guarantee Agreement, and the Pledge Agreement, including, without limitation, the right to enforce or collect all or any part of the obligation of the Borrower under this Bond or arising as a result of the RUS Guarantee, to file proofs of claim or any other document in any bankruptcy, insolvency, or other judicial proceeding, and to vote such proofs of claim.

BOND - page 22

RUS

26.           Acceleration.

The entire unpaid principal amount of this Bond, and all interest thereon, may be declared, and upon such declaration shall become, due and payable to RUS, under the circumstances described, and in the manner and with the effect provided, in the Bond Guarantee Agreement.

IN WITNESS WHEREOF, the Borrower has caused this Bond to be signed in its corporate name and its corporate seal to be hereunder affixed and attested by its officers thereunto duly authorized, all as of the day and year first above written.

     NATIONAL RURAL UTILITIES

 COOPERATIVE FINANCE CORPORATION

                     (the "Borrower")
 

BY:

Signature:   _________________________

Print Name:  Sheldon C. Petersen

Title:       Governor and

   Chief Executive Officer

ATTEST:

Signature:   _________________________

(SEAL)

Print Name:  Roberta B. Aronson

Title:       Assistant Secretary-Treasurer

BOND - page 23

RUS

ANNEX 1-A

TO

FUTURE ADVANCE BOND

FORM

OF

MATURITY EXTENSION ELECTION NOTICE

RUS

MATURITY EXTENSION ELECTION NOTICE

****************************************************************

PART 1 OF THIS FORM HAS BEEN COMPLETED BY RUS.  THE BORROWER SHOULD COMPLETE PART 2 OF THIS FORM ONLY FOR THOSE PARTICULAR ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WITH RESPECT TO WHICH THE BORROWER ELECTS TO HAVE THE MATURITY EXTENDED TO A NEW MATURITY DATE OTHER THAN THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO FFB AT THE FOLLOWING ADDRESS:

Manager

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Telephone:  (202) 622-2470

Facsimile:   (202) 622-0707

 DELIVER A COPY OF THIS FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

THE BORROWER SHOULD NOT COMPLETE THIS FORM OR DELIVER IT TO FFB  IF THE BORROWER DESIRES TO HAVE THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

IF THE BORROWER DOES NOT RETURN THIS FORM TO FFB, THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WILL BE EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

****************************************************************

 MATURITY EXTENSION ELECTION NOTICE - page 1

RUS

MATURITY EXTENSION ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________

RUS Bond Number: _____________________

Part 1 (To be completed by RUS):

Each of the advances of funds ("Advances") identified in this Part 1 will mature on _______________ (the "Maturity Date").

FFB ADVANCE IDENTIFIER	RUS ACCOUNT NUMBER	ORIGINAL ADVANCE DATE		ORIGINAL ADVANCE AMOUNT		OUTSTANDING PRINCIPAL AMOUNT
			$		$
			$		$
			$		$
			$		$

MATURITY EXTENSION ELECTION NOTICE - page 2

RUS

Part 2:

Notice is hereby given to FFB (and RUS) of the Borrower's election that the maturity of each of the Advances identified in this Part 2 be extended as follows:

FFB ADVANCE IDENTIFIER1		OPTIONAL PRINCIPAL PAYMENT2	AMOUNT OF PRINCIPAL TO BE EXTENDED3	NEW MATURITY DATE4	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE5	5-YEAR NO-CALL PERIOD6	PREMIUM OPTION7
	$
	$
	$
	$

 

1Complete 1 line in Part 2 for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity extended to a new Maturity Date other than the next Payment Date. Insert the FFB Advance Identifier that FFB assigned to the respective Advance for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity so extended.

2The Borrower has the option of making a payment of principal on the Maturity Date without any premium being charged. For each Advance, insert the amount of any such optional principal payment that will be paid on the Maturity Date.

3For each Advance, insert the amount of principal for which the maturity is to be extended. That amount must equal the difference between the outstanding principal amount for the respective Advance, as specified in Part 1, and the optional principal payment (if any) for such Advance inserted by the Borrower in Part 2.

4For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date to be in effect for the respective Advance after the Maturity Extension, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

5Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension. The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F"). Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

6Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period. Insert in the box the letter-symbol for the particular no-call period option elected.

7Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P"). Insert in the box the letter-symbol for the particular premium option selected.

MATURITY EXTENSION ELECTION NOTICE - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Maturity Extension Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

MATURITY EXTENSION ELECTION NOTICE - page 4

RUS

ANNEX 1-B

TO

FUTURE ADVANCE BOND

FORM

OF

MATURITY EXTENSION ELECTION NOTICE

(RUS APPROVAL REQUIRED)

RUS

MATURITY EXTENSION ELECTION NOTICE

(RUS APPROVAL REQUIRED)

****************************************************************

PART 1 OF THIS FORM HAS BEEN COMPLETED BY RUS.  THE BORROWER SHOULD COMPLETE PART 2 OF THIS FORM ONLY FOR THOSE PARTICULAR ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WITH RESPECT TO WHICH THE BORROWER ELECTS TO HAVE THE MATURITY EXTENDED TO A NEW MATURITY DATE OTHER THAN THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

THE BORROWER SHOULD NOT COMPLETE THIS FORM OR DELIVER IT TO RUS  IF THE BORROWER DESIRES TO HAVE THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

IF THE BORROWER DOES NOT RETURN THIS FORM TO RUS, THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WILL BE EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

****************************************************************

MATURITY EXTENSION ELECTION NOTICE  (RUS APPROVAL REQ ' D) - page 1

RUS

MATURITY EXTENSION ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________

RUS Bond Number: _____________________

Part 1 (To be completed by RUS):

Each of the advances of funds ("Advances") identified in this Part 1 will mature on _______________ (the "Maturity Date").

FFB ADVANCE IDENTIFIER	RUS ACCOUNT NUMBER	ORIGINAL ADVANCE DATE		ORIGINAL ADVANCE AMOUNT		OUTSTANDING PRINCIPAL AMOUNT
			$		$
			$		$
			$		$
			$		$

MATURITY EXTENSION ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 2

RUS

Part 2:

Notice is hereby given to FFB (and RUS) of the Borrower's election that the maturity of each of the Advances identified in this Part 2 be extended as follows:

FFB ADVANCE IDENTIFIER1		OPTIONAL PRINCIPAL PAYMENT2	AMOUNT OF PRINCIPAL TO BE EXTENDED3	NEW MATURITY DATE4	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE5	5-YEAR NO-CALL PERIOD6	PREMIUM OPTION7
	$
	$
	$
	$

1Complete 1 line in Part 2 for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity extended to a new Maturity Date other than the next Payment Date. Insert the FFB Advance Identifier that FFB assigned to the respective Advance for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity so extended.

2The Borrower has the option of making a payment of principal on the Maturity Date without any premium being charged. For each Advance, insert the amount of any such optional principal payment that will be paid on the Maturity Date.

3For each Advance, insert the amount of principal for which the maturity is to be extended. That amount must equal the difference between the outstanding principal amount for the respective Advance, as specified in Part 1, and the optional principal payment (if any) for such Advance inserted by the Borrower in Part 2.

4For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date" to be in effect for the respective Advance after the Maturity Extension, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

5Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension. The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F"). Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

6Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period. Insert in the box the letter-symbol for the particular no-call period option elected.

7Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P"). Insert in the box the letter-symbol for the particular premium option selected.

MATURITY EXTENSION ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Maturity Extension Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

NOTICE OF RUS APPROVAL OF

MATURITY EXTENSION ELECTION NOTICE

Notice is hereby given to FFB that the preceding Maturity Extension Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

MATURITY EXTENSION ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 4

RUS

ANNEX 2-A

TO

FUTURE ADVANCE BOND

FORM

OF

PREPAYMENT ELECTION NOTICE

SPECIFIED PRINCIPAL AMOUNT(S)

(RUS APPROVAL REQUIRED)

RUS

PREPAYMENT ELECTION NOTICE

SPECIFIED PRINCIPAL AMOUNT(S)

(RUS APPROVAL REQUIRED)

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

****************************************************************

PREPAYMENT ELECTION NOTICE

SPECIFIED PRINCIPAL AMOUNT(S)

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________1

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

MATURITY EXTENSION ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 1

RUS

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to prepay all or a portion of the outstanding principal amount of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to prepay all or a portion of the outstanding principal amount of each of the Advances identified in Part 1 on the following date (such date being the "Intended Prepayment Date"):

____________________________________7

2Complete 1 line in Part 1 for each Advance that the Borrower intends to prepay in whole or in part.  For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

 

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

 

6Insert the outstanding principal amount of each Advance specified in Part 1 as of the day before the date on which the Borrower intends to make a prepayment on the respective Advances.

 

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to prepay the Advances specified in Part 1, which date must meet the criteria for Intended Prepayment Date prescribed in paragraph 16(b)(1) of the Bond.

MATURITY EXTENSION ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 2

RUS

Part 3:

For each of the Advances identified in Part 1, the respective amount of principal that the Borrower intends to prepay on the Intended Prepayment Date is as follows:

FFB ADVANCE IDENTIFIER8		ORIGINAL ADVANCE AMOUNT9
	$
	$
	$
	$

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Prepayment Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

8Complete 1 line in Part 3 for each Advance identified in Part 1.

9For each Advance, insert the amount of principal that will be prepaid on the Intended Prepayment Date.

MATURITY EXTENSION ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 3

RUS

NOTICE OF RUS APPROVAL OF

PREPAYMENT ELECTION NOTICE

Notice is hereby given to FFB that the preceding Prepayment Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

MATURITY EXTENSION ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 4

RUS

ANNEX 2-B

TO

FUTURE ADVANCE BOND

FORM

OF

PREPAYMENT ELECTION NOTICE

FIXED SUM TO BE APPLIED

(RUS APPROVAL REQUIRED)

RUS

PREPAYMENT ELECTION NOTICE

FIXED SUM TO BE APPLIED

(RUS APPROVAL REQUIRED)

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

****************************************************************

PREPAYMENT ELECTION NOTICE

FIXED SUM TO BE APPLIED

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________1

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 1

RUS

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to prepay all or a portion of the outstanding principal amount of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to prepay all or a portion of the outstanding principal amount of the Advances identified in Part 1 on the following date (such date being the "Intended Prepayment Date"):

____________________________________7

2Complete 1 line in Part 1 for each Advance that the Borrower intends to prepay in whole or in part.  For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

6Insert the outstanding principal amount of each Advance specified in Part 1 as of the day before the date on which the Borrower intends to make a prepayment on the respective Advances.

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to prepay the Advances specified in Part 1, which date must meet the criteria for Intended Prepayment Date prescribed in paragraph 16(b)(1) of the Bond.

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 2

RUS

Part 3:

The Borrower elects to have the following amount of funds applied by FFB toward a prepayment of the outstanding principal amount of the Advances identified in Part 1, in the order in which they appear in Part 1:

____________________________________8

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Prepayment Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

 

8Insert the particular amount of funds that the Borrower elects to be applied by FFB toward a prepayment of the outstanding principal amount of the Advances identified in Part 1, in the order in which they appear in Part 1.

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 3

RUS

NOTICE OF RUS APPROVAL OF

PREPAYMENT ELECTION NOTICE

Notice is hereby given to FFB that the preceding Prepayment Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 4

RUS

ANNEX 3-A

TO

FUTURE ADVANCE BOND

FORM

OF

REFINANCING ELECTION NOTICE

RUS

REFINANCING ELECTION NOTICE

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO FFB AT THE FOLLOWING ADDRESS:

Manager

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Telephone:  (202) 622-2470

Facsimile:   (202) 622-0707

 DELIVER A COPY OF THIS FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

******************************************************************************

 REFINANCING ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Corporation

REFINANCING  ELECTION NOTICE - page 1

RUS

FFB Bond Identifier: ______________________1

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to refinance the outstanding principal amount of each of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to refinance the outstanding principal amount of each of the Advances identified in Part 1 on the following date (such date being the "Intended Refinancing Date"):

____________________________________7

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

2Complete 1 line in Part 1 for each Advance that the Borrower intends to refinance. For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

6For each Advance, insert the outstanding principal amount of the respective Advance as of the day before the intended refinancing.

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to refinance the Advances specified in Part 1, which date must meet the criteria for Intended Refinancing Date prescribed in paragraph 17(b)(1) of the Bond.

REFINANCING ELECTION NOTICE - page 2

RUS

Part 3:

Notice is hereby given to FFB (and RUS) of the Borrower's election that each of the Advances identified in Part 1 is to be refinanced as follows:

FFB ADVANCE IDENTIFIER8		AMOUNT OF PRINCIPAL TO BE  REFINANCED9	NEW MATURITY DATE10	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE11	5-YEAR NO-CALL PERIOD12	PREMIUM OPTION13
	$
	$
	$
	$

8Complete 1 line in Part 3 for each Advance identified in Part 1 as being an Advance the Borrower elects to refinance. Insert the FFB Advance Identifier that FFB assigned to the respective Advance.

9For each Advance, insert the amount of principal that is to be refinanced. This will be the same amount as the outstanding principal amount of the respective Advance inserted in Part 1.

10For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date to be in effect for the respective Advance after the refinancing, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

11Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension. The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F"). Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

12Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period. Insert in the box the letter-symbol for the particular no-call period option elected.

13Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P"). Insert in the box the letter-symbol for the particular premium option selected.

REFINANCING ELECTION NOTICE - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Refinancing Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

REFINANCING ELECTION NOTICE - page 4

RUS

ANNEX 3-B

TO

FUTURE ADVANCE BOND

FORM

OF

REFINANCING ELECTION NOTICE

(RUS APPROVAL REQUIRED)

RUS

REFINANCING ELECTION NOTICE

(RUS APPROVAL REQUIRED)

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

******************************************************************************

REFINANCING ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Corporation

FFB Bond Identifier: ______________________1

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

REFINANCING ELECTION NOTICE  (RUS APPROVAL REQ ' D) - page 1

RUS

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to refinance the outstanding principal amount of each of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to refinance the outstanding principal amount of each of the Advances identified in Part 1 on the following date (such date being the "Intended Refinancing Date"):

____________________________________7

2Complete 1 line in Part 1 for each Advance that the Borrower intends to refinance.  For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

 

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

 

6For each Advance, insert the outstanding principal amount of the respective Advance as of the day before the intended refinancing.

 

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to refinance the Advances specified in Part 1, which date must meet the criteria for Intended Refinancing Date prescribed in paragraph 17(b)(1) of the Bond.

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 2

RUS

Part 3:

Notice is hereby given to FFB (and RUS) of the Borrower's election that each of the Advances identified in Part 1 is to be refinanced as follows:

FFB ADVANCE IDENTIFIER8		AMOUNT OF PRINCIPAL TO BE REFINANCED9	NEW MATURITY DATE10	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE11	5-YEAR NO-CALL PERIOD12	PREMIUM OPTION13
	$
	$
	$
	$

8Complete 1 line in Part 3 for each Advance identified in Part 1 as being an Advance the Borrower elects to refinance.  Insert the FFB Advance Identifier that FFB assigned to the respective Advance.

9For each Advance, insert the amount of principal that is to be refinanced.  This will be the same amount as the outstanding principal amount of the respective Advance inserted in Part 1.

 

10For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date" to be in effect for the respective Advance after the refinancing, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

 

11Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension.  The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F").  Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

 

12Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance.  The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period.  Insert in the box the letter-symbol for the particular no-call period option elected.

 

13Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance.  The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P").  Insert in the box the letter-symbol for the particular premium option selected.

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Refinancing Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

NOTICE OF RUS APPROVAL OF

REFINANCING ELECTION NOTICE

Notice is hereby given to FFB that the preceding Refinancing Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 4

RUS

EXHIBIT C

TO

BOND PURCHASE AGREEMENT

FORM

OF

CERTIFICATE SPECIFYING AUTHORIZED BORROWER OFFICIALS

RUS

CERTIFICATE SPECIFYING

AUTHORIZED BORROWER OFFICIALS

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Reference is made to the Series G Bond Purchase Agreement dated as of November 21, 2013 (the "Bond Purchase Agreement"), by and among the Federal Financing Bank ("FFB"), National Rural Utilities Cooperative Finance Corporation (the "Borrower"), and the Administrator of the Rural Utilities Service ("RUS").  Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to them in the Bond Purchase Agreement.

This Certificate Specifying Authorized Borrower Officials is delivered to FFB pursuant to section 4.1(c) of the Bond Purchase Agreement.

The undersigned, on behalf of the Borrower, hereby certifies that:

a.           each of the individuals named below is the duly qualified and incumbent official of the Borrower holding the position title set out opposite the respective individual’s name;

b.           each of the individuals named below is authorized to execute and deliver Advance Requests from time to time on behalf of the Borrower; and

c.           the signature of each such individual set out opposite the respective individual's name and title is the genuine signature of such individual:

       Name                                                         Title                                                Signature

 Sheldon C. Petersen                       Governor and

           Chief Executive Officer          ____________________

CERTIFICATE SPECIFYING AUTHORIZED BORROWER OFFICIALS - page 1

RUS

John T. Evans                                  Executive Vice President and          ______________________

        Chief Operating Officer

J. Andrew Don                                 Senior Vice President and

                                                           Chief Financial Officer                         ____________________

Roberta B. Aronson                        Senior Vice President,

        Assistant Secretary-Treasurer

                                                           and General Counsel                            ____________________

The undersigned certifies that the undersigned has been given the authority to execute this Certificate Specifying Authorized Borrower Officials on behalf of the Borrower and to deliver it to FFB, and that this authority is valid and in full force and effect on the date hereof.

IN WITNESS WHEREOF, the undersigned has executed this Certificate Specifying Authorized Borrower Officials and caused it to be delivered to FFB.

NATIONAL RURAL UTILITIES COOPERATIV

FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   Roberta B. Aronson

Title:  Assistant Secretary-Treasurer

Date:   November 21, 2013

CERTIFICATE SPECIFYING AUTHORIZED BORROWER OFFICIALS - page 2

RUS

EXHIBIT D

TO

BOND PURCHASE AGREEMENT

FORM

OF

CERTIFICATE SPECIFYING AUTHORIZED RUS OFFICIALS

RUS

CERTIFICATE SPECIFYING

AUTHORIZED RUS OFFICIALS

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Reference is made to the Series G Bond Purchase Agreement dated as of November 21, 2013 (the "Bond Purchase Agreement"), by and among the Federal Financing Bank ("FFB"), National Rural Utilities Cooperative Finance Corporation (the "Borrower"), and the Administrator of the Rural Utilities Service ("RUS").  Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to them in the Bond Purchase Agreement.

This Certificate Specifying Authorized RUS Officials is delivered to FFB pursuant to section 4.2 or 13.1 of the Bond Purchase Agreement.

1.           The undersigned, on behalf of RUS, hereby certifies that:

a.           each of the individuals named below is the duly qualified and incumbent official of RUS holding the position title set out opposite the respective individual's name;

b.           each of the individuals named below is authorized to execute and deliver Advance Request Approval Notices from time to time on behalf of RUS; and

c.           the signature of each such individual set out opposite the respective individual's name and title is the genuine signature of such individual:

Name                                           Title                                                                Signature

Nivin A. ElgoharyAssistant Administrator       ___________________________

  Electric Program

James F. Elliott Deputy Assistant Administrator               ___________________________

   Electric Program

Chris Tuttle     Acting Chief   ____________________________

 Policy Analysis and

 Loan Management Staff

CERTIFICATE SPECIFYING AUTHORIZED RUS OFFICIALS - page 1

RUS

2.           The undersigned, on behalf of RUS, hereby certifies that:

a.           each of the individuals named below is the duly qualified and incumbent official of RUS holding the position title set out opposite the respective individual's name;

b.           each of the individuals named below is authorized to confirm telephonically the authenticity of Advance Request Approval Notices from time to time on behalf of RUS; and

c.           the telephone number of each such individual is set out opposite the respective individual's name and title:

     Name                                                        Title                                                       Telephone Number

Nivin A. Elgohary      Assistant Administrator

  Electric Program                                                            (202) 720-9547

 James F. Elliott                      Deputy Assistant Administrator

                                      Electric Program                                                             (202) 720-9545

 Chris Tuttle                           Acting Chief

 Policy Analysis and

 Loan Management Staff                                                (202) 205-3655

IN WITNESS WHEREOF, the undersigned has executed this Certificate Specifying Authorized RUS Officials and caused it to be delivered to FFB.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

By:     _______________________

Name:   John C. Padalino

Title:  Administrator

Date:   November 21, 2013

CERTIFICATE SPECIFYING AUTHORIZED RUS OFFICIALS - page 2

RUS

EXHIBIT E

TO

BOND PURCHASE AGREEMENT

FORM

OF

OPINION OF BORROWER'S COUNSEL

re:

BORROWER'S INSTRUMENTS

November 21, 2013

Administrator

Rural Utilities Service

United States Department of Agriculture

1400 Independence Avenue, S.W.

Washington, DC 20250-1414

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, N.W.

Washington, DC 20220

Gentlemen:

I am delivering this opinion as General Counsel (“Counsel”) of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (“Borrower”), and am familiar with matters pertaining to the loan to Borrower in the principal amount of $500,000,000.00, provided for in the Series G Bond Purchase Agreement ("Bond Purchase Agreement"), dated as of November 21, 2013 made by and among Borrower, the Federal Financing Bank (“FFB”), and the United States of America, acting through the Rural Utilities Service, a Rural Development agency of the United States Department of Agriculture (“RUS”), which loan has been guaranteed by RUS.

I have examined such corporate records and proceedings of Borrower, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I have also examined the following documents as executed and delivered: (a) the Bond Purchase Agreement, (b) the Future Advance Bond, dated as of November 21, 2013, in the maximum principal amount of $500,000,000.00 (“Guaranteed Bond”), said Guaranteed Bond payable to FFB, (c) the Amended, Restated and Consolidated Bond Guarantee Agreement, dated as of December 13, 2012, made by and between RUS and Borrower, as supplemented by Supplement No. 1 dated as of November 21, 2013 (“Guarantee Agreement”), (d) the Amended, Restated and Consolidated Pledge Agreement, dated as of December 13, 2012, made by and among Borrower, RUS and U.S. Bank National Association (“Pledge Agreement”), and (e) the Series G Reimbursement Note, dated as of November 21, 2013, issued by Borrower to RUS (“Reimbursement Note”).  The documents described in items (a) through (e) above are collectively referred to herein as the "Bond Documents."

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

Administrator - RUS

Federal Financing Bank

November 21, 2013

Page 2

(1)The Borrower has been duly incorporated and is validly existing as a member-owned cooperative association in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Bond Documents.

(2)The Bond Documents have been duly authorized, executed and delivered by the Borrower, and such documents constitute the legal, valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms subject to (a) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally, and (b) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law.

(3)Neither the execution nor the delivery by the Borrower of any of the Bond Documents nor the consummation by the Borrower of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to RUS if required, nor the fulfillment by the Borrower of the terms of any of the Bond Documents will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of the Borrower or any law or any regulation or any order known to Counsel currently applicable to the Borrower of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Borrower or the terms of any indenture, deed of trust, note, note agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(4)No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body including, without limitation, RUS, having jurisdiction over the Borrower is required for any consummation by the Borrower of the transactions contemplated by the Bond Documents except such as have been obtained from RUS; provided, however, no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Guaranteed Bond after the date hereof.

(5)There is no pending or, to the best of Counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to the Borrower, or any of the Bond Documents, or which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or its ability to perform its obligations under any of the Bond Documents, except as previously disclosed.

Administrator - RUS

Federal Financing Bank

November 21, 2013

Page 2

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:

A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           This letter is rendered to you in connection with the Bond Documents and the transactions related thereto, and may not be relied upon by any other person or by you in any other context or for any other purpose.

D.             I have assumed with your permission (i) the genuineness of all signatures by each party other than the Borrower, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Bond Documents by each party other than the Borrower.

Yours sincerely,

Roberta B. Aronson

General Counsel

RUS

EXHIBIT F

TO

BOND PURCHASE AGREEMENT

FORM

OF

OPINION OF RUS'S COUNSEL

re:

RUS GUARANTEE

November 21, 2013

MEMORANDUM FOR           JOHN C. PADALINO

    ADMINISTRATOR

    RURAL UTILITIES SERVICE

FROM:                                       Ramona E. Romero

    General Counsel

SUBJECT:                                    Section 313A Legal Opinion

This is in response to your letter of November 21, 2013, written in your capacity as Administrator of the Rural Utilities Service (“RUS”), a Rural Development agency of the United States Department of Agriculture. That letter requested an opinion from this office concerning your authority as Acting Administrator to execute and deliver a certain guarantee (the “Guarantee”) pursuant to the Rural Electrification Act of 1936, as amended, and whether the Guarantee when executed by you will be an incontestable obligation of the United States of America, acting through RUS, supported by the full faith and credit of the United States.

More particularly, the Guarantee is endorsed on a Future Advance Bond (the “Bond”) dated November 21, 2013, being issued by the National Rural Utilities Cooperative Finance Corporation (the “Borrower”), a cooperative association organized under the laws of the District of Columbia, to the Federal Financing Bank (the “FFB”), a body corporate and instrumentality of the United States of America.  We have been advised that the Borrower is using the proceeds of the Bond for purposes specified in section 313A of the Rural Electrification Act of 1936 (defined herein).

We have examined the following:

1.           The Rural Electrification Act of 1936, 7 U.S.C. §§ 901-950bb-1 (the “Rural Electrification Act of 1936”);

2.           The Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246, 122 Stat. 1651, 1958-59 (§ 6106) (the “Food, Conservation, and Energy Act”);

3.           The Consolidated and Further Continuing Appropriations Act, 2013, Pub. L. No. 113-6, Division A, 127 Stat. 198, 218, 231 (the “Appropriations Act”);

.           Delegations of authority from the Secretary of Agriculture to the Under Secretary for Rural Development, 7 C.F.R. § 2.17 (2013), and redelegations from the

2

Under Secretary for Rural Development to the Administrator, Rural Utilities Service, 7 C.F.R. § 2.47 (2013);

5.           The executed Bond of the Borrower in the maximum principal amount of five hundred million dollars ($500,000,000), having a final maturity date of October 15, 2036, and payable to FFB and any successor or assign of FFB;

6.           The Guarantee endorsed by the Administrator of RUS which is attached to the Bond;

7.           The Commitment Letter, dated August 26, 2013, from John C. Padalino, Administrator of RUS, notifying the Borrower that RUS has approved the Guarantee; and

8.           The executed Assurance Regarding Felony Conviction or Tax Delinquent Status For Corporate Applicants of the Borrower, dated August 26, 2013.

Based upon the foregoing, having regard to legal considerations which we deem relevant, we are of the opinion that:

1.           You are authorized under the Rural Electrification Act of 1936, the Food, Conservation and Energy Act and the Appropriations Act to execute and deliver the Guarantee;

2.           The Guarantee has been executed by you pursuant to section 313A of the Rural Electrification Act of 1936; and

3.           The Guarantee is an enforceable obligation of RUS supported by the full faith and credit of the United States and incontestable except for fraud or misrepresentation of which the holder of the Guarantee had actual knowledge at the time it became a holder.

Based on the foregoing and upon such further investigation as we have deemed necessary, we are of the opinion that:

1.           The execution and delivery of the Guarantee by the Administrator is authorized by applicable law.

2.           The Guarantee has been executed and delivered by an official of RUS who is duly authorized to execute and deliver such document on behalf of the Administrator.

3.           The Guarantee is a valid obligation of the United States of America for which the full faith and credit of the United States of America are pledged.

RUS

EXHIBIT G

TO

BOND PURCHASE AGREEMENT

FORM

OF

RUS CERTIFICATE

RUS

RUS CERTIFICATE

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Reference is made to:

(a) the Series G Bond Purchase Agreement dated as of November 21, 2013 (the "Bond Purchase Agreement"), by and among the Federal Financing Bank ("FFB"), National Rural Utilities Cooperative Finance Corporation (the "Borrower"), and the Administrator of the Rural Utilities Service ("RUS"), a Rural Development agency of the United States Department of Agriculture;

(b) the Series G Bond dated as of November 21, 2013 (the "Bond"), issued by the Borrower payable to FFB in the maximum principal amount of $500,000,000.00; and

(c) the RUS Guarantee dated as of November 21, 2013 (the "RUS Guarantee").

Pursuant to sections 3.3.1(c) and 4.2(b) of the Bond Purchase Agreement, the undersigned hereby certifies the following:

1. I am the Administrator of RUS.

2. I am furnishing this RUS Certificate to FFB with the intent that it be relied upon by FFB as a basis for taking or withholding action pursuant to the Bond Purchase Agreement.

3. As the Administrator of RUS, I have executed the RUS Guarantee and caused it to be attached to the Bond.

4. The executed RUS Guarantee conforms exactly to the form of "RUS Guarantee" prescribed in the Bond Purchase Agreement.

RUS CERTIFICATE - page 1

RUS

5. RUS retains custody of the executed original Bond as agent for FFB under the terms of the Bond Purchase Agreement, subject to delivery of actual possession of the original Bond to FFB upon request by FFB.

6. RUS, as agent for FFB, has received from the Borrower the certification regarding lobbying that is required to be filed by recipients of federal loans, in the form of certificate set forth in Appendix A to 31 C.F.R. Part 21, and, if required under 31 C.F.R. Part 21, the disclosure form to report lobbying, in the form of disclosure form set forth in Appendix B to 31 C.F.R. Part 21.  RUS retains custody of the executed original certificate (and, if applicable, disclosure form) as agent for FFB under the terms of the Bond Purchase Agreement, subject to delivery of actual possession of the original certificate (and, if applicable, disclosure form) to FFB or its designate upon request by FFB or its designate.

7. The Borrower does not have a judgment lien against any of the Borrower's property for a debt owed to the United States of America.

IN WITNESS WHEREOF, the undersigned has executed this RUS Certificate and caused it to be delivered to FFB.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

By:     _______________________

Name:   John C. Padalino

Title:  Administrator

Date:   November 21, 2013

RUS CERTIFICATE - page 2

RUS

EXHIBIT H

TO

BOND PURCHASE AGREEMENT

FORM

OF

RUS GUARANTEE

RUS

RUS GUARANTEE

The United States of America, acting through the Administrator of the Rural Utilities Service (“RUS”), a Rural Development agency of the United States Department of Agriculture, hereby guarantees to the Federal Financing Bank, its successors and assigns (“FFB”), all payments of principal, interest, premium (if any), and late charges (if any), when and as due in accordance with the terms of the Series G Bond dated November 21, 2013, issued by National Rural Utilities Cooperative Finance Corporation (the “Borrower”) payable to FFB in the maximum principal amount of $500,000,000, to which this RUS Guarantee is attached (such bond being the “Bond”), with interest on the principal until paid, irrespective of (i) acceleration of such payments under the terms of the Bond, or (ii) receipt by RUS of any sums or property from its enforcement of its remedies for the Borrower’s default.

This RUS Guarantee is issued pursuant to section 313A of the Rural Electrification Act of 1936, as amended (7 U.S.C. § 940c-1), section 6 of the Federal Financing Bank Act of 1973 (12 U.S.C. § 2285), and the Series G Bond Purchase Agreement dated as of November 21, 2013, among FFB, the Borrower, and RUS.

UNITED STATES OF AMERICA

By: _________________________

                                                               Name:  John C. Padalino

      Title: Administrator of the

                                                                                                Rural Utilities Service

Date:  November 21, 2013

EX-10.2

SUPPLEMENT NO. 1 TO AMENDED, RESTATED AND CONSOLIDATED BOND GUARANTEE AGREEMENT dated as of November 21, 2013  (the “Supplement”) by and between the UNITED STATES OF AMERICA (the “Government”), acting through the Rural Utilities Service, a Rural Development agency of the United States Department of Agriculture, and its successors and assigns (“RUS”); and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (the “Borrower”).

RECITALS

1,  The Borrower and RUS are parties to that certain Amended, Restated and Consolidated Bond Guarantee Agreement, dated as of December 13, 2012, pursuant to which RUS has agreed to issue guarantees of certain Bonds, as contemplated by Section 313A of the RE Act, upon the terms and subject to the conditions provided therein (the “Original Agreement”).  Capitalized terms that are not defined herein shall have the meanings assigned to them in the Original Agreement.

2. On April 1, 2013, the Borrower applied to RUS, in accordance with Section 313A of the Act and the Regulations, for RUS to guarantee a seventh loan from FFB to the Borrower, the proceeds of which would be used by the Borrower to fund new Eligible Loans or to refinance existing debt instruments of the Borrower used to fund Eligible Loans.

3, FFB is willing to make a loan to the Borrower in the aggregate principal amount of up to $500,000,000.00 upon the terms and subject to the conditions set forth in that certain Series G Bond Purchase Agreement, dated as of November 21, 2013, by and among FFB, the Borrower and RUS, as the same may be amended, supplemented, consolidated or restated from time to time in accordance with the terms thereof (the “Series G Bond Purchase Agreement”), and upon the terms and subject to the conditions set forth in the Series G Future Advance Bond issued by the Borrower to FFB and dated as of the date hereof (the “Series G Bond”).

4.  RUS has determined that the Borrower is eligible for guarantees under Section 313A of the RE Act and is willing to issue its guarantee of the Series G Bond (the “Series G Guarantee”) upon the terms and subject to the conditions set forth in the Original Agreement.

NOW, THEREORE, in consideration of the mutual agreements herein contained, RUS and the Borrower agree as follows:

SECTION 1.  Recitals.  The foregoing recitals are incorporated into the Original Agreement by reference.

SECTION 2.  Definitions.

A.    The following definitions will be added to Section 1.1 of the Original Agreement:

“Series G Bond” shall have the meaning given to that term in the recitals hereto.

“Series G Bond Purchase Agreement” shall have the meaning given to that term in the recitals hereto.

“Series G Guarantee” shall have the meaning given to that term in the recitals hereto.

B.    The following definitions shall be amended as indicated below:

“Bonds” shall mean the Original Bonds, the Series F Bond and the Series G Bond dated as of November 21, 2013.

“Bond Purchase Agreement” shall mean the Original Bond Purchase Agreements, the Series F Bond Purchase Agreement, and the Series G Bond Purchase Agreement dated as of November 21, 2013.

SECTION 3.  Conditions Precedent to the Issuance of the Series G Guarantee.  The obligation of RUS to enter into this Supplement and to issue the guarantee of the Series G Bond pursuant to the terms hereof is subject to the satisfaction of the conditions precedent listed in Section 3.1 of the Original Agreement unless and until such conditions have been satisfied or waived in writing.

SECTION 4.  Prior Representation of RUS.  The representation made by RUS in Section 8.1 of the Original Agreement is true and correct as of the date hereof.

SECTION 5.  Prior Representations of the Borrower.  All representations made by the Borrower in Section 8.2 of the Original Agreement are true and correct as of the date hereof.

SECTION 6.  Incorporation; Inconsistency with Original Agreement.  Except as otherwise amended or modified herein, the terms, conditions and provisions of the Original Agreement are incorporated herein by reference as if set forth in full herein and remain in full force and effect.  In the event of any conflict or inconsistency between the terms of this Supplement and the Original Agreement, the terms of this Supplement shall control.  Nothing in this Supplement shall, however, eliminate or modify any special condition, special affirmative covenant or special negative covenant, if any, specified in the Original Agreement.

SECTION 7.  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE DISTRICT OF COLUMBIA.

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.

UNITED STATES OF AMERICA, acting through the Administrator of the Rural Utilities Service
By:	/s/ JOHN C. PADALINO
Title:   Administrator of the Rural Utilities Service

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE

CORPORATION, as the Borrower

By:

Title:   Governor and

Chief Executive Officer

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.

UNITED STATES OF AMERICA, acting

through the Administrator of the Rural

Utilities Service

By:

Title:   Administrator of the Rural Utilities

Service

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, as the Borrower
By:	/s/ SHELDON PETERSEN
Title:    Governor and Chief Executive Officer

EX-10.3

RUS

FOR FFB USE ONLY: Bond Identifier: CFC-0007 Purchase Date: November 21, 2013 Bond Date November 21, 2013 Place of Issue Washington, DC Last Day for an Advance (¶3) October 15, 2016 Maximum Principal Amount (¶4) $500,000,000.00 Final Maturity Date (¶5) October 15, 2036

FUTURE ADVANCE BOND

SERIES G

1. Promise to Pay.

FOR VALUE RECEIVED, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (the "Borrower," which term includes any successors or assigns) promises to pay the FEDERAL FINANCING BANK ("FFB"), a body corporate and instrumentality of the United States of America (FFB, for so long as it shall be the holder of this Bond, and any successor or assignee of FFB, for so long as such successor or assignee shall be the holder of this Bond, being the "Holder"), at the times, in the manner, and with interest at the rates to be established as hereinafter provided, such amounts as may be advanced from time to time by FFB to the Borrower under this Bond (each such amount being an "Advance", and more than one such amount being "Advances").

2. Reference to Certain Agreements.

(a)  Bond Purchase Agreement.  This Bond is the "Bond" referred to in, and entitled to the benefits of, the Series G Bond Purchase Agreement dated as of even date herewith, made by and among FFB, the Borrower, and the Administrator of the Rural

Utilities Service, a Rural Development agency of the United

BOND - page 1

RUS

States Department of Agriculture ("RUS") (such agreement, as it may be amended, supplemented, and restated from time to time in accordance with its terms, being the "Bond Purchase Agreement").

(b) Bond Guarantee Agreement.  This Bond is the "Bond" referred to in, and entitled to the benefits of, the Amended, Restated and Consolidated Bond Guarantee Agreement dated as of December 13, 2012, as supplemented by Supplement No. 1 dated as of even date herewith, made between RUS and the Borrower (such agreement, as it may be amended, supplemented, and restated from time to time in accordance with its terms, being the "Bond Guarantee Agreement").

(c) Pledge Agreement.  This Bond is the "Bond" referred to in the Amended, Restated and Consolidated Pledge Agreement dated as of December 13, 2012, made among the Borrower, RUS, and U.S. Bank Trust National Association, a national association (such agreement, as it may be amended, supplemented, and restated from time to time in accordance with its terms, being the "Pledge Agreement").

3. Advances; Advance Requests; RUS Approval Requirement; Last Day for an Advance.

(a) Subject to the terms and conditions of the Bond Purchase Agreement, FFB shall make Advances to the Borrower from time to time under this Bond, in each case upon delivery to FFB of a written request by the Borrower for an Advance under this Bond, in the form of request attached to the Bond Purchase Agreement as Exhibit A thereto (each such request being an "Advance Request") and completed as prescribed in section 7.3.1 of the Bond Purchase Agreement.

(b) To be effective, an Advance Request must first be delivered to RUS for approval and be approved by RUS in writing, and such Advance Request, together with written notification of RUS's approval thereof (each such notification being an "Advance Request Approval Notice"), must be received by FFB consistent with the advance notice requirements prescribed in sections 7.3.1(c) and 7.3.2(b) of the Bond Purchase Agreement.

(c) FFB shall make each requested Advance on the particular calendar date that the Borrower requested in the respective Advance Request to be the date on which the respective Advance is to be made (such date being the "Requested Advance Date" for such Advance), subject to the provisions of the Bond Purchase Agreement describing certain circumstances under which a requested Advance shall be made on a later date; provided, however, that no Advance shall be made under this Bond after the particular date specified on page 1 of this Bond as being the "Last Day for an Advance."

BOND - page 2

RUS

4.           Principal Amount of Advances; Maximum Principal Amount.

The principal amount of each Advance shall be the particular dollar amount that the Borrower specified in the respective Advance Request as the "Requested Advance Amount" for the respective Advance; provided, however, that the aggregate principal amount of all Advances made under this Bond shall not exceed the particular amount specified on page 1 of this Bond as being the "Maximum Principal Amount."

5. Maturity Dates for Advances.

Subject to paragraph 15 of this Bond, each Advance shall mature on the particular calendar date that the Borrower selected in the respective Advance Request to be the date on which the respective Advance is to mature (such date being the "Maturity Date" for such Advance), provided that such Maturity Date meets all of the criteria for Maturity Dates prescribed in section 7.3.1(a)(5) of the Bond Purchase Agreement.

6.           Computation of Interest on Advances.

(a) Subject to paragraphs 11 and 16 of this Bond, interest on the outstanding principal of each Advance shall accrue from the date on which the respective Advance is made to the date on which such principal is due.

(b) Interest on each Advance shall be computed on the basis of (1) actual days elapsed from (but not including) the date on which the respective Advance is made (for the first payment of interest due under this Bond for such Advance) or the date on which the payment of interest was last due (for all other payments of interest due under this Bond for such Advance), to (and including) the date on which the payment of interest is next due; and (2) a year of 365 days (except in calendar years including February 29, when the basis shall be a 366-day year).

(c) The basic interest rate for each Advance shall be established by FFB, as of the date on which the respective Advance is made, on the basis of the determination made by the Secretary of the Treasury pursuant to section 6(b) of the Federal Financing Bank Act of 1973, as amended (codified at 12 U.S.C. § 2281 et seq.) (the "FFB Act"); provided, however, that the shortest maturity used as the basis for any rate determination shall be the remaining maturity of the most recently auctioned  United States Treasury bills having the shortest maturity of all United States Treasury bills then being regularly auctioned.

           (d) In the event that (1) the Borrower has selected for any Advance a Maturity Date that will occur on or after the fifth anniversary of the Requested Advance Date for such Advance, and (2) the Borrower has elected for such Advance a prepayment/ refinancing privilege described in section 11.3 of the Bond

BOND - page 3

RUS

Purchase Agreement, then the interest rate for such Advance shall also include a price (expressed in terms of a basis point increment to the applicable basic interest rate) for the particular prepayment/refinancing privilege that the Borrower selected, which price shall be established by FFB on the basis of a determination made by FFB as to the difference between (A) the estimated market yield of a notional obligation if such obligation were to (i) be issued by the Secretary of the Treasury, (ii) have a maturity comparable to the maturity of such Advance, and (iii) include a prepayment and refinancing privilege identical to the particular prepayment/refinancing privilege that the Borrower elected for such Advance, and (B) the estimated market yield of a notional obligation if such obligation were to (i) be issued by the Secretary of the Treasury, (ii) have a maturity comparable to the maturity of such Advance, but (iii) not include such prepayment and refinancing privilege.

7.           Payment of Interest; Payment Dates.

Interest accrued on the outstanding principal amount of each Advance shall be due and payable quarterly on January 15, April 15, July 15, and October 15 of each year (each such day being a "Payment Date"), beginning on the first Payment Date to occur after the date on which the respective Advance is made, up through and including the Maturity Date of such Advance; provided, however, that with respect to each Advance that is made in the 30-day period immediately preceding any Payment Date, payments of accrued interest on the outstanding principal amount of the respective Advance shall be due beginning on the second Payment Date to occur after the date on which such Advance is made.

8.           Repayment of Principal; Principal Repayment Options.

(a) The principal amount of each Advance shall be payable in quarterly installments, which installments shall be due beginning on the first Payment Date to occur after the date on which the respective Advance is made, and shall be due on each Payment Date to occur thereafter until the principal amount of the respective Advance is repaid in full on or before the particular date specified on page 1 of this Bond as being the "Final Maturity Date" (such date being the "Final Maturity Date"); provided, however, that with respect to each Advance that is made in the 30-day period immediately preceding any Payment Date, principal installments shall be due beginning on the second Payment Date to occur after the date on which the respective Advance is made.

(b) In the respective Advance Request for each Advance, the Borrower must also select a method for the repayment of principal of such Advance from among the following options:

BOND - page 4

RUS

(1) "equal principal installments" -- the amount of each quarterly principal installment shall be substantially equal to the amount of every other quarterly principal installment and shall be sufficient, when added to all other such quarterly installments of equal principal, to repay the principal amount of such  Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such  Advance that will occur before the Final Maturity Date);

(2) "graduated principal installments" -- the amount of each of the first one-third (or nearest number of payments that rounds to one-third) of the total number of quarterly principal installments shall be substantially equal to one-half of the amount of each of the remaining quarterly principal installments, and shall be sufficient, when added to all other such quarterly installments of graduated principal, to repay the principal amount of such  Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such  Advance that will occur before the Final Maturity Date); or

(3) "level debt service" -- the amount of each quarterly payment consisting of a principal installment and accrued interest shall be substantially equal to the amount of every other quarterly payment consisting of a principal installment and accrued interest, and shall be sufficient, when added to all other such level quarterly payments consisting of a principal installment and accrued interest, to repay the principal amount of such  Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such  Advance that will occur before the Final Maturity Date).

(c) For each  Advance, the amount of principal that shall be due and payable on each of the dates specified in subparagraph (a) of this paragraph 8 shall be the amount of the principal installment due under a principal repayment schedule for the respective  Advance that is computed in accordance with the principles of the particular method for the repayment of principal that is selected by the Borrower for such  Advance from among the options described in subparagraph (b) of this paragraph 8.  Except at the times described in the immediately following sentence, the method for the repayment of principal that is selected by the Borrower for any  Advance, and the resulting principal repayment schedule that is so computed for such  Advance, may not be changed.  Notwithstanding the foregoing, with respect to each  Advance for which the Borrower has selected a Maturity Date that will occur before the Final Maturity Date, the Borrower may change the particular method for the repayment of principal that was selected by the Borrower for the respective  Advance from either the "equal principal installments" method or the "graduated principal installments"

BOND - page 5

RUS

method to the "level debt service" method at the time (if ever) that the Borrower elects to extend the maturity of such  Advance (as provided in paragraph 15 of this Bond), effective as of the effective date of such maturity extension, or at the time (if ever) that the Borrower elects to refinance the outstanding principal amount of such  Advance (as provided in paragraph 18 of this Bond), effective as of the effective date of such refinancing, and the principal repayment schedule for such  Advance shall thereupon be newly computed in accordance with the "level debt service" method for the repayment of principal.  After the Borrower has selected the Final Maturity Date as the Maturity Date for any  Advance, the Borrower may so change the particular method for the repayment of principal of any  Advance, and the principal repayment schedule for such  Advance shall be so newly computed, only at the time (if ever) that the Borrower elects to refinance the outstanding principal amount of such  Advance (as provided in paragraph 18 of this Bond), effective as of the effective date of such refinancing.

(d) With respect to each Advance that has a Maturity Date that will occur before the Final Maturity Date, the entire unpaid principal amount of the respective Advance shall be payable on such Maturity Date, subject to extensions of the maturity of such Advance (as provided in paragraph 15 of this Bond).

(e) Notwithstanding which of the methods for the repayment of principal described in subparagraph (b) of this paragraph 8 is selected by the Borrower for any  Advance, the aggregate of all quarterly payments of principal and interest on such  Advance shall be such as will repay the entire principal amount of such  Advance, and pay all interest accrued thereon, on or before the Final Maturity Date.

9.           Fee.

(a)  A fee to cover expenses and contingencies, assessed by FFB pursuant to section 6(c) of the FFB Act, shall accrue on the outstanding principal amount of each Advance for the period from the date on which the respective Advance is made to the date on which the principal amount of such Advance is due, not taking into account any maturity extensions permitted by paragraph 15 of this Bond (such period being the "Advance Period").

(b) The fee on each Advance shall be:

(1) 22.5 basis points (0.225%)per annum of the unpaid principal balance of such Advance for an Advance Period of a year or less;

(2) 27.5 basis points (0.275%)per annum of the unpaid principal balance of such Advance for an Advance Period greater than a year but no more than 5 years; and

BOND - page 6

RUS

(3) 35 basis points (0.35%)per annum of the unpaid principal balance of such Advance for an Advance Period greater than 5 years.

(c) The fee on each Advance shall be computed in the same manner as accrued interest is computed under paragraph 6(b) of this Bond, and shall be due and payable at the same times as accrued interest is due and payable under paragraph 7 of this Bond (adjusted as provided in paragraph 10 of this Bond if a Payment Date is not a Business Day).  The fee on each Advance shall be credited to RUS as required by section 505(c) of the Federal Credit Reform Act of 1990, as amended (codified at 2 U.S.C. § 661d(c)).

10.           Business Days.

(a) Whenever any Payment Date, the Maturity Date for any Advance, or the Final Maturity Date shall fall on a day on which either FFB or the Federal Reserve Bank of New York is not open for business, the payment that would otherwise be due on such Payment Date, Maturity Date, or Final Payment Date, as the case may be, shall be due on the first day thereafter on which FFB and the Federal Reserve Bank of New York are both open for business (any such day being a "Business Day").

(b) In the event that any Payment Date falls on a day other than a Business Day, then the extension of time for making the payment that would otherwise be due on such Payment Date shall be (1) taken into account in establishing the interest rate for the respective Advance, (2) included in computing interest due in connection with such payment, and (3) excluded in computing interest due in connection with the next payment.

(c) In the event that the Maturity Date for any Advance or the Final Maturity Date falls on a day other than a Business Day, then the extension of time for making the payment that would otherwise be due on such Maturity Date or the Final Maturity, as the case may be, shall be (1) taken into account in establishing the interest rate for such Advance, and (2) included in computing interest due in connection with such payment.

11.  Late Payments.

(a) In the event that any payment of any amount owing under this Bond is not made when and as due (any such amount being then an "Overdue Amount"), then the amount payable shall be such Overdue Amount plus interest thereon (such interest being the "Late Charge") computed in accordance with this subparagraph (a).

(1) The Late Charge shall accrue from the scheduled date of payment for the Overdue Amount (taking into account

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 paragraph 10 of this Bond) to the date on which payment is made.

(2) The Late Charge shall be computed on the basis of (A) actual days elapsed from (but not including) the scheduled date of payment for such Overdue Amount (taking into account paragraph 10 of this Bond) to (and including) the date on which payment is made, and (B) a year of 365 days (except in calendar years including February 29, when the basis shall be a 366-day year).

(3) The Late Charge shall accrue at a rate (the "Late Charge Rate") equal to one and one-half times the rate to be determined by the Secretary of the Treasury taking into consideration the prevailing market yield on the remaining maturity of the most recent auctioned 13-week United States Treasury bills.

(4) The initial Late Charge Rate shall be in effect until the earlier to occur of either (A) the date on which payment of the Overdue Amount and the amount of accrued Late Charge is made, or (B) the first Payment Date to occur after the scheduled date of payment for such Overdue Amount.  In the event that the Overdue Amount and the amount of the accrued Late Charge are not paid on or before such Payment Date, then the amount payable shall be the sum of the Overdue Amount and the amount of the accrued Late Charge, plus a Late Charge on such sum accruing at a new Late Charge Rate to be then determined in accordance with the principles of clause (3) of this subparagraph (a).  For so long as any Overdue Amount remains unpaid, the Late Charge Rate shall be re-determined in accordance with the principles of clause (3) of this subparagraph (a) on each Payment Date to occur thereafter, and shall be applied to the Overdue Amount and all amounts of the accrued Late Charge to the date on which payment of the Overdue Amount and all amounts of the accrued Late Charge is made.

(b) Nothing in subparagraph (a) of this paragraph 11 shall be construed as permitting or implying that the Borrower may, without the written consent of FFB, modify, extend, alter or affect in any manner whatsoever (except as explicitly provided herein) the right of FFB to receive any and all payments on account of this Bond on the dates specified in this Bond.

12.           Final Due Date.

Notwithstanding anything in this Bond to the contrary, all amounts outstanding under this Bond remaining unpaid as of the Final Maturity Date shall be due and payable on the Final Maturity Date.

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13.           Manner of Making Payments.

(a) For so long as FFB is the Holder of this Bond and RUS is the bond servicing agent for FFB (as provided in the Bond Purchase Agreement), each payment under this Bond shall be paid in immediately available funds by electronic funds transfer to the account of the United States Treasury (for credit to the subaccount of RUS, as bond servicing agent for FFB) maintained at the Federal Reserve Bank of New York specified by RUS in a written notice to the Borrower, or to such other account as may be specified from time to time by RUS in a written notice to the Borrower.

(b) In the event that FFB is the Holder of this Bond and RUS is not the bond servicing agent for FFB, each payment under this Bond, with the exception of the fee described in paragraph 9 of this Bond, shall be paid in immediately available funds by electronic funds transfer to the account of the United States Treasury (for credit to the subaccount of FFB) maintained at the Federal Reserve Bank of New York specified by FFB in a written notice to the Borrower, or to such other account as may be specified from time to time by FFB in a written notice to the Borrower.  In the event that FFB is the Holder of this Bond and RUS is not the bond servicing agent for FFB, each payment of the fee described in paragraph 9 of this Bond shall be paid in immediately available funds by electronic funds transfer to the account of the United States Treasury (for credit to the subaccount of RUS) maintained at the Federal Reserve Bank of New York specified from time to time by RUS in a written notice delivered by RUS to the Borrower.

(c) In the event that FFB is not the Holder of this Bond, then each payment under this Bond, with the exception of the fee described in paragraph 9 of this Bond, shall be made in immediately available funds by electronic funds transfer to such account as shall be specified by the Holder in a written notice to the Borrower.  In the event that FFB is not the Holder of this Bond, each payment of the fee described in paragraph 9 of this Bond shall be made in the manner specified by FFB in the written notice delivered by FFB to the Borrower and RUS as provided in section 15.4.2 of the Bond Purchase Agreement.

14.           Application of Payments.

Each payment made on this Bond shall be applied, first, to the payment of Late Charges (if any) payable under paragraphs 11 and 18 of this Bond, then to the payment of premiums (if any) payable under paragraphs 16 and 17 of this Bond, then to the payment of unpaid accrued interest, then on account of outstanding principal, and then to the payment of the fee payable under paragraph 9 of this Bond.

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15.           Maturity Extensions.

(a) With respect to each Advance (1) for which the Borrower has selected a Maturity Date that will occur before the twentieth anniversary of the Requested Advance Date specified in the respective Advance Request, or (2) for which a Maturity Date that will occur before the twentieth anniversary of the Requested Advance Date specified in the respective Advance Request has been determined as provided in subparagraph (b) of this paragraph 15 (each such Maturity Date being an "Interim Maturity Date"), the Borrower may, effective as of such Interim Maturity Date, elect to extend the maturity of all or any portion of the outstanding principal amount of the respective Advance to a new Maturity Date to be selected by the Borrower in the manner and subject to the limitations specified in this subparagraph (a) (each such election being a "Maturity Extension Election"; each such elective extension of the maturity of any Advance that has an Interim Maturity Date being a "Maturity Extension"; and the Interim Maturity Date that is in effect for an Advance immediately before any such elective Maturity Extension being, from and after such Maturity Extension, the "Maturity Extension Effective Date").

(1) Except under the circumstances described in clause (3) of this subparagraph (a), the Borrower shall deliver to FFB (with a copy to RUS) written notification of each Maturity Extension Election, in the form of notification attached to this Bond as Annex 1-A (each such notification being a "Maturity Extension Election Notice"), making reference to the "Advance Identifier" (as that term is defined in the Bond Purchase Agreement) that FFB assigned to such Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(A) the amount of the outstanding principal of the such Advance with respect to which the Borrower elects to extend the maturity; and

(B) the new Maturity Date that the Borrower selects to be in effect for such principal amount after the respective Maturity Extension Effective Date, which date:

(i) may be either (I) a new Interim Maturity Date, or (II) the twentieth anniversary of the Requested Advance Date specified in the original Advance Request (if such twentieth anniversary date is a Payment Date) or the Payment Date immediately preceding such twentieth anniversary date (if such twentieth anniversary date is not a Payment Date); and

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(ii) in the event that the Borrower selects a new Interim Maturity Date as the new Maturity Date for any Advance, must meet the criteria for Maturity Dates prescribed in section 7.3.1(a)(5) of the Bond Purchase Agreement (provided, however, that, for purposes of selecting a new Maturity Date in connection with a Maturity Extension Election, each of the references to the "Requested Advance Date" for the respective Advance in section 7.3.1(a)(5)(D) of the Bond Purchase Agreement shall be deemed to be a reference to the "respective Maturity Extension Effective Date").

(2) To be effective, a Maturity Extension Election Notice must be received by FFB on or before the third Business Day before the Interim Maturity Date in effect for the respective Advance immediately before such Maturity Extension.

(3) In the event that either of the circumstances described in subclause (A) or (B) of the next sentence occurs, then a Maturity Extension Election Notice (in the form of notice attached to this Bond as Annex 1-B), to be effective, must first be delivered to RUS for approval and be approved by RUS in writing, and such Maturity Extension Election Notice, together with written notification of RUS's approval thereof, must be received by FFB on or before the third Business Day before the Interim Maturity Date in effect for the respective Advance immediately before such Maturity Extension.  RUS approval of a Maturity Extension Election Notice will be required under either of the following circumstances:

(A) (i) any payment of any amount owing under this Bond is not made by the Borrower when and as due; (ii) payment is made by RUS in accordance with the guarantee set forth at the end of this Bond; and (iii) RUS delivers notice to both the Borrower and FFB advising each of them that each Maturity Extension Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS; or

(B) FFB at any time delivers written notice to both the Borrower and RUS advising each of them that each Maturity Extension Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS.

(b) With respect to any Advance that has an Interim Maturity Date, in the event that FFB does not receive a Maturity Extension Election Notice (and, if required under subparagraph (a)(3) of this paragraph 15, written notification

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of RUS's approval thereof) on or before the third Business Day before such Interim Maturity Date, then the maturity of such Advance shall be extended automatically in the manner and subject to the limitations specified in this subparagraph (b) (each such automatic extension of the maturity of any Advance that has an Interim Maturity Date also being a "Maturity Extension"; and the Interim Maturity Date that is in effect for an Advance immediately before any such automatic Maturity Extension also being, from and after such Maturity Extension, the "Maturity Extension Effective Date").  The new Maturity Date for such Advance shall be the immediately following Payment Date.  The amount of principal that will have its maturity extended automatically shall be the entire outstanding principal amount of such Advance on such Maturity Extension Effective Date, less the amount of any payment of principal made on such Maturity Extension Effective Date.

(c) In the event that the maturity of any Advance that has an Interim Maturity Date is extended under either subparagraph (a) or (b) of this paragraph 15, then the basic interest rate for such Advance, from and after the respective Maturity Extension Effective Date, shall be the particular rate that is established by FFB, as of such Maturity Extension Effective Date, in accordance with the principles of paragraph 6(c) of this Bond.

(d) In the event that the maturity of any Advance that has an Interim Maturity Date is extended under either subparagraph (a) or (b) of this paragraph 15, then the fee for such Advance, from and after the respective Maturity Extension Effective Date, shall be the particular fee that is assessed by FFB, as of such Maturity Extension Effective Date, with the new Advance Period being the period from the Maturity Extension Effective Date through the new Maturity Date, in accordance with the principles of paragraphs 9(b) and (c) of this Bond.

(e) In the event that (1) the maturity of any Advance that has an Interim Maturity Date is extended under either subparagraph (a) or (b) of this paragraph 15, and (2) the Maturity Date for such extended Advance is a date that will occur before the fifth anniversary of the respective Maturity Extension Effective Date, then the prepayment/refinancing privilege described in section 11.2 of the Bond Purchase Agreement shall apply automatically to such Advance.

(f) In the event that (1) the Borrower makes a Maturity Extension Election with respect to any Advance that has an Interim Maturity Date, and (2) the Borrower selects as the Maturity Date for such extended Advance a new Maturity Date that will occur on or after the fifth anniversary of the respective Maturity Extension Effective Date, then the Borrower must elect a prepayment/refinancing privilege for such extended Advance from between the options described in sections 11.2 and 11.3 of the Bond Purchase Agreement (provided, however, that each of the

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references to "the Requested Advance Date for such Advance" in  section 11.3 of the Bond Purchase Agreement shall be deemed to be a reference to "the respective Maturity Extension Effective Date").  The Maturity Extension Election Notice delivered by the Borrower in connection with each such Maturity Extension Election must also specify the particular prepayment/refinancing privilege that the Borrower elects for the respective extended Advance.  In the event that the Borrower elects for any such extended Advance a prepayment/refinancing privilege described in section 11.3 of the Bond Purchase Agreement, then the interest rate for such extended Advance, from and after the respective Maturity Extension Effective Date, shall include a price (expressed in terms of a basis point increment to the applicable basic interest rate) for the particular prepayment/refinancing privilege that the Borrower elects, which price shall be established by FFB, as of such Maturity Extension Effective Date, in accordance with the principles of paragraph 6(d) of this Bond.

(g) The maturity of each Advance may be extended more than once as provided in this paragraph 15, but upon the twentieth anniversary of the Requested Advance Date specified in the original Advance Request (if such twentieth anniversary date is a Payment Date) or upon the Payment Date immediately preceding such twentieth anniversary date (if such twentieth anniversary date is not a Payment Date), no further Maturity Extensions may occur.

16.  Prepayments.

(a) The Borrower may elect to prepay all or any portion of the outstanding principal amount of any Advance made under this Bond, or to prepay this Bond in its entirety, in the manner, at the price, and subject to the limitations specified in this paragraph 16 (each such election being a "Prepayment Election").

(b) For each Prepayment Election in which the Borrower elects to prepay a particular amount of the outstanding principal of an Advance, the Borrower shall deliver to RUS written notification of the respective Prepayment Election, in the form of notification attached to this Bond as Annex 2-A (each such notification being a "Prepayment Election Notice"), making reference to the Advance Identifier that FFB assigned to the respective Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(1) the particular date on which the Borrower intends to make the prepayment on such Advance (such date being the "Intended Prepayment Date" for such Advance), which date:

(A) must be a Business Day; and

(B) for any Advance for which the Borrower has selected a fixed premium prepayment/refinancing

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privilege that includes a 5-year period during which such Advance shall not be eligible for any prepayment or refinancing (such time period being a "No-Call Period"), may not be a date that will occur before the applicable "First Call Date" determined as provided in section 11.3.2 of the Bond Purchase Agreement (such date being the "First Call Date"); and

(2) the amount of principal of the respective Advance that the Borrower intends to prepay, which amount may be either:

(A) the total outstanding principal amount of such Advance; or

(B) an amount less than the total outstanding principal amount of such Advance (subject to subparagraph (g) of this paragraph 16) (any such amount being a "Portion").

(c) For each Prepayment Election in which the Borrower elects to have a particular amount of funds applied by FFB toward the prepayment of the outstanding principal of an Advance, the Borrower shall deliver to RUS written notification of the respective Prepayment Election, in the form of notification attached to this Bond as Annex 2-B (each such notification also being a "Prepayment Election Notice"), making reference to the Advance Identifier that FFB assigned to the respective Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(1) the particular date on which the Borrower intends to make the prepayment on such Advance (such date being the "Intended Prepayment Date" for such Advance), which date:

(A) must be a Business Day; and

(B) for any Advance for which the Borrower has selected a fixed premium prepayment/refinancing privilege that includes a 5-year No-Call Period, may not be a date that will occur before the applicable First Call Date; and

(2) the particular amount of funds that the Borrower elects to be applied by FFB toward a prepayment of the outstanding principal amount of such Advance.

(d) To be effective, a Prepayment Election Notice must be approved by RUS in writing, and such Prepayment Election Notice, together with written notification of RUS's approval thereof, must be received by FFB on or before the fifth Business Day before the date specified therein as the Intended Prepayment Date for the respective Advance or Portion.

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(e) The Borrower shall pay to FFB a price for the prepayment of any Advance, any Portion of any Advance, or this Bond in its entirety (such price being the "Prepayment Price" for such Advance or Portion or this Bond, as the case may be) determined as follows:

(1) in the event that the Borrower elects to prepay the entire outstanding principal amount of any Advance, then the Borrower shall pay to FFB a Prepayment Price for such Advance equal to the sum of:

(A) the entire outstanding principal amount of such Advance on the Intended Prepayment Date;

(B) all unpaid interest (and Late Charges, if any) accrued on such Advance through the Intended Prepayment Date; and

(C) the amount of the premium or discount credit (if any) that is required under the particular prepayment/refinancing privilege that applies to such Advance as provided in article 11 of the Bond Purchase Agreement;

(2) in the event that the Borrower elects to prepay a Portion of any Advance, then the Borrower shall pay to FFB a Prepayment Price for such Portion that would equal such Portion's pro rata share of the Prepayment Price that would be required for a prepayment of the entire outstanding principal amount of such Advance (determined in accordance with the principles of clause (1) of this subparagraph (e)); and

(3) in the event that the Borrower elects to prepay this Bond in its entirety, then the Borrower shall pay to FFB an amount equal to the sum of the Prepayment Prices for all outstanding Advances (determined in accordance with the principles of clause (1) of this subparagraph (e)).

(f) Payment of the Prepayment Price for any Advance, any Portion of any Advance, or this Bond in its entirety shall be due to FFB before 3:00 p.m. (Washington, DC, time) on the Intended Prepayment Date for such Advance or Portion or this Bond, as the case may be.

(g) Each prepayment of a Portion shall, as to the principal amount of such Portion, be subject to a minimum amount equal to $100,000.00 of principal.

(h) The Borrower may make more than one Prepayment Election with respect to an Advance, each such Prepayment Election being made with respect to a different Portion of such Advance, until such time as the entire principal amount of such Advance is repaid in full.

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17.  Refinancings.

(a) The Borrower may elect to refinance the outstanding principal amount of any Advance (but not any Portion) in the manner, at the price, and subject to the limitations specified in this paragraph 17 (each such election being a "Refinancing Election").

(b) Except under the circumstances described in subparagraph (d) of this paragraph 17, the Borrower shall deliver to FFB (with a copy to RUS) written notification of each Refinancing Election, in the form of notification attached to this Bond as Annex 3-A (each such notification being a "Refinancing Election Notice"), making reference to the Advance Identifier that FFB assigned to the respective Advance (as provided in the Bond Purchase Agreement) and specifying, among other things, the following:

(1) the particular date on which the Borrower intends to refinance the respective Advance (such date being the "Intended Refinancing Date" for the respective Advance), which date:

(A) must be a Payment Date; and

(B) for any Advance for which the Borrower has selected a prepayment/refinancing privilege that includes a 5-year No-Call Period, may not be a date that will occur before the applicable First Call Date;

(2) the amount of the outstanding principal of the respective Advance that the Borrower elects to refinance (which may not be a Portion); and

(3) the Maturity Date that the Borrower selects to be in effect for such principal amount after such refinancing, which date may be:

(A) the Maturity Date that is in effect for such Advance immediately before such refinancing; or

(B) a new Maturity Date that the Borrower selects in connection with such Refinancing Election, provided that such new Maturity Date meets the criteria for Maturity Dates prescribed in section 7.3.1(a)(5) of the Bond Purchase Agreement (provided, however, that for purposes of selecting a new Maturity Date in connection with a Refinancing Election, each of the references to the "Requested Advance Date" for the respective Advance in section 7.3.1(a)(5)(D) of the Bond Purchase Agreement shall be deemed to be a reference to the "respective Refinancing Effective Date").

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(c) To be effective, a Refinancing Election Notice must be received by FFB on or before the fifth Business Day before the date specified therein as the Intended Refinancing Date.

(d) In the event that either of the circumstances described in clause (1) or (2) of the next sentence shall have occurred, then a Refinancing Election Notice (in the form of notice attached to this Bond as Annex 3-B), to be effective, must first be delivered to RUS for approval and be approved by RUS in writing, and such Refinancing Election Notice, together with written notification of RUS's approval thereof, must be received by FFB on or before the fifth Business Day before the date specified therein to be the Intended Refinancing Date.  RUS approval of a Refinancing Election Notice will be required under either of the following circumstances:

(1) (A) payment of any amount owing under this Bond is not made by the Borrower when and as due; (B) payment is made by RUS in accordance with the guarantee set forth at the end of this Bond; and (C) RUS delivers notice to both the Borrower and FFB advising each of them that each Refinancing Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS; or

(2) FFB at any time delivers written notice to both the Borrower and RUS advising each of them that each Refinancing Election Notice delivered by the Borrower after the date of such notice shall require the approval of RUS.

(e) The Borrower shall pay to FFB a price for the refinancing of any Advance (such price being the "Refinancing Price" for such Advance) equal to the sum of:

(1) all unpaid interest (and Late Charges, if any) accrued on such Advance through the Intended Refinancing Date; and

(2) the amount of the premium (if any) that is required under the particular prepayment/refinancing privilege that applies to such Advance as provided in article 11 of the Bond Purchase Agreement.

In the event that (A) the prepayment/refinancing privilege that applies to the particular Advance being refinanced is the privilege described in section 11.2 of the Bond Purchase Agreement, and (B) the Market Value Premium (or Discount) that is to be included in the Refinancing Price for such Advance is a discount on such Advance, then such discount shall be applied by FFB in the manner requested by the Borrower in a written notice delivered by the Borrower to FFB and approved by RUS in writing.

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(f) Payment of the Refinancing Price for any Advance shall be due to FFB before 3:00 p.m. (Washington, DC, time) on the Intended Refinancing Date for such Advance.

(g) In the event that a Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB on or before the fifth Business Day before the Intended Refinancing Date specified therein, then the refinancing of the respective Advance shall become effective on such Intended Refinancing Date (in such event, the Intended Refinancing Date being the "Refinancing Effective Date").  In the event that a Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB after the fifth Business Day before the Intended Refinancing Date specified therein, then the refinancing of the respective Advance shall become effective on the fifth Business Day to occur after the day on which such Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB (in such event, the fifth Business Day to occur after the day on which such Refinancing Election Notice (and, if required under subparagraph (d) of this paragraph 17, written notification of RUS's approval thereof) is received by FFB being the "Refinancing Effective Date"), provided that the Borrower shall have paid to FFB, in addition to the Refinancing Price required under subparagraph (e) of this paragraph 17, the interest accrued from the Intended Refinancing Date through such Refinancing Effective Date.

(h) In the event that the Borrower makes a Refinancing Election with respect to any Advance, the basic interest rate for such Advance, from and after the respective Refinancing Effective Date, shall be the particular rate that is established by FFB, as of such Refinancing Effective Date, in accordance with the principles of paragraph 6(c) of this Bond.

(i) In the event that the Borrower makes a Refinancing Election with respect to any Advance, then the fee for such Advance, from and after the respective Refinancing Effective Date, shall be the particular fee that is assessed by FFB, as of such Refinancing Effective Date, with the new Advance Period being the period from the Refinancing Effective Date through the new Maturity Date, in accordance with the principles of paragraphs 9(b) and (c) of this Bond.

(j) In the event that (1) the Borrower makes a Refinancing Election with respect to any Advance, and (2) the Borrower selects as the Maturity Date for such refinanced Advance either (A) the Maturity Date that is in effect for such Advance immediately before such refinancing, and such Maturity Date will occur before the fifth anniversary of the respective Refinancing Effective Date, or (B) a new Maturity Date that will occur before the fifth anniversary of the respective Refinancing

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Effective Date, then the prepayment/refinancing privilege described in section 11.2 of the Bond Purchase Agreement shall apply automatically to such Advance.

(k) In the event that (1) the Borrower makes a Refinancing Election with respect to any Advance, and (2) the Borrower selects as the Maturity Date for such refinanced Advance either (A) the Maturity Date that is in effect for such Advance immediately before such refinancing, and such Maturity Date will occur on or after the fifth anniversary of the respective Refinancing Effective Date, or (B) a new Maturity Date that will occur on or after the fifth anniversary of the respective Refinancing Effective Date, then the Borrower must elect a prepayment/refinancing privilege for such refinanced Advance from between the options described in sections 11.2 and 11.3 of the Bond Purchase Agreement (provided, however, that each of the references to the "Requested Advance Date for such Advance" in section 11.3 of the Bond Purchase Agreement shall be deemed to be a reference to the "respective Refinancing Effective Date").  The Refinancing Election Notice delivered by the Borrower in connection with each such Refinancing Election must also specify the particular prepayment/refinancing privilege that the Borrower elects for the respective refinanced Advance.  In the event that the Borrower elects for any such refinanced Advance a prepayment/refinancing privilege described in section 11.3 of the Bond Purchase Agreement, then the interest rate for such refinanced Advance, from and after the respective Refinancing Effective Date, shall include a price (expressed in terms of a basis point increment to the applicable basic interest rate) for the particular prepayment/refinancing privilege that the Borrower elects, which increment shall be established by FFB, as of such Refinancing Effective Date, in accordance with the principles of paragraph 6(d) of this Bond.

(l) In the event that the Borrower makes a Refinancing Election with respect to any Advance, then the outstanding principal amount of such Advance, after the respective Refinancing Effective Date, shall be due and payable in accordance with this subparagraph (l).

(1) With respect to each Advance to which either the "equal principal installments" method or the "graduated principal installments" method for the repayment of principal applies, the amount of the quarterly principal installments that will be due after the respective Refinancing Effective Date shall be equal to the amount of the quarterly installments of equal principal or graduated principal, as the case may be, that were due in accordance with the principal repayment schedule that applied to such  Advance immediately before the respective Refinancing Effective Date.

(2) With respect to each Advance to which the "level debt service" method for the repayment of principal

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applies, the amount of the level quarterly payments consisting of a principal installment and accrued interest that will be due after the respective Refinancing Effective Date shall be newly computed so that the amount of each such quarterly payment consisting of a principal installment and accrued interest (taking into account the new interest rate that applies to such Advance from and after such Refinancing Effective Date) shall be substantially equal to the amount of every other quarterly payment consisting of a principal installment and accrued interest, and shall be sufficient, when added to all other such newly-computed level quarterly payments consisting of a principal installment and accrued interest, to repay the outstanding principal amount of such refinanced Advance in full on the Final Maturity Date (notwithstanding the fact that the Borrower may have selected a Maturity Date for such refinanced Advance that will occur before the Final Maturity Date).

(3) The quarterly installments of equal principal or graduated principal, or the newly-computed level quarterly payments consisting of a principal installment and accrued interest, as the case may be, shall be due beginning on the first Payment Date to occur after the respective Refinancing Effective Date, and shall be due on each Payment Date to occur thereafter up through and including the earlier to occur of (A) the new Maturity Date that the Borrower selected for such refinanced Advance, on which date the entire unpaid principal amount of such refinanced  Advance shall also be payable, subject to Maturity Extensions (as provided in paragraph 15 of this Note) if the new Maturity Date is an Interim Maturity Date, or (B) the date on which the entire principal amount of such refinanced Advance, and all unpaid interest (and Late Charges, if any) accrued thereon, are paid.

(m) The Borrower may make more than one Refinancing Election with respect to any Advance.

18. Rescission of Prepayment Elections and Refinancing Elections; Late Charges for Late Payments.

(a) The Borrower may rescind any Prepayment Election made in accordance with paragraph 16 of this Bond or any Refinancing Election made in accordance with paragraph 17 of this Bond, but only in accordance with this paragraph 18.

(b) The Borrower shall deliver to both FFB and RUS written notification of each rescission of a Prepayment Election or a Refinancing Election (each such notification being an "Election Rescission Notice") specifying the particular Advance for which the Borrower wishes to rescind such Prepayment Election or Refinancing Election, as the case may be, which specification must make reference to both:

BOND - page 20

RUS

(1) the particular Advance Identifier that FFB assigned to such Advance (as provided in the Bond Purchase Agreement); and

(2) the RUS account number for such Advance.

The Election Rescission Notice may be delivered by facsimile transmission to FFB at (202) 622-0707 and to RUS at (202) 720-1401, or at such other facsimile number or numbers as either FFB or RUS may from time to time communicate to the Borrower.

(c) To be effective, an Election Rescission Notice must be received by both FFB and RUS not later than 3:30 p.m. (Washington, DC, time) on the second Business Day before the Intended Prepayment Date or the Intended Refinancing Date, as the case may be.

(d) In the event that the Borrower (1) makes a Prepayment Election in accordance with paragraph 16 of this Bond or a Refinancing Election in accordance with paragraph 17 of this Bond; (2) does not rescind such Prepayment Election or Refinancing Election, as the case may be, in accordance with this paragraph 18; and (3) does not, before 3:00 p.m. (Washington, DC, time) on the Intended Prepayment Date or Intended Refinancing Date, as the case may be, pay to FFB the Prepayment Price described in paragraph 16(e) of this Bond or Refinancing Price described in paragraph 17(e) of this Bond, as the case may be, then a Late Charge shall accrue on any such unpaid amount from the Intended Prepayment Date or Intended Refinancing Date, as the case may be, to the date on which payment is made, computed in accordance with the principles of paragraph 11 of this Bond.

19.           Amendments to Bond.

To the extent not inconsistent with applicable law, this Bond, for so long as FFB or its agent is the holder thereof, shall be subject to modification by such amendments, extensions, and renewals as may be agreed upon from time to time by FFB and the Borrower, with the approval of RUS.

20.           Certain Waivers.

The Borrower hereby waives any requirement for presentment, protest, or other demand or notice with respect to this Bond.

21.           Bond Effective Until Paid.

This Bond shall continue in full force and effect until all principal outstanding hereunder, all interest accrued hereunder, all premiums (if any) payable under paragraphs 16 and 17 of this Bond, all Late Charges (if any) payable under paragraphs 11 and

BOND - page 21

RUS

 18 of this Bond, and all fees (if any) payable under paragraph 9 of this Bond have been paid in full.

22. RUS Guarantee of Bond.

Upon execution of the guarantee set forth at the end of this Bond (the "RUS Guarantee"), the payment by the Borrower of all amounts due and payable under this Bond, when and as due, shall be guaranteed by the United States of America, acting through RUS, pursuant to the Rural Electrification Act of 1936, as amended (codified at 7 U.S.C. § 901 et seq.).  In consideration of the RUS Guarantee, the Borrower promises to RUS to make all payments due under this Bond when and as due.

23. Pledge Agreement.

This Bond is one of several Bonds referred to in the Pledge Agreement, wherein the Borrower made provision for the pledge and grant of a security interest in, under certain circumstances described therein, certain property of the Borrower, described therein, to secure the payment of and performance of certain obligations owed to RUS, as set forth in the Pledge Agreement.

24.  Guarantee Payments; Reimbursement.

If RUS makes any payment, pursuant to the RUS Guarantee, of any amount due and payable under this Bond, when and as due, each and every such payment so made shall be deemed to be a payment hereunder; provided, however, that no payment by RUS pursuant to the RUS Guarantee shall be considered a payment for purposes of determining the existence of a failure by the Borrower to perform its obligation to RUS to make all payments under this Bond when and as due.  RUS shall have any rights by way of subrogation, agreement or otherwise which arise as a result of such payment pursuant to the RUS Guarantee.

25. Default and Enforcement.

In case of a default by the Borrower under this Bond or the occurrence of an event of default under the Bond Guarantee Agreement, then, in consideration of the obligation of RUS under the RUS Guarantee, in that event, to make payments to FFB as provided in this Bond, RUS, in its own name, shall have all rights, powers, privileges, and remedies of the holder of this Bond, in accordance with the terms of this Bond, the Bond Guarantee Agreement, and the Pledge Agreement, including, without limitation, the right to enforce or collect all or any part of the obligation of the Borrower under this Bond or arising as a result of the RUS Guarantee, to file proofs of claim or any other document in any bankruptcy, insolvency, or other judicial proceeding, and to vote such proofs of claim.

BOND - page 22

RUS

26.           Acceleration.

The entire unpaid principal amount of this Bond, and all interest thereon, may be declared, and upon such declaration shall become, due and payable to RUS, under the circumstances described, and in the manner and with the effect provided, in the Bond Guarantee Agreement.

IN WITNESS WHEREOF, the Borrower has caused this Bond to be signed in its corporate name and its corporate seal to be hereunder affixed and attested by its officers thereunto duly authorized, all as of the day and year first above written.

     NATIONAL RURAL UTILITIES

  COOPERATIVE FINANCE CORPORATION

                   (the "Borrower")

BY:

Signature:   /s/ SHELDON PETERSEN

Print Name:  Sheldon C. Petersen

Title:       Governor and

         Chief Executive Officer

ATTEST:

Signature:   /s/ ROBERTA B. ARONSON

(SEAL)

Print Name:  Roberta B. Aronson

Title:       Assistant Secretary-Treasurer

BOND - page 23

RUS

ANNEX 1-A

TO

FUTURE ADVANCE BOND

FORM

OF

MATURITY EXTENSION ELECTION NOTICE

RUS

MATURITY EXTENSION ELECTION NOTICE

****************************************************************

PART 1 OF THIS FORM HAS BEEN COMPLETED BY RUS.  THE BORROWER SHOULD COMPLETE PART 2 OF THIS FORM ONLY FOR THOSE PARTICULAR ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WITH RESPECT TO WHICH THE BORROWER ELECTS TO HAVE THE MATURITY EXTENDED TO A NEW MATURITY DATE OTHER THAN THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO FFB AT THE FOLLOWING ADDRESS:

Manager

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Telephone:  (202) 622-2470

Facsimile:   (202) 622-0707

 DELIVER A COPY OF THIS FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

THE BORROWER SHOULD NOT COMPLETE THIS FORM OR DELIVER IT TO FFB  IF THE BORROWER DESIRES TO HAVE THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

IF THE BORROWER DOES NOT RETURN THIS FORM TO FFB, THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WILL BE EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

****************************************************************

MATURITY EXTENSION ELECTION NOTICE - page 1

RUS

MATURITY EXTENSION ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________

RUS Bond Number: _____________________

Part 1 (To be completed by RUS):

Each of the advances of funds ("Advances") identified in this Part 1 will mature on _______________ (the "Maturity Date").

FFB ADVANCE IDENTIFIER	RUS ACCOUNT NUMBER	ORIGINAL ADVANCE DATE		ORIGINAL ADVANCE AMOUNT		OUTSTANDING PRINCIPAL AMOUNT
			$		$
			$		$
			$		$
			$		$

MATURITY EXTENSION ELECTION NOTICE - page 2

RUS

Part 2:

Notice is hereby given to FFB (and RUS) of the Borrower's election that the maturity of each of the Advances identified in this Part 2 be extended as follows:

FFB ADVANCE IDENTIFIER1		OPTIONAL PRINCIPAL PAYMENT2	AMOUNT OF PRINCIPAL TO BE EXTENDED3	NEW MATURITY DATE4	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE5	5-YEAR NO-CALL PERIOD6	PREMIUM OPTION7
	$
	$
	$
	$

1Complete 1 line in Part 2 for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity extended to a new Maturity Date other than the next Payment Date. Insert the FFB Advance Identifier that FFB assigned to the respective Advance for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity so extended.

2The Borrower has the option of making a payment of principal on the Maturity Date without any premium being charged. For each Advance, insert the amount of any such optional principal payment that will be paid on the Maturity Date.

3For each Advance, insert the amount of principal for which the maturity is to be extended. That amount must equal the difference between the outstanding principal amount for the respective Advance, as specified in Part 1, and the optional principal payment (if any) for such Advance inserted by the Borrower in Part 2.

4For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date to be in effect for the respective Advance after the Maturity Extension, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

5Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension. The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F"). Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

6Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period. Insert in the box the letter-symbol for the particular no-call period option elected.

7Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P"). Insert in the box the letter-symbol for the particular premium option selected.

MATURITY EXTENSION ELECTION NOTICE - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Maturity Extension Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

MATURITY EXTENSION ELECTION NOTICE - page 4

RUS

ANNEX 1-B

TO

FUTURE ADVANCE BOND

FORM

OF

MATURITY EXTENSION ELECTION NOTICE

(RUS APPROVAL REQUIRED)

RUS

MATURITY EXTENSION ELECTION NOTICE

(RUS APPROVAL REQUIRED)

****************************************************************

PART 1 OF THIS FORM HAS BEEN COMPLETED BY RUS.  THE BORROWER SHOULD COMPLETE PART 2 OF THIS FORM ONLY FOR THOSE PARTICULAR ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WITH RESPECT TO WHICH THE BORROWER ELECTS TO HAVE THE MATURITY EXTENDED TO A NEW MATURITY DATE OTHER THAN THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

THE BORROWER SHOULD NOT COMPLETE THIS FORM OR DELIVER IT TO RUS  IF THE BORROWER DESIRES TO HAVE THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

IF THE BORROWER DOES NOT RETURN THIS FORM TO RUS, THE MATURITY OF ALL OF THE ADVANCES IDENTIFIED IN PART 1 OF THIS FORM WILL BE EXTENDED AUTOMATICALLY TO THE IMMEDIATELY FOLLOWING QUARTERLY PAYMENT DATE.

****************************************************************

MATURITY EXTENSION ELECTION NOTICE  (RUS APPROVAL REQ ' D) - page 1

RUS

MATURITY EXTENSION ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________

RUS Bond Number: _____________________

Part 1 (To be completed by RUS):

Each of the advances of funds ("Advances") identified in this Part 1 will mature on _______________ (the "Maturity Date").

FFB ADVANCE IDENTIFIER	RUS ACCOUNT NUMBER	ORIGINAL ADVANCE DATE		ORIGINAL ADVANCE AMOUNT		OUTSTANDING PRINCIPAL AMOUNT
			$		$
			$		$
			$		$
			$		$

MATURITY EXTENSION ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 2

RUS

Part 2:

Notice is hereby given to FFB (and RUS) of the Borrower's election that the maturity of each of the Advances identified in this Part 2 be extended as follows:

FFB ADVANCE IDENTIFIER1		OPTIONAL PRINCIPAL PAYMENT2	AMOUNT OF PRINCIPAL TO BE EXTENDED3	NEW MATURITY DATE4	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE5	5-YEAR NO-CALL PERIOD6	PREMIUM OPTION7
	$
	$
	$
	$

1Complete 1 line in Part 2 for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity extended to a new Maturity Date other than the next Payment Date. Insert the FFB Advance Identifier that FFB assigned to the respective Advance for each Advance identified in Part 1 with respect to which the Borrower elects to have the maturity so extended.

2The Borrower has the option of making a payment of principal on the Maturity Date without any premium being charged. For each Advance, insert the amount of any such optional principal payment that will be paid on the Maturity Date.

3For each Advance, insert the amount of principal for which the maturity is to be extended. That amount must equal the difference between the outstanding principal amount for the respective Advance, as specified in Part 1, and the optional principal payment (if any) for such Advance inserted by the Borrower in Part 2.

4For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date" to be in effect for the respective Advance after the Maturity Extension, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

5Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension. The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F"). Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

6Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period. Insert in the box the letter-symbol for the particular no-call period option elected.

7Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P"). Insert in the box the letter-symbol for the particular premium option selected.

 MATURITY EXTENSION ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Maturity Extension Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

NOTICE OF RUS APPROVAL OF

MATURITY EXTENSION ELECTION NOTICE

Notice is hereby given to FFB that the preceding Maturity Extension Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

MATURITY EXTENSION ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 4

RUS

ANNEX 2-A

TO

FUTURE ADVANCE BOND

FORM

OF

PREPAYMENT ELECTION NOTICE

SPECIFIED PRINCIPAL AMOUNT(S)

(RUS APPROVAL REQUIRED)

RUS

PREPAYMENT ELECTION NOTICE

SPECIFIED PRINCIPAL AMOUNT(S)

(RUS APPROVAL REQUIRED)

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

****************************************************************

PREPAYMENT ELECTION NOTICE

SPECIFIED PRINCIPAL AMOUNT(S)

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________1

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

PREPAYMENT ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 1

RUS

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to prepay all or a portion of the outstanding principal amount of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to prepay all or a portion of the outstanding principal amount of each of the Advances identified in Part 1 on the following date (such date being the "Intended Prepayment Date"):

____________________________________7

2Complete 1 line in Part 1 for each Advance that the Borrower intends to prepay in whole or in part.  For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

 

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

 

6Insert the outstanding principal amount of each Advance specified in Part 1 as of the day before the date on which the Borrower intends to make a prepayment on the respective Advances.

 

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to prepay the Advances specified in Part 1, which date must meet the criteria for Intended Prepayment Date prescribed in paragraph 16(b)(1) of the Bond.

PREPAYMENT ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 2

RUS

Part 3:

For each of the Advances identified in Part 1, the respective amount of principal that the Borrower intends to prepay on the Intended Prepayment Date is as follows:
 

FFB ADVANCE IDENTIFIER8		AMOUNT OF PRINCIPAL TO BE PREPAID9
	$
	$
	$
	$

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Prepayment Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

8Complete 1 line in Part 3 for each Advance identified in Part 1.

9For each Advance, insert the amount of principal that will be prepaid on the Intended Prepayment Date.

PREPAYMENT ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 3

RUS

NOTICE OF RUS APPROVAL OF

PREPAYMENT ELECTION NOTICE

Notice is hereby given to FFB that the preceding Prepayment Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _____________

PREPAYMENT ELECTION NOTICE - SP PRN (RUS APPROVAL REQ ' D) - page 4

RUS

ANNEX 2-B

TO

FUTURE ADVANCE BOND

FORM

OF

PREPAYMENT ELECTION NOTICE

FIXED SUM TO BE APPLIED

(RUS APPROVAL REQUIRED)

RUS

PREPAYMENT ELECTION NOTICE

FIXED SUM TO BE APPLIED

(RUS APPROVAL REQUIRED)

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

****************************************************************

PREPAYMENT ELECTION NOTICE

FIXED SUM TO BE APPLIED

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Finance Corporation

FFB Bond Identifier: _____________________1

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

PREPAYMENT ELECTION NOTICE - FX SUM  (RUS APPROVAL REQ ' D) - page 1

RUS

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to prepay all or a portion of the outstanding principal amount of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to prepay all or a portion of the outstanding principal amount of the Advances identified in Part 1 on the following date (such date being the "Intended Prepayment Date"):

____________________________________7

   

2Complete 1 line in Part 1 for each Advance that the Borrower intends to prepay in whole or in part.  For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

 

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

 

6Insert the outstanding principal amount of each Advance specified in Part 1 as of the day before the date on which the Borrower intends to make a prepayment on the respective Advances.

 

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to prepay the Advances specified in Part 1, which date must meet the criteria for Intended Prepayment Date prescribed in paragraph 16(b)(1) of the Bond.

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 2

RUS

Part 3:

The Borrower elects to have the following amount of funds applied by FFB toward a prepayment of the outstanding principal amount of the Advances identified in Part 1, in the order in which they appear in Part 1:

____________________________________8

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Prepayment Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

8Insert the particular amount of funds that the Borrower elects to be applied by FFB toward a prepayment of the outstanding principal amount of the Advances identified in Part 1, in the order in which they appear in Part 1.

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 3

RUS

NOTICE OF RUS APPROVAL OF

PREPAYMENT ELECTION NOTICE

Notice is hereby given to FFB that the preceding Prepayment Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

PREPAYMENT ELECTION NOTICE - FX SUM (RUS APPROVAL REQ ' D) - page 4

RUS

ANNEX 3-A

TO

FUTURE ADVANCE BOND

FORM

OF

REFINANCING ELECTION NOTICE

RUS

REFINANCING ELECTION NOTICE

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO FFB AT THE FOLLOWING ADDRESS:

Manager

Federal Financing Bank

Main Treasury Building

1500 Pennsylvania Avenue, NW

Washington, DC  20220

Telephone:  (202) 622-2470

Facsimile:   (202) 622-0707

 DELIVER A COPY OF THIS FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

******************************************************************************

REFINANCING ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Corporation

REFINANCING ELECTION NOTICE - page 1

RUS

FFB Bond Identifier: ______________________1

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to refinance the outstanding principal amount of each of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to refinance the outstanding principal amount of each of the Advances identified in Part 1 on the following date (such date being the "Intended Refinancing Date"):

____________________________________7

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

2Complete 1 line in Part 1 for each Advance that the Borrower intends to refinance. For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

6For each Advance, insert the outstanding principal amount of the respective Advance as of the day before the intended refinancing.

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to refinance the Advances specified in Part 1, which date must meet the criteria for Intended Refinancing Date prescribed in paragraph 17(b)(1) of the Bond.
 

REFINANCING ELECTION NOTICE - page 2

RUS

Part 3:

Notice is hereby given to FFB (and RUS) of the Borrower's election that each of the Advances identified in Part 1 is to be refinanced as follows:

FFB ADVANCE IDENTIFIER8		AMOUNT OF PRINCIPAL TO BE REFINANCED9	NEW MATURITY DATE10	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE11	5-YEAR NO-CALL PERIOD12	PREMIUM OPTION13
	$
	$
	$
	$

8Complete 1 line in Part 3 for each Advance identified in Part 1 as being an Advance the Borrower elects to refinance. Insert the FFB Advance Identifier that FFB assigned to the respective Advance.

9For each Advance, insert the amount of principal that is to be refinanced. This will be the same amount as the outstanding principal amount of the respective Advance inserted in Part 1.

10For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date to be in effect for the respective Advance after the refinancing, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

11Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension. The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F"). Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

12Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period. Insert in the box the letter-symbol for the particular no-call period option elected.

13Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance. The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P"). Insert in the box the letter-symbol for the particular premium option selected.

REFINANCING ELECTION NOTICE - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Refinancing Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

REFINANCING ELECTION NOTICE - page 4

RUS

ANNEX 3-B

TO

FUTURE ADVANCE BOND

FORM

OF

REFINANCING ELECTION NOTICE

(RUS APPROVAL REQUIRED)

RUS

REFINANCING ELECTION NOTICE

(RUS APPROVAL REQUIRED)

****************************************************************

DIRECT ALL QUESTIONS ON HOW TO COMPLETE THIS FORM TO THE ASSIGNED CONTACT OFFICE FOR THE BORROWER:

Chief

Policy Analysis and Loan Management Staff

Telephone:  (202) 720-0424

WHEN COMPLETED, DELIVER THIS ORIGINAL FORM TO RUS AT THE ADDRESS OF THE CONTACT OFFICE INDICATED BELOW:

Chief

Policy Analysis and Loan Management Staff

Rural Utilities Service

U.S. Department of Agriculture

Mail Stop 1560

1400 Independence Avenue, SW

Washington, DC  20250-1560

Reference:  Section 313A Loan Guarantee

Telephone:  (202) 720-0424

Facsimile:   (202) 690-0717

******************************************************************************

REFINANCING ELECTION NOTICE

Manager

Federal Financing Bank

Reference is made to the following-described Future Advance Bond (the "Bond") payable to the Federal Financing Bank ("FFB"), which is guaranteed by the Rural Utilities Service ("RUS"):

Name of Borrower (the "Borrower"):

National Rural Utilities Cooperative Corporation

FFB Bond Identifier: ______________________1

1Insert the FFB Bond Identifier that FFB assigned to the Bond (as provided in the Bond Purchase Agreement referred to in the Bond).

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 1

RUS

Part 1:

Notice is hereby given to FFB (and RUS) of the Borrower's election to refinance the outstanding principal amount of each of the advances of funds ("Advances") identified in this Part 1:

FFB ADVANCE IDENTIFIER2	RUS ACCOUNT NUMBER3	ORIGINAL ADVANCE DATE4		ORIGINAL ADVANCE AMOUNT5		OUTSTANDING PRINCIPAL AMOUNT6
			$		$
			$		$
			$		$

Part 2:

The Borrower intends to refinance the outstanding principal amount of each of the Advances identified in Part 1 on the following date (such date being the "Intended Refinancing Date"):

____________________________________7

2Complete 1 line in Part 1 for each Advance that the Borrower intends to refinance.  For each Advance, insert the FFB Advance Identifier for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

3For each Advance, insert the RUS Account Number for the respective Advance as specified in the most recent billing notice delivered by RUS to the Borrower.

 

4For each Advance, insert the date on which FFB made the respective Advance to the Borrower.

 

5For each Advance, insert the original principal amount of the respective Advance that FFB made to the Borrower.

 

6For each Advance, insert the outstanding principal amount of the respective Advance as of the day before the intended refinancing.

 

7Insert the particular calendar date that the Borrower selects to be the date on which the Borrower intends to refinance the Advances specified in Part 1, which date must meet the criteria for Intended Refinancing Date prescribed in paragraph 17(b)(1) of the Bond.

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 2

RUS

Part 3:

Notice is hereby given to FFB (and RUS) of the Borrower's election that each of the Advances identified in Part 1 is to be refinanced as follows:

FFB ADVANCE IDENTIFIER8		AMOUNT OF PRINCIPAL TO BE REFINANCED9	NEW MATURITY DATE10	TYPE OF PREPAYMENT/ REFINANCING PRIVILEGE11	5-YEAR NO-CALL PERIOD12	PREMIUM OPTION13
	$
	$
	$
	$

 

8Complete 1 line in Part 3 for each Advance identified in Part 1 as being an Advance the Borrower elects to refinance.  Insert the FFB Advance Identifier that FFB assigned to the respective Advance.

 

9For each Advance, insert the amount of principal that is to be refinanced.  This will be the same amount as the outstanding principal amount of the respective Advance inserted in Part 1.

 

10For each Advance, insert the particular calendar date that the Borrower selects to be the new Maturity Date" to be in effect for the respective Advance after the refinancing, which new Maturity Date must meet all the criteria for Maturity Dates specified in section 7.3.1(a)(5) of the Bond Purchase Agreement referred to in the Bond.

 

11Elect 1 of the following 2 types of prepayment/refinancing privilege for an Advance only if the new Maturity Date selected for such Advance will occur on or after the fifth anniversary of the effective date of this Maturity Extension.  The 2 types of prepayment/refinancing privilege are: the market value premium (or discount) privilege ("M") and a fixed premium privilege ("F").  Insert in the box the letter-symbol for the particular type of prepayment/refinancing privilege elected.

 

12Elect 1 of the following 2 no-call period options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance.  The 2 no-call period options are: yes ("Y"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege include a 5-year period during which the Advance will not be eligible for prepayment or refinancing, and no ("N"), if the Borrower elects to have the fixed premium prepayment/refinancing privilege not include any such a 5-year no-call period.  Insert in the box the letter-symbol for the particular no-call period option elected.

 

13Select 1 of the following 3 premium options for an Advance only if a fixed premium privilege is elected as the prepayment/refinancing privilege for such Advance.  The 3 premium options are: a 10% premium declining over 10 years ("X"), a 5% premium declining over 5 years ("V"), and par (no premium) ("P").  Insert in the box the letter-symbol for the particular premium option selected.

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 3

RUS

The undersigned hereby certifies that the authority of the undersigned to execute and deliver this Refinancing Election Notice on behalf of the Borrower is valid and in full force and effect on the date hereof.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

(the "Borrower")

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

NOTICE OF RUS APPROVAL OF

REFINANCING ELECTION NOTICE

Notice is hereby given to FFB that the preceding Refinancing Election Notice made by the Borrower identified therein has been approved by RUS for purposes of the Bond identified therein.

ADMINISTRATOR of the

RURAL UTILITIES SERVICE,

acting through his or her

duly authorized designee

By:     _______________________

Name:   _______________________

Title:  _______________________

Date:   _______________________

REFINANCING ELECTION NOTICE (RUS APPROVAL REQ ' D) - page 4

EX-10.4

EXECUTION VERSION

AMENDMENT NO. 2

Dated as of October 28, 2013

to the

REVOLVING CREDIT AGREEMENT

Dated as of March 21, 2011

Among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS PARTY HERETO,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Initial Issuing Bank,

THE ROYAL BANK OF SCOTLAND PLC,

as Syndication Agent

and

THE BANK OF NOVA SCOTIA,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION

and

MIZUHO BANK, LTD.,

as Co-Documentation Agents

AMENDMENT NO. 2

AMENDMENT NO. 2 dated as of October 28, 2013 (this “Amendment”) to the Revolving Credit Agreement dated as of March 21, 2011, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, the BANKS party thereto from time to time, JPMORGAN CHASE BANK, N.A., as Administrative Agent and as Initial Issuing Bank, THE ROYAL BANK OF SCOTLAND PLC, as Syndication Agent, and THE BANK OF NOVA SCOTIA, THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., KEYBANK NATIONAL ASSOCIATION and MIZUHO BANK, LTD., as Co-Documentation Agents (as amended by Amendment No. 1 dated as of March 28, 2013, the “Existing Credit Agreement” and, as amended by this Amendment, the “Extended Credit Agreement”).

W I T N E S S E T H :

WHEREAS, the Borrower has requested that certain Banks party to the Existing Credit Agreement, immediately prior to the effectiveness of this Amendment, (each such Bank, an “Existing Bank”) enter into this Amendment pursuant to which (i) the Existing Banks agree to extend the termination date of their Commitments to October 28, 2016 (the “Extended Commitment Termination Date”) and (ii) certain other provisions of the Existing Credit Agreement will be amended;

WHEREAS, each financial institution identified on Schedule 1 hereto as an “Extending Bank” (each, an “Extending Bank”) has agreed, on the terms and conditions set forth herein, to provide Commitments terminating on the Extended Commitment Termination Date in the amounts set forth on Schedule 1 hereto opposite such Extending Bank’s name under the heading “Commitment” (the “Extended Commitments”); and

WHEREAS, on the Second Amendment Effective Date (as defined in Section 7 below), the existing Commitment of each Extending Bank will be converted into an Extended Commitment;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.Defined Terms; References.  Unless otherwise specifically defined herein, each term used herein that is defined in the Existing Credit Agreement or in the Extended Credit Agreement, as the context shall require, has the meaning assigned to such term in the Existing Credit Agreement or in the Extended Credit Agreement, as applicable.  Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Amendment” and each other similar reference contained in the Existing Credit

Agreement shall, on and after the Second Amendment Effective Date, refer to the Extended Credit Agreement.

Section 2.Amended Terms and Second Amendment Effective Date Transactions.

(a)Each of the parties hereto agrees that, effective on the Second Amendment Effective Date, the Existing Credit Agreement shall be amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text) and to add the double-underlined text (indicated textually in the same manner as the following example:  double-underlined text) as set forth in the amended pages of the Existing Credit Agreement attached hereto as Exhibit A and the Banks party hereto authorize the Administrative Agent and the Borrower to prepare a conformed copy of the Extended Credit Agreement that includes the changes contained in, and consistent with, the amended pages attached as Exhibit A.

(b)On the Second Amendment Effective Date, the Commitment of each Existing Bank that is an Extending Bank will be converted into an Extended Commitment under the Extended Credit Agreement, so that the aggregate Commitment of such Extending Bank under the Extended Credit Agreement shall equal such Extending Bank’s Extended Commitments.

Section 3.Representations of Borrower.  The Borrower represents and warrants, as of the date hereof, that:

(a)the Borrower has the corporate power and authority to execute, deliver and perform its obligations under this Amendment and under the Extended Credit Agreement, and has taken all necessary corporate action to authorize the execution, delivery and performance by it of this Amendment and the Extended Credit Agreement.  The Borrower has duly executed and delivered this Amendment, and this Amendment and the Extended Credit Agreement constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except as enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (regardless of whether enforcement is sought by proceeding in equity or at law);

(b)no material authorization, consent, approval or license of, or declaration, filing or registration with or exemption by, any Governmental Authority, body or agency is required in connection with the execution, delivery and performance by the Borrower of this Amendment. The Banks acknowledge that the Borrower may file this Amendment with the Securities and Exchange Commission after the Second Amendment Effective Date;

(c)the execution, delivery and performance by the Borrower of this Amendment and the Extended Credit Agreement, the borrowings contemplated hereunder and the use of the proceeds thereof will not (i) contravene any material provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or Governmental Authority to which the Borrower is subject, (ii) require any consent under, or violate or result in any breach of any of the material terms, covenants, conditions or provisions of, or constitute a material default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under, or result in the creation or imposition of (or the obligation to

2

create or impose) any Lien upon any of the property or assets of the Borrower pursuant to the terms of the Extended Credit Agreement or any material indenture, mortgage, deed of trust, agreement or instrument, in each case to which the Borrower is a party or by which it or any its property or assets is bound or to which it may be subject, or (iii) violate any provision of the articles of incorporation or by-laws, as applicable, of the Borrower.

Section 4.GOVERNING LAW.  (a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(b)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW, THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AMENDMENT SHALL AFFECT ANY RIGHT THAT ANY PARTY HERETO OR ANY BANK MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AMENDMENT AGAINST ANY OTHER PARTY HERETO OR ANY BANK OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)EACH PARTY TO THIS AMENDMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01 OF THE EXTENDED CREDIT AGREEMENT.  NOTHING IN THIS AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AMENDMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

3

Section 5.WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 6.Counterparts.  This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

Section 7.Effectiveness. This Amendment shall become effective on the date (the “Second Amendment Effective Date”) on which the Administrative Agent shall have received the following documents or other items, each dated the Second Amendment Effective Date unless otherwise indicated:

(a)receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party), including receipt of consent from (i) each Extending Bank and (ii) the Required Banks under the Existing Credit Agreement;

(b)receipt by the Administrative Agent of an opinion of the General Counsel of the Borrower, substantially in the form of Exhibit F to the Existing Credit Agreement, provided that an enforceability opinion under New York law, that is reasonably acceptable to the Administrative Agent, shall be furnished by the Borrower’s New York counsel, Fulbright & Jaworski LLP, subject to customary assumptions, qualifications and limitations;

(c)receipt by the Administrative Agent of a certificate signed by any one of the Chief Financial Officer, the Chief Executive Officer, the Treasurer, an Assistant Secretary-Treasurer, the Controller or the Vice President, Capital Markets Funding of the Borrower to the effect that the conditions set forth in clauses (c) through (g), inclusive, of Section 3.03 of the Extended Credit Agreement have been satisfied as of the Second Amendment Effective Date and, in the case of clauses (c), (e) and (g), setting forth in reasonable detail the calculations required to establish such compliance;

(d)receipt by the Administrative Agent of a certificate of an officer of the Borrower acceptable to the Administrative Agent stating that all consents, authorizations, notices and filings required or advisable in connection with this Amendment are in full force and effect, and the Administrative Agent shall have received evidence thereof reasonably satisfactory to it;

(e)receipt by the Administrative Agent and the Syndication Agent (or their respective permitted assigns) and by each Bank Party of all fees required to be paid in the respective amounts heretofore mutually agreed in writing, and all expenses required to be reimbursed pursuant to the terms of the Existing Credit Agreement and for which invoices have been presented, at least one (1) business day prior to the Second Amendment Effective Date;

(f)receipt by the Administrative Agent and the Banks of all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-

4

money laundering rules and regulations, including, without limitation, the USA PATRIOT Act (Title III of Pub. L. 107-56; and

(g)receipt by the Administrative Agent of all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Amendment all in form and substance reasonably satisfactory to the Administrative Agent.

The Administrative Agent shall promptly notify the Borrower and the Bank Parties of the Second Amendment Effective Date, and such notice shall be conclusive and binding on all parties hereto.

5

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

 

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
By:	/s/ J. ANDREW DON
	Name: Title:	J. Andrew Don Senior Vice President and Chief Financial Officer

 

Signature Page to Amendment No. 2 - 2015

JPMORGAN CHASE BANK, N.A., as Administrative Agent and as Initial Issuing Bank
By:	/s/ JUAN JAVELLANA
	Name: Title:	Juan Javellana Executive Director

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

JPMORGAN CHASE BANK, N.A.
By:	/s/ JUAN JAVELLANA
	Name: Title:	Juan Javellana Executive Director

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

THE ROYAL BANK OF SCOTLAND PLC
By:	/s/ EMILY FREEDMAN
	Name: Title:	Emily Freedman Vice President

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

The Bank of Nova Scotia
By:	/s/ THANE RATTEW
	Name: Title:	Thane Rattew Managing Director

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

THE BANK OF TOKYO-MITSUBUSHI UFJ, LTD.
By:	/s/ ROBERT J. MACFARLANE
	Name: Title:	Robert J. MacFarlane Vice President

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

KEYBANK NATIONAL ASSOCIATION
By:	/s/ SHERRIE I. MANSON
	Name: Title:	Sherrie I. Manson Senior Vice President

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Royal Bank of Canada
By:	/s/ RAHUL SHAH
	Name: Title:	Rahul Shah Authorized Signatory

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Mizuho Bank, Ltd.
By:	/s/ RAYMOND VENTURA
	Name: Title:	Raymond Ventura Deputy General Manager

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

U.S. Bank National Association
By:	/s/ ERIC J. COSGROVE
	Name: Title:	Eric J. Cosgrove Vice President

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

SunTrust Bank
By:	/s/ ANDREW JOHNSON
	Name: Title:	Andrew Johnson Director

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

PNC Bank, N.A.
By:	/s/ D. JERMAINE JOHNSON
	Name: Title:	D. Jermaine Johnson Senior Vice President

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Bank of Communications Co., Ltd., New York Branch
By:	/s/ SHELLY HE
	Name: Title:	Shelly He Deputy General Manager

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

The Korea Development Bank, New York Branch
By:	/s/ JAE IK KIM
	Name: Title:	Jae Ik Kim General Manager

Signature Page to Amendment No. 2 - 2015

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF MARCH 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

APPLE BANK FOR SAVINGS
By:	/s/ JONATHAN BYRON
	Name: Title:	Jonathan Byron Senior Vice President

Signature Page to Amendment No. 2 - 2015

SCHEDULE 1

EXTENDED COMMITMENTS

Extending Banks	Commitment
JPMorgan Chase Bank, N.A.	$121,000,000.00
The Royal Bank of Scotland PLC	$121,000,000.00
The Bank of Nova Scotia	$119,000,000.00
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$100,000,000.00
KeyBank National Association	$100,000,000.00
The Royal Bank of Canada	$50,000,000.00
Mizuho Bank, Ltd.	$100,000,000.00
U.S. Bank N.A.	$75,000,000.00
SunTrust Bank	$90,000,000.00
PNC Bank, National Association	$90,000,000.00
Bank of Communications Co., Ltd., New York Branch	$20,000,000.00
The Korea Development Bank, New York Branch	$10,000,000.00
Apple Bank for Savings	$10,000,000.00
Total:	$1,006,000,000.00

EXHIBIT 1

79580.000005 EMF_US 47487956v6

NOT A LEGAL DOCUMENT

COMPOSITE COPY

REFLECTING AMENDMENT NO. 1

DATED AS OF MARCH 28, 2013

AND AMENDMENT NO. 2

DATED AS OF OCTOBER 28, 2013

REVOLVING CREDIT AGREEMENT

dated as of

March 21, 2011

among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS LISTED HEREIN,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Initial Issuing Bank,

THE ROYAL BANK OF SCOTLAND PLC,

as Syndication Agent,

and

THE BANK OF NOVA SCOTIA,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION,

and

MIZUHO CORPORATE BANK, LTD.

as Co-Documentation Agents

J.P. MORGAN SECURITIES LLC,

RBS SECURITIES INC.,

and

79580.000005 EMF_US 47579863v13

TABLE OF CONTENTS

		Page
Article 1
Definitions
Section 1.01.	Definitions	1
Section 1.02.	Accounting Terms and Determinations	22
Section 1.03.	Types of Borrowings	22
Section 1.04.	Letter of Credit	22
Article 2
The Credits
Section 2.01.	Commitments to Lend and Issue Letters of Credit	2223
Section 2.02.	Notice of Committed Borrowings	25
Section 2.03.	Money Market Borrowings	2526
Section 2.04.	Notice to Banks; Funding of Loans	29
Section 2.05.	Notes	3031
Section 2.06.	Maturity of Loans	31
Section 2.07.	Interest Rates	31
Section 2.08.	Method of Electing Interest Rates	3334
Section 2.09.	Fees	35
Section 2.10.	Optional Termination or Reduction of Commitments	3637
Section 2.11.	Mandatory Termination of Commitments	37
Section 2.12.	Optional Prepayments	37
Section 2.13.	General Provisions as to Payments	37
Section 2.14.	Funding Losses	38
Section 2.15.	Computation of Interest and Fees	3839
Section 2.16.	Taxes	3839
Section 2.17.	Increase of Commitments	4243
Section 2.18.	Replacement of Banks	44
Section 2.19.	Defaulting Banks	4546
Section 2.20.	Issuance of Letters of Credit; Drawings and Reimbursements; Auto-Extension Letters of Credit; Funding of Participations.	48
Article 3
Conditions
Section 3.01.	Effectiveness	58
Section 3.02.	Prior Credit Agreement	59
Section 3.03.	Borrowings and L/C Credit Extensions	59

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Article 4
Representations and Warranties
Section 4.01.	Corporate Existence, Power and Authority	6061
Section 4.02.	Financial Statements	61
Section 4.03.	Litigation	62
Section 4.04.	Governmental Authorizations	6263
Section 4.05.	Members’ Subordinated Certificates	6263
Section 4.06.	No Violation of Agreements	63
Section 4.07.	No Event of Default under the Indentures	63
Section 4.08.	Compliance with ERISA	6364
Section 4.09.	Compliance with Other Laws	64
Section 4.10.	Tax Status	64
Section 4.11.	Investment Company Act	64
Section 4.12.	Disclosure	64
Section 4.13.	Subsidiaries	6465
Section 4.14.	Environmental Matters	6465
Article 5
Covenants
Section 5.01.	Corporate Existence	65
Section 5.02.	Disposition of Assets, Merger, Character of Business, etc	6566
Section 5.03.	Financial Information	66
Section 5.04.	Default Certificates	67
Section 5.05.	Notice of Litigation and Defaults	68
Section 5.06.	ERISA	68
Section 5.07.	Payment of Charges	6869
Section 5.08.	Inspection of Books and Assets	69
Section 5.09.	Indebtedness	69
Section 5.10.	Liens	70
Section 5.11.	Maintenance of Insurance	71
Section 5.12.	Subsidiaries and Joint Ventures	71
Section 5.13.	Minimum TIER	72
Section 5.14.	Retirement of Patronage Capital	72
Section 5.15.	Use of Proceeds	72
Article 6
Defaults
Section 6.01.	Events of Default	7273
Section 6.02.	Actions In Respect Of Letters Of Credit Upon Default	75
Section 6.03.	Notice of Default	7576

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Article 7
The Administrative Agent
Section 7.01.	Appointment and Authorization	7576
Section 7.02.	Administrative Agent and Affiliates	7576
Section 7.03.	Action by Administrative Agent	7576
Section 7.04.	Consultation with Experts	76
Section 7.05.	Liability of Administrative Agent	76
Section 7.06.	Indemnification	7677
Section 7.07.	Credit Decision	77
Section 7.08.	Successor Administrative Agent	7778
Section 7.09.	Co-Documentation Agents and Syndication Agent Not Liable	78
Article 8
Change in Circumstances
Section 8.01.	Basis for Determining Interest Rate Inadequate or Unfair	78
Section 8.02.	Illegality	7879
Section 8.03.	Increased Cost and Reduced Return	7980
Section 8.04.	Base Rate Loans Substituted for Affected Euro-Dollar Loans	8182
Article 9
Miscellaneous
Section 9.01.	Notices	82
Section 9.02.	No Waivers	8384
Section 9.03.	Expenses; Documentary Taxes; Indemnification	8384
Section 9.04.	Sharing of Set-offs	8485
Section 9.05.	Amendments and Waivers	8485
Section 9.06.	Successors and Assigns	86
Section 9.07.	Collateral	8889
Section 9.08.	Governing Law	8889
Section 9.09.	Counterparts; Integration	89
Section 9.10.	Several Obligations	89
Section 9.11.	Severability	8990
Section 9.12.	Confidentiality	8990
Section 9.13.	WAIVER OF JURY TRIAL	90
Section 9.14.	USA Patriot Act	90
Section 9.15.	ICC Transactions	9091

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REVOLVING CREDIT AGREEMENT

REVOLVING CREDIT AGREEMENT dated as of March 21, 2011, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, as Borrower, the BANKS listed on the signature pages hereof, JPMORGAN CHASE BANK, N.A., as Administrative Agent and as Initial Issuing Bank for the Letters of Credit issued or to be issued pursuant to this Agreement, THE ROYAL BANK OF SCOTLAND PLC, as Syndication Agent, and THE BANK OF NOVA SCOTIA, THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., KEYBANK NATIONAL ASSOCIATION and MIZUHO CORPORATE BANK, LTD., as Co-Documentation Agents.

The parties hereto agree as follows:

ARTICLE 1

Definitions

Section 1.01. Definitions. The following terms, as used herein, have the following meanings:

“1994 Indenture” means the Indenture dated as of February 15, 1994 and as amended as of September 16, 1994 between the Borrower and U.S. Bank National Association, as trustee, as amended and supplemented from time to time, providing for the issuance in series of certain collateral trust bonds of the Borrower.

“2007 Indenture” means the Indenture dated as of October 25, 2007 between the Borrower and U.S. Bank National Association, as trustee, as amended and supplemented from time to time, providing for the issuance in series of certain collateral trust bonds of the Borrower.

“2013 Amendment” means that certain Amendment No. 1 to this Agreement dated as of March 28, 2013, among the Borrower and the Banks party thereto.

“2013 Fee Letter” means that certain Fee Letter dated February 21, 2013 among the Borrower, the Administrative Agent and the Syndication Agent.

“2014 Bank” means at any time, any Bank that has a 2014 Commitment or 2014 Credit Exposure at such time.

“2014 Commitment Termination Date” means March 21, 2014 or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

79580.000005 EMF_US 47579863v13

“2014 Commitment” means (i) with respect to each 2014 Bank, the amount set forth opposite the name of such Bank on the Commitment Schedule hereto and (ii) with respect to any Assignee that becomes a Bank pursuant to Section 9.06(c) with respect to a 2014 Commitment, the amount of the transferor 2014 Bank’s Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may from time to time be reduced pursuant to Sections 2.10 and 2.11; provided that, if the context so requires, the term “Commitment” means the obligation of a 2014 Bank to make loans pursuant to Section 2.01(a) and purchase participations in L/C Obligations up to, in the aggregate, such amount to the Borrower hereunder.

“2014 Conversion” has the meaning set forth in Section 2.21.

“2014 Conversion Offer” has the meaning set forth in Section 2.21.

“2014 Credit Exposure” means with respect to any 2014 Bank at any time, (i) the aggregate principal amount of the 2014 Loans outstanding and (ii) the Outstanding Amount of all L/C Obligations (with the aggregate amount of each 2014 Bank’s participation in L/C Obligations deemed “held” by such 2014 Bank for purposes of this definition).

“2014 Facility” means at any time, the aggregate amount of the 2014 Commitments at such time and the 2014 Credit Exposure in respect thereof.

“2014 Loan” means a Loan made by a 2014 Bank.

“20152016Bank” means at any time, any Bank that has a 20152016Commitment or 20152016Credit Exposure at such time, including any Bank that consummates a 2014 Conversion.

“20152016Commitment Termination Date” means October 2128, 20152016or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“20152016Commitment” means (i) with respect to each 2015 Bank, the amount, if any,set forth opposite the name of such Bank on the Commitment Schedule hereto under the caption “2016 Commitment”, (ii) with respect to any Assignee that becomes a Bank pursuant to Section 9.06(c), the amount of the transferor 2015 Bank’s Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may from time to time be reduced pursuant to Sections 2.10 and 2.11 and (iii) with respect to any 2014 Bank that consummates a 2014 Conversion, its 2014 Commitment; provided that, if the context so requires, the term “Commitment” means the obligation of a 2015 Bank to make loans pursuant to Section 2.01(a) and purchase participations in L/C Obligations up to, in the aggregate, such amount to the Borrower hereunder.

79580.000005 EMF_US 47579863v13

2

“20152016Credit Exposure” means with respect to any 2015 Bank (including, for the avoidance of doubt, any 2014 Bank that consummates a 2014 Conversion) at any time, (i) the aggregate principal amount of the 20152016 Loans outstanding and (ii) the Outstanding Amount of all L/C Obligations (with the aggregate amount of each 2015suchBank’s participation in L/C Obligations deemed “held” by such 2015 Bank for purposes of this definition).

“20152016Facility” means at any time, the aggregate amount of 20152016Commitment at such time and the 20152016Credit Exposure in respect thereof.

“20152016Loan” means a Loan made by a 20152016Bank.

“Absolute Rate Auction” means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.

“Adjusted London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.

“Administrative Questionnaire” means, with respect to each Bank, the administrative questionnaire in the form submitted to such Bank by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank.

“Agreement” means this Revolving Credit Agreement, as the same may be amended from time to time.

“Amendment Effective Date” means the “Amendment Effective Date” as such term is defined in the 2013 Amendment.

“Applicable Law” means, with respect to any Person, any and all laws, statutes, regulations, rules, orders, injunctions, decrees, judgments, writs determinations or awards having the force or effect of binding such Person at law and issued by any Governmental Authority, applicable to such Person, including all Environmental Laws.

“Applicable Lending Office” means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office.

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“ASC 815” means Accounting Standards Codification No. 815 Derivatives and Hedging, as amended from time to time (or any successor provision thereto).

“ASC 830” means Accounting Standards Codification No. 830 Foreign Currency Matters, as amended from time to time (or any successor provision thereto).

“Assignee” has the meaning set forth in Section 9.06(c).

“Auto-Extension Letter of Credit” has the meaning specified in Section 2.20(a)(iii).

“Back-Up Letter of Credit” has the meaning set forth in Section 2.01(b).

“Bank” means any 2014 Bank or any 20152016Bank.

“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, provided, further, that such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

“Bank Parties” mean the Banks and the Issuing Banks.

“Base Rate” means, for any day, a rate per annum equal to the highest of (i) the Prime Rate for such day, (ii) the Federal Funds Rate for such day plus 0.50% and (iii) the Adjusted London Interbank Offered Rate for a one month Interest Period on such day (or if such day is not a Euro-Dollar Domestic Business Day, the immediately preceding Euro-Dollar Business Day) plus 1.00%.

“Base Rate Loan” means a Committed Loan that bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the last sentence of Section 2.08(a) or Article 8.

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“Base Rate Margin” has the meaning set forth in the Pricing Schedule hereto in respect of the 2014 Facility or the 20152016Facility as applicable.

“Bonds” means any bonds issued pursuant to any of the Indentures, as the context may require.

“Borrower” means the National Rural Utilities Cooperative Finance Corporation, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, and its successors.

“Borrowing” has the meaning set forth in Section 1.03.

“Cash Collateral Account” means a deposit account or a non-interest bearing securities account (as contemplated by Section 2.20(e)) opened, or to be opened, by the Administrative Agent and in which a Lien has been granted to the Administrative Agent for the benefit of each Bank and each Issuing Bank pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and each Issuing Bank (which documents are hereby consented to by the Banks) to the extent that any Letter of Credit is required to be Cash Collateralized in accordance with this Agreement.

“Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of each Issuing Bank and each Bank, as collateral for the L/C Obligations, cash or deposit account balances, and “Cash Collateral” shall refer to such cash or deposit account balances.

“Central Banking Authority” means any central bank, reserve bank or monetary authority that is principally engaged in the regulation of the currency, money supply or commercial banking system of any given sovereign state or states.

“Change in Law” means (a) the adoption of any law, rule, regulation or treaty after the date of this Agreement, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Bank Party (or, for purposes of Section 8.03(b), by its Applicable Lending Office or by such Bank Party’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided however, that notwithstanding anything therein to the contrary, (i) any requirements imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, guidelines or directives thereunder or enacted, adopted or issued in connection therewith and (ii) any requests, rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority) or the United States financial regulatory authorities, in each case pursuant to Basel

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III, shall be deemed to be a “Change in Law”, regardless of the date adopted, issued, promulgated or implemented, but only if any such requirements are generally applicable to (and for which reimbursement is generally being sought by the Banks in respect of) credit transactions similar to this transaction from borrowers similarly situated to the Borrower.

“Class” means (a) when used with respect to Banks, refers to whether such Banks are 2014 Banks or 20152016 Banks, (b) when used with respect to Commitments, refers to whether such Commitments are 2014 Commitments or 20152016 Commitments and (c) when used with respect to Loans or a borrowing, refers to whether such Loans, or the Loans comprising such borrowing, are 2014 Loans or 20152016 Loans.

“Code” means the Internal Revenue Code of 1986, as amended.

“Co-Documentation Agents” means The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd. in their respective capacity as documentation agent hereunder, and their respective successors in such capacity.

“Co-Lead Arrangers” means J.P. Morgan Securities LLC, RBS Securities Inc. and The Bank of Nova Scotia.

“Commitment” means (i) with respect to each 2014 Bank, such Bank’s 2014 Commitment and (ii) with respect to each 20152016 Bank, such Bank’s 20152016Commitment.

“Commitment Termination Date” means (i) with respect to 2014 Loans or 2014 Commitments, the 2014 Commitment Termination Date and (ii) with respect to 20152016Loans or 20152016Commitments, the 20152016 Commitment Termination Date.

“Committed Borrowing” means a Borrowing under Section 2.01(a).

“Committed Loan” means a Revolving Loan; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Committed Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Consolidated Entity” means at any date any Subsidiary, and any other entity the accounts of which would be combined or consolidated with those of the Borrower in its combined or consolidated financial statements if such statements were prepared as of such date.

“Credit Documentation” has the meaning set forth in Section 9.15.

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“Credit Exposure” means (i) with respect to each 2014 Bank, such Bank’s 2014 Credit Exposure and (ii) with respect to each 20152016Bank, such Bank’s 20152016Credit Exposure.

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both (as specified in Section 6.01) would, unless cured or waived, become an Event of Default.

“Defaulting Bank” means any Bank that (a) has failed, within two Domestic Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or (iii) pay over to the Administrative Agent or any Bank Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Bank notifies the Administrative Agent and the Borrower, in writing that such failure is the result of such Bank’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower, the Administrative Agent or any Bank Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Bank’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Domestic Business Days after request by the Administrative Agent (the Administrative Agent hereby agreeing to make any such written request upon a request from the Borrower) or any Bank Party, acting in good faith, to provide a certification in writing from an authorized officer of such Bank (with a copy of such certification to be provided to the Borrower) that it will comply with its obligations to fund prospective Loans and participations in then outstanding Letters of Credit under this Agreement, provided that such Bank shall cease to be a Defaulting Bank pursuant to this clause (c) upon such Bank Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has, or has a Parent, that has become the subject of a Bankruptcy Event.

“Derivative Cash Settlements” means, for any period, the line item “derivative cash settlements” as it appears on the statement of operations of the Borrower and its Consolidated Entities for such period delivered to the Banks pursuant to Section 5.03(b), calculated in accordance with generally accepted accounting principles as in effect from time to time.

“Derivatives Obligations” of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction,

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“Euro-Dollar Lending Office” means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent.

“Euro-Dollar Loan” means a Committed Loan that bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election.

“Euro-Dollar Margin” means a rate per annum determined in accordance with the Pricing Schedule in respect of the 2014 Facility or the 20152016Facility, as applicable.

“Euro-Dollar Rate” means, for any day, a rate per annum determined in accordance with Section 2.07(b).

“Euro-Dollar Reference Banks” means the principal London offices of JPMorgan Chase Bank, N.A., The Royal Bank of Scotland PLC and The Bank of Nova Scotia.

“Euro-Dollar Reserve Percentage” has the meaning set forth in Section 2.07(b).

“Event of Default” has the meaning set forth in Section 6.01.

“Excluded Taxes” means, with respect to any payment made by the Borrower under this Agreement or the Notes, any of the following Taxes imposed on or with respect to a Recipient:

(a) income or franchise Taxes imposed on (or measured by) net income by the United States of America, or by the jurisdiction under the laws of which such Recipient is organized or in which its principal office is located or, in the case of any Bank Party, in which its applicable lending office is located, (b) any branch profits Taxes imposed by the United States of America or any similar Taxes imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Non U.S. Bank Party (other than an assignee pursuant to a request by the Borrower under Section 2.19(b)), any U.S. Federal withholding Taxes resulting from any law in effect (including FATCA) on the date such Non U.S. Bank Party becomes a party to this Agreement (or designates a new lending office) or is attributable to such Non U.S. Bank Party’s failure to comply with Section 2.16(f), except to the extent that such Non U.S. Bank Party (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding Taxes pursuant to Section 2.17(a).

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“Facility Fee Rate” means a rate per annum determined in accordance with the Pricing Schedule in respect of the 2014 Facility or the 20152016 Facility, as applicable.

“Existing Credit Agreement” has the meaning assigned to such term in the Second2013 Amendment.

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement and any regulations or official interpretations thereof.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to JPMorgan Chase Bank, N.A. on such day on such transactions as determined by the Administrative Agent.

“Fixed Rate Borrowing” means either a Euro-Dollar Borrowing or a Money Market LIBOR Borrowing.

“Fixed Rate Loans” means Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01) or any combination of the foregoing.

“Foreclosed Asset” has the meaning set forth in Section 5.12.

“Fronting Fee” has the meaning specified in Section 2.09(d).

“Governmental Authority” means any national, state, county, city, town, village, municipal or other government department, commission, board, bureau, agency, authority or instrumentality of a country or any political subdivision thereof, exercising executive, legislative, judicial, regulatory or administrative powers or functions of or pertaining to government.

“Group of Loans” means, at any time, a group of Loans consisting of (i) all Committed Loans which are Base Rate Loans at such time or (ii) all Euro-Dollar Loans having the same Interest Period at such time; provided that if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group

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“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Borrowing.

“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof, the extension of the expiry date thereof or the increase of the amount thereof.

“L/C Obligations” means, as at any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit to be issued hereunder by any Issuing Bank in the form from time to time in use by such Issuing Bank.

“Letter of Credit Expiration Date” means the day that is five Domestic Business Days prior to the 2014 Commitment Termination Date provided that a face value amount of Letters of Credit not in excess of the Letter of Credit Sublimit (or if less than the Letter of Credit Sublimit, the 20152016 Commitments at such time) may remain outstanding so long as such Letters of Credit expire no later than five Domestic Business Days prior to the 20152016Commitment Termination Date.

“Letter of Credit Fee” has the meaning specified in Section 2.09(c). For the avoidance of doubt, the Letter of Credit Fee (i) for 2014 Banks shall be determined with reference to the Euro-Dollar Margin for the 2014 Facility, as specified in the Pricing Schedule and (ii) for the 20152016Banks shall be determined with reference to the Euro-Dollar Margin for the 20152016Facility as specified in the Pricing Schedule.

“Letter of Credit Sublimit” means $100,000,000. The Letter of Credit Sublimit is part of , and not in addition to, the aggregate Commitments.

“Letters of Credit” means letters of credit issued by any Issuing Bank pursuant to Section 2.01(b).

“LIBOR Auction” means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be

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deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Lien Exception Amount” means $7,500,000,000 plus an amount equal to the incremental increase in the allocated amount of REDLG Obligations from the Amendment Effective Date; provided that the Lien Exception Amount shall at no time exceed $10,000,000,000.

“Loan” means a Base Rate Loan or a Euro-Dollar Loan or a Money Market Loan in each case, made by any Bank pursuant to the terms of the 2014 Facility, or the 20152016Facility, as applicable and “Loans” means Base Rate Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing under the 2014 Facility or the 20152016Facility, as applicable.

“London Interbank Offered Rate” has the meaning set forth in Section 2.07(b).

“Maturity Date” means (i) with respect to any Revolving Loan, the Commitment Termination Date and (ii) with respect to any Money Market Loan, the last day of the Interest Period applicable thereto.

“Member” means any Person which is a member or a patron of the Borrower.

“Members’ Subordinated Certificate” means a note of the Borrower or its Consolidated Entities substantially in the form of the membership subordinated subscription certificates and the loan and guarantee subordinated certificates outstanding on the date of the execution and delivery of this Agreement and any other Indebtedness of the Borrower or its Consolidated Entities having substantially similar provisions as to subordination as those contained in said outstanding membership subordinated subscription certificates and loan and guarantee subordinated certificates.

“Money Market Absolute Rate” has the meaning set forth in Section 2.03(d).

“Money Market Absolute Rate Loan” means a loan to be made by a Bank pursuant to an Absolute Rate Auction.

“Money Market Lending Office” means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may from time to time by notice to the Borrower and the Administrative Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of

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Termination Date, except pursuant to acceleration or at the option of the Borrower.

“Recipient” means, as applicable, (a) the Administrative Agent, (b) any Bank and (c) the Issuing Bank.

“REDLG Program Liens” means Liens on any asset of the Borrower required to be pledged as collateral to support obligations of the Borrower with respect to any government Guarantee provided pursuant to regulations issued under the Rural Electrification Act of 1936, 7 U.S.C. 901 et. seq., and the Food, Conservation and Energy Act of 2008, Pub. L. 110-234 Stat. 923 (“REDLG Obligations”) so long as such Guarantee supports long-term Indebtedness issued by the Borrower and permitted by Section 5.09.

“REDLG Obligations” has the meaning set forth in the definition of REDLG Program Liens.

“Regulation U” means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Regulation X” means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Reportable Event” means an event described in Section 4043(c) of ERISA or regulations promulgated by the Department of Labor thereunder (with respect to which the 30 day notice requirement has not been waived by the PBGC).

“Required Banks” means at any time Banks having at least 51% of the sum of (i) the aggregate amount of the unused Commitments, (ii) the aggregate principal outstanding amount of the Loans and (iii) the Outstanding Amount of all L/C Obligations (with the aggregate amount of each Bank’s participation in L/C Obligations deemed “held” by such Bank for purposes of this definition).

“Responsible Officer” means (i) with respect to the Borrower, the Chief Financial Officer, the Chief Executive Officer, the Treasurer, an Assistant Secretary-Treasurer, the Controller, the Vice President, Capital Markets Funding or, in each case, an authorized signatory of such Person and (ii) with respect to any other Person, the president, any vice-president, the chief financial officer,

any assistant-treasurer or, in each case, an authorized signatory of such Person.

“Revolving Credit Period” means the period from and including the Effective Date to but excluding (x) in the case of any 2014 Commitments, the 2014 Commitment Termination Date and (y) in the case of any 20152016 Commitments, the 20152016Commitment Termination Date.

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“Revolving Loan” means a loan made by a Bank pursuant to Section 2.01(a).

“RUS” means the Rural Utilities Service of the Department of Agriculture of the United States of America (as successor to the Rural Electrification Administration of the Department of Agriculture of the United States of America) or any other regulatory body which succeeds to its functions.

“RUS Guaranteed Loan” means any loan made by any Person, which loan is guaranteed, in whole or in part, as to principal and interest by the United States of America through the RUS pursuant to a guarantee, which guarantee contains provisions no less favorable to the holder thereof than the provisions set forth in the form of Exhibit B-1 or Exhibit B-2 hereto; and “Guaranteed Portion” of any RUS Guaranteed Loan means that portion of principal of, and interest on, such RUS Guaranteed Loan which is guaranteed by the United States of America through the RUS.

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Second 2013 Amendment” means that certain Amendment No. 2 to this Agreement dated as of October 28, 2013, among the Borrower and the Banks party thereto.

“Second 2013 Fee Letter” means that certain Fee Letter dated October 9, 2013 among the Borrower, the Administrative Agent and the Syndication Agent.

“Second Amendment Effective Date” means the “Second Amendment Effective Date” as such term is defined in the Second 2013 Amendment.

“Securities and Exchange Commission” means the Securities and Exchange Commission or any other U.S. federal governmental authority succeeding to any or all of the functions of the Securities and Exchange Commission.

“Special Purpose Subsidiary” has the meaning set forth in Section 5.12.

“Standby Letter of Credit” means any Letter of Credit issued under this Agreement, other than (i) a Trade Letter of Credit, (ii) a Performance Letter of Credit or (iii) a Backup Letter of Credit in support of either a performance letter of credit or a trade letter of credit issued by the Borrower.

“Start-up Investments” has the meaning set forth in Section 5.12.

“Subsidiary” of any Person means (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting

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to the Borrower pursuant to this Section from time to time in amounts such that the sum of (x) the aggregate principal amount of Revolving Loans by such Bank at any one time outstanding plus (y) such Bank’s Pro Rata Share of the Outstanding Amount of all L/C Obligations shall not exceed the amount of its Commitment. Each Borrowing shall be in an aggregate principal amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the maximum aggregate amount available in accordance with Section 3.03(d)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.12, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section. All Loans will be made by all Banks (pro rata between the 2014 Banks and 20152016Banks) in accordance with their Pro Rata Share until the 2014 Commitment Termination Date; thereafter, all Loans will be made by the 20152016Banks in accordance with their Pro Rata Share until the 20152016Revolving Commitment Termination Date.

(b) Letters of Credit. Subject to the terms and conditions set forth herein, (i) each Issuing Bank agrees, in reliance upon the agreements of the other Banks set forth in Section 2.20, (A) from time to time on any Domestic Business Day during the period from the Effective Date until the Letter of Credit Expiration Date, to make L/C Credit Extensions either (i) for the account of the Borrower, its Consolidated Entities, its Members or members of its Consolidated Entities or (ii) in support of a letter of credit issued by the Borrower as a back-up confirmation or backup credit support of such letter of credit ("Back-Up Letter of Credit"), and to amend or extend Letters of Credit previously issued by it, in accordance with Section 2.20(a)(i) and (ii), and (B) to honor drawings under the Letters of Credit issued by it; and (C) the Banks severally agree to participate in Letters of Credit issued for the account of the Borrower, its Consolidated Entities, its Members or members of its Consolidated Entities and any L/C Borrowings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (1) the sum of (x) the aggregate principal amount of Revolving Loans of any Bank, plus (y) such Bank’s Pro Rata Share of the Outstanding Amount of all L/C Obligations shall not exceed such Bank’s Commitment and (2) the Outstanding Amount of all L/C Obligations shall not exceed the Letter of Credit Sublimit. Each request by the Borrower for the issuance of, or an amendment to increase the amount of, any Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the condition set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(c) Letters of Credit Generally. (i) No Issuing Bank shall issue any Letter of Credit if the expiry date of such requested Letter of Credit would

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Section 2.05. Notes. (a) Any Bank Party may request that the Loans and/or L/C Borrowings of such Bank be evidenced by a single Note payable to the order of such Bank Party for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank Party’s Loans and/or L/C Borrowings.

(b) Each Bank Party that has requested that its Loans and/or L/C Borrowings be evidenced by a Note may, by notice to the Borrower and the Administrative Agent, request that its Loans and/or L/C Borrowings of a particular Type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans and/or L/C Borrowings. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans and/or L/C Borrowings of the relevant Type. Each reference in this Agreement to the “Note” of such Bank Party shall be deemed to refer to and include any or all of such Notes, as the context may require.

(c) Upon receipt of each Bank Party’s Note pursuant to Section 3.01(b), the Administrative Agent shall forward such Note to such Bank Party. Each Bank Party shall record the date, amount, type and maturity of each Loan and/or L/C Borrowings made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank Party so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan and/or L/C Borrowings then outstanding; provided that the failure of any Bank Party to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank Party is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required.

(d) Any note evidencing a Loan (as such term is defined in the Existing Credit Agreement) prior to the Amendment Effective Date may be exchanged upon the request of the relevant Bank made through the Administrative Agent and surrender of such note to the Company through the Administrative Agent, for a Note evidencing the 2014 Loans and the 20152016Loans into which such Bank’s Loans were converted or redesignated on the SecondAmendment Effective Date.

Section 2.06. Maturity of Loans. Each Loan hereunder shall mature, and the principal amount thereof shall be due and payable on the Maturity Date with respect to such Loan.

Section 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate plus the applicable Base Rate Margin for such day. Such interest shall be

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(iii) if the Loans comprising such Group are to be converted to Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and

(iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period.

Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period.

(c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to Section 2.08(a), the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower.

(d) The Borrower shall not be entitled to elect to convert any Committed Loans to, or continue any Committed Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate principal amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $10,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent.

(e) If any Committed Loan is converted to a different Type of Loan, the Borrower shall pay, on the date of such conversion, the interest accrued to such date on the principal amount being converted.

Section 2.09. Fees. (a) Facility Fee. Subject to Section 2.19(a)(i), the Borrower shall pay to the Administrative Agent for the account of each Bank facility fees accruing at the Facility Fee Rate under the 2014 Facility or the 20152016Facility, as applicable to such Bank, on the daily average amount of such Bank’s Commitment (whether used or unused), for the period from and including the Effective Date to but excluding the date such Bank’s Commitment is terminated; provided that, if such Bank continues to have any Committed Loans outstanding after its Commitment terminates, then such facility fee shall continue to accrue on the daily outstanding principal amount of such Bank’s Committed Loans from and including the date on which its Commitment terminates to but excluding the date on which such Bank ceases to have any Committed Loans outstanding. Accrued facility fees shall be payable on each January 1, April 1, July 1, and October 1 and on the date the Commitment of such Bank is terminated (and, if later, on the date the Loans of such Bank shall be repaid in their entirety); provided that any facility fees accruing after the first anniversary of the Commitment Termination Date shall be payable on demand.

(b) Agents’ Fees. The Borrower shall pay to the Administrative Agent and the Syndication Agent, each for its own account, one or more fees in such

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such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. In addition, the Borrower shall, with respect to all Letters of Credit issued at its request, pay directly to each Issuing Bank for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuing Bank relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(e) Amendment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each 20152016 Bank on the SecondAmendment Effective Date the upfront fees required to be paid on such date, as set forth in the Second2013 Fee Letter.

Section 2.10. Optional Termination or Reduction of Commitments. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent (which notice the Administrative Agent will promptly deliver to the Banks), (i) terminate both Classes of Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of any Class of Commitments in excess of the aggregate outstanding principal amount of the Loans; provided that the Borrower shall not reduce the Commitments of any Class under this paragraph unless it shall simultaneously and ratably reduce the corresponding Commitments of each other Class.

Section 2.11. Mandatory Termination of Commitments. The Commitments shall terminate on the Commitment Termination Date.

Section 2.12. Optional Prepayments. (a) Subject in the case of Euro- Dollar Loans to Section 2.14, the Borrower may (i) on any Domestic Business Day, upon notice to the Administrative Agent, prepay any Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) or (ii) upon at least three Euro-Dollar Business Days’ notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment; provided that prior to the Maturity Date with respect to 2014 Loans, all optional prepayments of Loans made pursuant to this paragraph shall be applied to the 2014 Loans and 20152016Loans on a pro rata basis.. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans (or such Money Market Borrowing).

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to which it has been indemnified pursuant to this Section 2.16 (including additional amounts paid pursuant to this Section 2.16), it shall pay the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made, under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including any Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid such indemnified party pursuant to the previous sentence (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.16(g), in no event will any indemnified party be required to pay any amount to any indemnifying party pursuant to this Section 2.16(g) if such payment would place such indemnified party in a less favorable position (on a net after-Tax basis) than such indemnified party would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This Section 2.16(g) shall not be construed to require indemnified party to make available its Tax returns (or any other information relating to its Taxes which it deems confidential) to the indemnifying party or any other Person.

(h) Survival. Each party’s obligations under this Section 2.16 shall survive any assignment of rights by, or the replacement of, a Bank Party, the termination of the Commitments and the repayment, satisfaction or discharge of all other obligations under this Agreement or the Notes.

Section 2.17. Increase of Commitments. (a) Upon at least five days’ prior notice to the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each of the Banks), the Borrower shall have the right, subject to the terms and conditions set forth below, to increase the aggregate amount of the Commitments in multiples of $5,000,000; provided that (i) such increase may be effected by increasing either the 2014 Commitments or the 20152016Commitments or both, (ii) the amount of such increase when added to the aggregate amount of all such prior increases in the Commitments hereunder (including by way of creating new Commitments), on or after the Effective Date, does not exceed the sum of $375,000,000 and the amount of any Commitments terminated by the Borrower pursuant to Section 2.19(c) and (iii) the total aggregate amount of Commitments hereunder does not, at any time, exceed $1,500,000,000.

(b) Any such increase in the Commitments (the “Incremental Commitments”) hereunder shall apply, at the option of the Borrower, (x) to the Commitment of one or more Banks; provided that (i) the Administrative Agent, each Issuing Bank and each Bank the Commitment of which is to be increased shall consent to such increase, (ii) the amount set forth on the Commitment Schedule opposite the name of each Bank the Commitment of which is being so

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44

issuance date and (2) the Letter of Credit Expiration Date (or such later date as may be agreed by the Banks in accordance with Section 2.01(c)(i)); (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as such Issuing Bank may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the respective Issuing Bank (w) the Letter of Credit to be amended; (x) the proposed date of amendment thereof (which shall be a Domestic Business Day); (y) the nature of the proposed amendment; and (z) such other matters as such Issuing Bank may require. Additionally, the Borrower shall furnish to the Issuing Bank and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the Issuing Bank or the Administrative Agent may reasonably require; provided that furnishing such documents shall not adversely affect the timing of such Letter of Credit issuance or amendment.

(ii) Promptly after receipt of any Letter of Credit Application, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such Issuing Bank will provide the Administrative Agent with a copy thereof. Unless such Issuing Bank has received written notice from any Bank, the Administrative Agent or the Borrower, at least one (1) Domestic Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article 3 shall not then be satisfied, then, subject to the terms and conditions hereof, such Issuing Bank shall, on the requested date, make an L/C Credit Extension for the account of the Borrower, its Consolidated Entities, its Members or any member of its Consolidated Entities, or enter into the applicable amendment, as the case may be, in each case in accordance with such Issuing Bank’s usual and customary business practices. Immediately upon the making of each L/C Credit Extension, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from such Issuing Bank a risk participation in such L/C Credit Extension in an amount equal to the product of such Bank’s Pro Rata Share times the amount of such L/C Credit Extension (calculated after the Maturity Date with respect to the 2014 Commitments, only by reference to the 20152016 Facility).

(iii) If the Borrower so requests in any applicable Letter of Credit Application, (i) upon the expiration of the initial term of each Letter of Credit, such Letter of Credit shall terminate or (ii) upon the expiration of the initial and each successive term of each Letter of Credit, such Letter of Credit shall then be automatically extended for

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additional Issuing Bank, as applicable. The Administrative Agent shall notify the Banks of any such replacement or addition, as applicable, of an Issuing Bank. Where an Issuing Bank is replaced, at the time such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for account of the replaced Issuing Bank. Furthermore, from and after the effective date of such replacement, the successor Issuing Bank, shall have all the rights and obligations of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter. References herein to the term “Issuing Bank” shall be deemed to refer to any successor or additional Issuing Bank, as applicable, or to any previous Issuing Bank, or to any successor or additional Issuing Banks, as applicable, and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

(m) Reallocation of Risk Participations On the 2014 Commitment Termination Date, all risk participations with respect to Letters of Credit issued on or prior to the 2014 Commitment Termination Date, and all obligations to make Loans or reimburse the relevant Issuing Bank for any amount drawn under such Letters of Credit, shall be reallocated to the 20152016Banks in accordance with their Pro Rata Share of the 20152016Facility; provided that (i) no such reallocation shall occur if any Default or Event of Default shall have occurred and be continuing (and each 2014 Bank shall continue to be entitled to its Pro Rata Share of the Letter of Credit Fees) and (ii) such reallocation shall only be effected to the extent that it would not result in the 20152016Credit Exposure of any 20152016Bank exceeding such Bank’s 20152016Commitments (and any portion of the risk participation or other obligation not reallocated as a result of this clause (ii) shall terminate on the 2014 Commitment Termination Date).

Section 2.21. 2014 Conversions. Notwithstanding anything to the contrary in this Agreement, subject to the consent of the Administrative Agent and the Issuing Bank, such consent not to be unreasonably withheld, conditioned or delayed and pursuant to an offer (a “2014 Conversion Offer”) made by the Borrower after the Amendment Effective Date to any 2014 Bank, the Borrower is hereby permitted to consummate from time to time transactions with individual 2014 Banks that accept such 2014 Conversion Offer to convert all (but not less than all) of such accepting 2014 Bank’s 2014 Commitment and 2014 Credit Exposure to an equal principal amount of a 20152016Commitment and 20152016Credit Exposure (a “2014 Conversion”). Upon the effectiveness of any such 2014 Conversion, (i) such accepting 2014 Bank shall become a 20152016Bank, (ii) such accepting 2014 Bank’s 2014 Commitments shall become 20152016Commitments in an aggregate principal amount equal to such accepting 2014 Bank’s 2014 Commitments and (iii) such accepting 2014 Bank’s 2014 Credit Exposure shall become a 20152016Credit Exposure in an aggregate principal amount equal to such accepting 2014 Bank’s 2014 Credit

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(a) the fact that the Effective Date shall have occurred on or prior to March 22, 2011;

(b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be;

(c) the fact that the Borrower is in compliance with Section 7.11 of the 1994 Indenture, as such Indenture is in effect as of the date hereof;

(d) the fact that the sum of (i) the aggregate outstanding principal amount of the Loans and (ii) the Outstanding Amount of L/C Obligations will not exceed the aggregate amount of the Commitments (as such Commitments may be increased pursuant to Section 2.17;

(e) the fact that no Default shall have occurred and be continuing;

(f) the fact that the representations and warranties of the Borrower (in the case of a Borrowing or L/C Credit Extension, other than the representations set forth in Section 4.02(c), Section 4.03 and Section 4.14) contained in this Agreement shall be true in all material respects (other than any such representations or warranties that, by their terms, refer to a specific date other than the date of Borrowing or L/C Credit Extension, in which case such representations and warranties shall be true in all material respects as of such specific date); provided that, in the case of the representation set forth in Section 4.06 being made after the SecondAmendment Effective Date, such representation shall be true except to the extent not reasonably expected to have a material adverse effect on the business, financial position or results of operations of the Borrower; and

(g) the fact that (i) there shall be no collateral securing Bonds issued pursuant to any Indenture of a type other than the types of collateral permitted to secure Bonds issued pursuant to such Indenture as of the date hereof, (ii) the allowable amount of eligible collateral then pledged under any Indenture shall not exceed 150% of the aggregate principal amount of Bonds then outstanding under such Indenture and (iii) no collateral shall secure Bonds other than (A) eligible collateral under such Indenture, the allowable amount of which is included within the computation under subsection (ii) above or (B) collateral previously so pledged which ceases to be such eligible collateral not as a result of any acts or omissions to act of the Borrower (other than the declaration of an “event of default” as defined in a mortgage which results in the exercise of any right or remedy described in such mortgage).

Each Borrowing or L/C Credit Extension hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing or L/C Credit Extension as to the facts specified in clauses (c), (d), (e), (f) and (g) of this Section 3.03.

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Section 9.13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.14. USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

Section 9.15. ICC Transactions. Notwithstanding anything to the contrary set forth in this Agreement (without limiting the terms of the penultimate sentence of this Section 9.15), including the 2013 Amendment andthe Second2013 Amendment, or in any of the Notes or other instruments or documents that have been or are in the future executed or delivered pursuant to, or that otherwise relate to, this Agreement, including the 2013 Amendment and the Second2013 Amendment, or to any Committed Borrowings or Loans hereunder (all of the foregoing, collectively with this Agreement, the “Credit Documentation”), (a) to the extent necessary under the Credit Documentation, the Banks hereby consent to, and waive any Default, Event of Default or other breach, violation, default or noncompliance with the provisions of the Credit Documentation that might otherwise be caused by or be attributable to, the “ICC Transactions” as such term is defined in Schedule 9.15 hereto, and (b) the ICC Transactions, the “ICC Assets,” the “ICC Related Companies” (as such terms are respectively defined in Schedule 9.15 hereto), and the assets, liabilities and operations of the ICC Related Companies (including without limitation any circumstances, events, occurrences, actions or omissions relating to, of or by any of the ICC Related Companies), are hereby excluded from, and shall not be taken into account in applying, interpreting or determining compliance with, the provisions of the Credit Documentation (including without limitation, the definitions, representations, warranties, covenants, agreements, conditions and events of default set forth in the Credit Documentation) and may be excluded from any certifications, notices, reports or statements delivered or to be delivered pursuant to the Credit Documentation. Without limiting the generality of the foregoing, the defined terms “ERISA Group,” “Joint Venture,” “Member” and “Subsidiary,” among others, as used in the Credit Documentation shall not include the ICC Related Companies. Notwithstanding the preceding provisions of this Section 9.15, any new investments in the ICC Related Companies by purchase of equity and/or debt securities, funding (through capital contributions and/or newly originated loans) of working capital or capital expenditure needs of the ICC Related Companies, payment by RTFC (as such term is defined in Schedule 9.15 hereto) or the Borrower of claims of other creditors of the ICC Related Companies, and/or provision of any new guarantees, letters of credit and/or other new credit support or credit enhancement of the debt or other

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AGENT SCHEDULE

Institution	Title
JPMorgan Chase Bank, N.A.	Administrative Agent
The Royal Bank of Scotland PLC	Syndication Agent
The Bank of Nova Scotia	Co-Documentation Agent
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	Co-Documentation Agent
Keybank National Association	Co-Documentation Agent
Mizuho Corporate Bank, Ltd.	Co-Documentation Agent

Agent Schedule

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COMMITMENT SCHEDULE

2014 Banks	2014 Commitment
Deutsche Bank AG New York Branch	$	75,000,000.00
Bank of America, N.A.	$	60,000,000.00
Bank of Taiwan, Los Angeles Branch	$	20,000,000.00
Chang Hwa Commercial Bank, Ltd., New York Branch	$	10,000,000.00
Taiwan Business Bank	$	10,000,000.00
Mega International Commercial Bank, Silicon Valley Branch	$	10,000,000.00
Mega International Commercial Bank New York Branch	$	10,000,000.00
First Commercial Bank, Los Angeles Branch	$	10,000,000.00
Land Bank of Taiwan, New York Branch	$	10,000,000.00
Hua Nan Commercial Bank, Ltd., Los Angeles Branch	$	4,000,000.00
Total	$	219,000,000

20152016 Banks	20152016 Commitment
JPMorgan Chase Bank, N.A.	$	121,000,000.00
The Royal Bank of Scotland PLC	$	121,000,000.00
The Bank of Nova Scotia	$	119,000,000.00
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$	100,000,000.00
Mizuho Corporate Bank, Ltd.	$	100,000,000.00
KeyBank National Association	$	100,000,000.00
PNC Bank, National Association	$	90,000,000.00
SunTrust Bank	$	90,000,000.00
U.S. Bank N.A	$	75,000,000.00
Royal Bank of Canada	$	50,000,000.00
Bank of Communications Co., Ltd., New York Branch	$	20,000,000.00
The Korea Development Bank, New York Branch	$	10,000,000.00
Apple Bank for Savings	$	10,000,000.00
Total	$	1,006,000,000.00

Commitment Schedule

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The “Euro-Dollar Margin”, “Base Rate Margin” and the “Facility Fee Rate” for the Borrower at any date are the respective percentages set forth below in the applicable row and column based upon the Status of the Borrower that exists on such date.

Status	Level I	Level II	Level III	Level IV	Level V	Level VI
Euro-Dollar Margin for 2014 Facility	0.8750%		1.1000%	1.3250%	1.5250%	1.7250%
Euro-Dollar Margin for 20152016 Facility	0.6900%	0.8000%	0.9000%	1.0000%	1.1000%
Base Rate Margin for 2014 Facility	0%		0.1000%	0.3250%	0.5250%	0.7250%
Base Rate Margin for 20152016 Facility	0%	0%	0%	0%	0.1000%
Facility Fee Rate for 2014 Facility	0.1250%		0.1500%	0.1750%	0.2250%	0.2750%
Facility Fee Rate for 20152016 Facility	0.0600%	0.0750%	0.1000%	0.1250%	0.1500%

For purposes of this Pricing Schedule, the following terms have the following meanings, subject to the concluding paragraph of this Pricing Schedule:

“Level I Status” exists at any date if, at such date, the Borrower’s senior unsecured long-term debt is rated AA- or higher by S&P or Aa3 or higher by Moody’s.

“Level II Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated A+ or higher by S&P or A1 or higher by Moody’s, and (ii) Level I Status does not exist.

“Level III Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated A or higher by S&P or A2 or higher by Moody’s, and (ii) Level II Status does not exist.

“Level IV Status” exists at any date if, at such date, (i) the Borrower’s senior unsecured long-term debt is rated A- or higher by S&P or A3or higher by Moody’s, and (ii) Level III does not exist.

Pricing Schedule

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EXHIBIT A

FORM OF NOTE

New York, New York [DATE]

For value received, National Rural Utilities Cooperative Finance Corporation, a not-for-profit cooperative association incorporated under the laws of the District of Columbia (the “Borrower”), promises to pay to the order of [•] (the “Bank”), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan and L/C Borrowing made by the Bank to the Borrower pursuant to the Revolving Credit Agreement referred to below on the Maturity Date with respect to such Loan or L/C Borrowing. The Borrower promises to pay interest on the unpaid principal amount of each such Loan and L/C Borrowing on the dates and at the rate or rates provided for in the Revolving Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of JPMorgan Chase Bank, N.A., 1111 Fannin St., 10th Floor, Houston, TX 77002, Attn: Leslie Hill.

All Loans and L/C Borrowings made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Revolving Credit Agreement.

This note is one of the Notes referred to in Revolving Credit Agreement, dated as of March 21, 2011, among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd. as Co-Documentation Agents (as the same may be amended from time to time, the “Revolving Credit Agreement”). Terms defined in the Revolving Credit Agreement are used herein with the same meanings. Reference is made to the Revolving Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.

NATIONAL RURAL UTILITIES   COOPERATIVE FINANCE   CORPORATION
By:
	Name:

A-1

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EXHIBIT C

FORM OF MONEY MARKET QUOTE REQUEST

[Date]

To: JPMorgan Chase Bank, N.A. (the “Administrative Agent”)

From: National Rural Utilities Cooperative Finance Corporation (the ”Borrower”)

Re: Revolving Credit Agreement, dated as of March 21, 2011, among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co- Documentation Agents (the “Revolving Credit Agreement”)

We hereby give notice pursuant to Section 2.03 of the Revolving Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s):

Date of Borrowing: _____________________

Principal Amount1	Interest Period2
$

Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]

Terms used herein have the meanings assigned to them in the Revolving Credit Agreement.

1 Amount must be $10,000,000 or a larger multiple of $1,000,000.

2 Any number of whole months (but not less than one month) (LIBOR Auction) or not less than 30 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period.

C-1

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EXHIBIT D

FORM OF INVITATION FOR MONEY MARKET QUOTES

[Date]

To: [Name of Bank]

Re: Invitation for Money Market Quotes to the National Rural Utilities Cooperative Finance Corporation (the “Borrower”)

Pursuant to Section 2.03 of the Revolving Credit Agreement, dated as of March 21, 2011, among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co-Documentation Agents (the “Revolving Credit Agreement”):

Date of Borrowing: _____________________

Principal Amount	Interest Period
$

Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]

Please respond to this invitation by no later than 9:30 A.M. (New York City time) on [date].

JPMORGAN CHASE BANK, N.A.
By:
	Name:
	Title: Authorized Officer

D-1

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Principal		Money Market	[Absolute
Amount**	Interest Period***	[Margin****]	Rate*****]
$
$

[provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $___________.]**

We understand and agree that the offer[s] set forth above [is][are] subject to the satisfaction of the applicable conditions set forth in the Revolving Credit Agreement, dated as of March 21, 2011, among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo- Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co-Documentation Agents.

Very truly yours,
[NAME OF BANK]
By:
	Name:
	Title: Authorized Officer

Dated:______________

** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $1,000,000 or a larger multiple thereof.

*** Any number of whole months (but not less than one month) or not less than 30 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period.

**** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify whether “PLUS” or “MINUS”.

***** Specify rate of interest per annum (rounded to the nearest 1/10,000th of 1%).

E-2

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EXHIBIT G

ASSIGNMENT AND ASSUMPTION AGREEMENT

AGREEMENT dated as of ________________, 20__ among [ASSIGNOR] (the “Assignor”), [ASSIGNEE] (the “Assignee”), NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (the “Borrower”) and JPMORGAN CHASE BANK, N.A., as Administrative Agent (the “Agent”).

WITNESSETH

WHEREAS, this Assignment and Assumption Agreement (the “Agreement”) relates to the Revolving Credit Agreement, dated as of March 21, 2011 (the “Credit Agreement”), among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank (the “Agent”), and The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo- Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co-Documentation Agents.

WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans and/or make or participate in L/C Obligations to the Borrower in an aggregate principal amount at any time outstanding not to exceed $_____________;

WHEREAS, Committed Loans and L/C Obligations made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $________________________are outstanding at the date hereof; and

WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the “Assigned Amount”), together with a corresponding portion of its outstanding Committed Loans and/or L/C Obligations, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:

SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.

SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the

H-1-1

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EXHIBIT H-1

[FORM OF]

U.S. TAX CERTIFICATE

(For Non-U.S. Bank Parties That Are Not Partnerships For U.S. Federal

Income Tax Purposes)

Reference is hereby made to the Revolving Credit Agreement dated as of March 21, 2011 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co- Documentation Agents.

Pursuant to the provisions of Section 2.16 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code and (v) the interest payments in question are not effectively connected with the undersigned’s conduct of a U.S. trade or business.

The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

H-1-4

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EXHIBIT H-2

[FORM OF]

U.S. TAX CERTIFICATE

(For Non-U.S. Bank Parties That Are Partnerships For U.S. Federal

Income Tax Purposes)

Reference is hereby made to the Revolving Credit Agreement dated as of March 21, 2011 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co- Documentation Agents.

Pursuant to the provisions of Section 2.16 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement, neither the undersigned nor any of its partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) the interest payments in question are not effectively connected with the undersigned’s or its partners/members’ conduct of a U.S. trade or business.

The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of its partners/members claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

H-2-1

79580.000005 EMF_US 47579863v13

H-2-1

EXHIBIT H-3

[FORM OF]

U.S. TAX CERTIFICATE

(For Non-U.S. Participants That Are Not Partnerships For U.S. Federal

Income Tax Purposes)

Reference is hereby made to the Revolving Credit Agreement dated as of March 21, 2011 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co- Documentation Agents.

Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) the interest payments in question are not effectively connected with the undersigned’s conduct of a U.S. trade or business.

The undersigned has furnished its participating Bank with a certificate of its non-U.S. person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Bank in writing and (2) the undersigned shall have at all times furnished such Bank with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

H-3-1

79580.000005 EMF_US 47579863v13

EXHIBIT H-4

[FORM OF]

U.S. TAX CERTIFICATE

(For Non-U.S. Participants That Are Partnerships For U.S. Federal Income

Tax Purposes)

Reference is hereby made to the Revolving Credit Agreement dated as of March 21, 2011 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Banks listed on the signature pages thereof, JPMorgan Chase Bank, N.A., as Administrative Agent and Initial Issuing Bank, The Royal Bank of Scotland PLC, as Syndication Agent, and The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Keybank National Association and Mizuho Corporate Bank, Ltd., as Co- Documentation Agents.

Pursuant to the provisions of Section 2.17 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) the interest payments in question are not effectively connected with the undersigned’s or its partners/members’ conduct of a U.S. trade or business.

The undersigned has furnished its participating Bank with IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of its partners/members claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Bank and (2) the undersigned shall have at all times furnished such Bank with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.

H-3-3

79580.000005 EMF_US 47579863v13

EX-10.5

EXECUTION VERSION

AMENDMENT NO. 2

Dated as of October 28, 2013

to the

REVOLVING CREDIT AGREEMENT

Dated as of October 21, 2011

Among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS PARTY HERETO,

THE ROYAL BANK OF SCOTLAND PLC,

as Administrative Agent and Initial Issuing Bank,

JPMORGAN CHASE BANK, N.A.,

as Syndication Agent

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION

and

THE ROYAL BANK OF CANADA,

as Co-Documentation Agents

AMENDMENT NO. 2

AMENDMENT NO. 2 dated as of October 28, 2013 (this “Amendment”) to the Revolving Credit Agreement dated as of October 21, 2011 among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, the BANKS party thereto from time to time, THE ROYAL BANK OF SCOTLAND PLC, as Administrative Agent and as Initial Issuing Bank, JPMORGAN CHASE BANK, N.A., as Syndication Agent, and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., KEYBANK NATIONAL ASSOCIATION and THE ROYAL BANK OF CANADA., as Co-Documentation Agents (as amended by Amendment No. 1 dated as of March 28, 2013, the “Existing Credit Agreement” and, as amended by this Amendment, the “Extended Credit Agreement”).

W I T N E S S E T H :

WHEREAS, the Borrower has requested that the Banks party to the Existing Credit Agreement, immediately prior to the effectiveness of this Amendment, (each such Bank, an “Existing Bank”) enter into this Amendment pursuant to which (i) the Existing Banks agree to extend the termination date of their Commitments to October 28, 2017 (the “Extended Commitment Termination Date”) and (ii) certain other provisions of the Existing Credit Agreement will be amended;

WHEREAS, each financial institution identified on Schedule 1 hereto as an “Extending Bank” (each, an “Extending Bank”) has agreed, on the terms and conditions set forth herein, to provide Commitments terminating on the Extended Commitment Termination Date in the amounts set forth on Schedule 1 hereto opposite such Extending Bank’s name under the heading “Commitment” (the “Extended Commitments”); and

WHEREAS, on the Second Amendment Effective Date (as defined in Section 7 below), the existing Commitment of each Extending Bank will be converted into an Extended Commitment;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.Defined Terms; References.  Unless otherwise specifically defined herein, each term used herein that is defined in the Existing Credit Agreement or in the Extended Credit Agreement, as the context shall require, has the meaning assigned to such term in the Existing Credit Agreement or in the Extended Credit Agreement, as applicable.  Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Amendment” and each other similar reference contained in the Existing Credit

Agreement shall, on and after the Second Amendment Effective Date, refer to the Extended Credit Agreement.

Section 2.Amended Terms and Second Amendment Effective Date Transactions.

(a)Each of the parties hereto agrees that, effective on the Second Amendment Effective Date, the Existing Credit Agreement shall be amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text) and to add the double-underlined text (indicated textually in the same manner as the following example:  double-underlined text) as set forth in the amended pages of the Existing Credit Agreement attached hereto as Exhibit A and the Banks party hereto authorize the Administrative Agent and the Borrower to prepare a conformed copy of the Extended Credit Agreement that includes the changes contained in, and consistent with, the amended pages attached as Exhibit A.

(b)On the Second Amendment Effective Date, the Commitment of each Existing Bank that is an Extending Bank will be converted into an Extended Commitment under the Extended Credit Agreement, so that the aggregate Commitment of such Extending Bank under the Extended Credit Agreement shall equal such Extending Bank’s Extended Commitments.

Section 3.Representations of Borrower.  The Borrower represents and warrants, as of the date hereof, that:

(a)the Borrower has the corporate power and authority to execute, deliver and perform its obligations under this Amendment and under the Extended Credit Agreement, and has taken all necessary corporate action to authorize the execution, delivery and performance by it of this Amendment and the Extended Credit Agreement.  The Borrower has duly executed and delivered this Amendment, and this Amendment and the Extended Credit Agreement constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except as enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (regardless of whether enforcement is sought by proceeding in equity or at law);

(b)no material authorization, consent, approval or license of, or declaration, filing or registration with or exemption by, any Governmental Authority, body or agency is required in connection with the execution, delivery and performance by the Borrower of this Amendment. The Banks acknowledge that the Borrower may file this Amendment with the Securities and Exchange Commission after the Second Amendment Effective Date;

(c)the execution, delivery and performance by the Borrower of this Amendment and the Extended Credit Agreement, the borrowings contemplated hereunder and the use of the proceeds thereof will not (i) contravene any material provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or Governmental Authority to which the Borrower is subject, (ii) require any consent under, or violate or result in any breach of any of the material terms, covenants, conditions or provisions of, or constitute a material default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under, or result in the creation or imposition of (or the obligation to

2

create or impose) any Lien upon any of the property or assets of the Borrower pursuant to the terms of the Extended Credit Agreement or any material indenture, mortgage, deed of trust, agreement or instrument, in each case to which the Borrower is a party or by which it or any its property or assets is bound or to which it may be subject, or (iii) violate any provision of the articles of incorporation or by-laws, as applicable, of the Borrower.

Section 4.GOVERNING LAW.  (a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(b)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW, THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AMENDMENT SHALL AFFECT ANY RIGHT THAT ANY PARTY HERETO OR ANY BANK MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AMENDMENT AGAINST ANY OTHER PARTY HERETO OR ANY BANK OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)EACH PARTY TO THIS AMENDMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01 OF THE EXTENDED CREDIT AGREEMENT.  NOTHING IN THIS AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AMENDMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

3

Section 5.WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 6.Counterparts.  This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

Section 7.Effectiveness. This Amendment shall become effective on the date (the “Second Amendment Effective Date”) on which the Administrative Agent shall have received the following documents or other items, each dated the Second Amendment Effective Date unless otherwise indicated:

(a)receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party), including receipt of consent from (i) each Extending Bank and (ii) the Required Banks under the Existing Credit Agreement;

(b)receipt by the Administrative Agent of an opinion of the General Counsel of the Borrower, substantially in the form of Exhibit F to the Existing Credit Agreement, provided that an enforceability opinion under New York law, that is reasonably acceptable to the Administrative Agent, shall be furnished by the Borrower’s New York counsel, Fulbright & Jaworski LLP, subject to customary assumptions, qualifications and limitations;

(c)receipt by the Administrative Agent of a certificate signed by any one of the Chief Financial Officer, the Chief Executive Officer, the Treasurer, an Assistant Secretary-Treasurer, the Controller or the Vice President, Capital Markets Funding of the Borrower to the effect that the conditions set forth in clauses (c) through (g), inclusive, of Section 3.03 of the Extended Credit Agreement have been satisfied as of the Second Amendment Effective Date and, in the case of clauses (c), (e) and (g), setting forth in reasonable detail the calculations required to establish such compliance;

(d)receipt by the Administrative Agent of a certificate of an officer of the Borrower acceptable to the Administrative Agent stating that all consents, authorizations, notices and filings required or advisable in connection with this Amendment are in full force and effect, and the Administrative Agent shall have received evidence thereof reasonably satisfactory to it;

(e)receipt by the Administrative Agent and the Syndication Agent (or their respective permitted assigns) and by each Bank Party of all fees required to be paid in the respective amounts heretofore mutually agreed in writing, and all expenses required to be reimbursed pursuant to the terms of the Existing Credit Agreement and for which invoices have been presented, at least one (1) business day prior to the Second Amendment Effective Date;

(f)receipt by the Administrative Agent and the Banks of all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-

4

money laundering rules and regulations, including, without limitation, the USA PATRIOT Act (Title III of Pub. L. 107-56; and

(g)receipt by the Administrative Agent of all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Amendment all in form and substance reasonably satisfactory to the Administrative Agent.

The Administrative Agent shall promptly notify the Borrower and the Bank Parties of the Second Amendment Effective Date, and such notice shall be conclusive and binding on all parties hereto.

5

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

 

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
By:	/s/ J. ANDREW DON
	Name: Title:	J. Andrew Don Senior Vice President & Chief Financial Officer

Signature Page to Amendment No. 2 - 2016

THE ROYAL BANK OF SCOTLAND PLC, as Administrative Agent and as Initial Issuing Bank
By:	/s/ EMILY FREEDMAN
	Name: Title:	Emily Freedman Vice President

Signature Page to Amendment No. 2 - 2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

JPMORGAN CHASE BANK, N.A.
By:	/s/ JUAN JAVELLANA
	Name: Title:	Juan Javellana Executive Director

Signature Page to Amendment No. 2 - 2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

THE ROYAL BANK OF SCOTLAND PLC
By:	/s/ EMILY FREEDMAN
	Name: Title:	Emily Freedman Vice President

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

The Bank of Nova Scotia
By:	/s/ THANE RATTEW
	Name: Title:	Thane Rattew Managing Director

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

THE BANK OF TOKYO-MITSUBUSHI UFJ, LTD.
By:	/s/ ROBERT J. MACFARLANE
	Name: Title:	Robert J. MacFarlane Vice President

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

KEYBANK NATIONAL ASSOCIATION
By:	/s/ SHERRIE I. MANSON
	Name: Title:	Sherrie I. Manson Senior Vice President

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Royal Bank of Canada
By:	/s/ FRANK LAMBRINOS
	Name: Title:	Frank Lambrinos Authorized Signatory

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Mizuho Bank, Ltd.
By:	/s/ RAYMOND VENTURA
	Name: Title:	Raymond Ventura Deputy General Manager

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

U.S. Bank National Association
By:	/s/ ERIC J. COSGROVE
	Name: Title:	Eric J. Cosgrove Vice President

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

SunTrust Bank
By:	/s/ ANDREW JOHNSON
	Name: Title:	Andrew Johnson Director

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

PNC Bank, N.A.
By:	/s/ NANCY R. BONNELL
	Name: Title:	Nancy Rosal Bonnell Vice President

Signature Page to Amendment No. 2 -2016

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, THE ROYAL BANK OF SCOTLAND PLC, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, N.A. AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Compass Bank
By:	/s/ MICHAEL DIXON
	Name: Title:	Michael Dixon Senior Vice President

Signature Page to Amendment No. 2 -2016

SCHEDULE 1

EXTENDED COMMITMENTS

Extending Banks	Commitment
JPMorgan Chase Bank, N.A.	$120,000,000.00
The Royal Bank of Scotland PLC	$120,000,000.00
The Bank of Nova Scotia	$87,500,000.00
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$120,000,000.00
KeyBank National Association	$130,000,000.00
The Royal Bank of Canada	$155,000,000.00
Mizuho Bank, Ltd.	$100,000,000.00
U.S. Bank N.A.	$85,000,000.00
SunTrust Bank	$80,000,000.00
PNC Bank, National Association	$65,000,000.00
Compass Bank	$25,000,000.00
Total:	$1,087,500,000.00

EXHIBIT 1

79580.000005 EMF_US 47487966v6

NOT A LEGAL DOCUMENT

COMPOSITE COPY

REFLECTING AMENDMENT NO. 1

DATED AS OF MARCH 28, 2013

AND AMENDMENT NO. 2

DATED AS OF OCTOBER 28, 2013

REVOLVING CREDIT AGREEMENT

dated as of

October 21, 2011

among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS LISTED HEREIN,

THE ROYAL BANK OF SCOTLAND PLC,

as Administrative Agent and Initial Issuing Bank,

JPMORGAN CHASE BANK, N.A.,

as Syndication Agent,

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION,

and

ROYAL BANK OF CANADA

as Co-Documentation Agents

RBS SECURITIES INC.,

J.P. MORGAN SECURITIES LLC,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION,

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TABLE OF CONTENTS

	Page
Article 1
Definitions
Section 1.01. Definitions	1
Section 1.02. Accounting Terms and Determinations	2021
Section 1.03. Types of Borrowings	21
Section 1.04. Letter of Credit	21
Article 2
The Credits
Section 2.01. Commitments to Lend and Issue Letters of Credit	21
Section 2.02. Notice of Committed Borrowings	24
Section 2.03. Money Market Borrowings	24
Section 2.04. Notice to Banks; Funding of Loans	28
Section 2.05. Notes	29
Section 2.06. Maturity of Loans	30
Section 2.07. Interest Rates	30
Section 2.08. Method of Electing Interest Rates	32
Section 2.09. Fees	3334
Section 2.10. Optional Termination or Reduction of Commitments	35
Section 2.11. Mandatory Termination of Commitments	35
Section 2.12. Optional Prepayments	35
Section 2.13. General Provisions as to Payments	36
Section 2.14. Funding Losses	3637
Section 2.15. Computation of Interest and Fees	37
Section 2.16. Taxes	37
Section 2.17. Increase of Commitments	41
Section 2.18. Replacement of Banks	42
Section 2.19. Defaulting Banks	44
Section 2.20. Issuance of Letters of Credit; Drawings and Reimbursements; Auto-Extension Letters of Credit; Funding of Participations.	4647
Article 3
Conditions
Section 3.01. Effectiveness	55
Section 3.02. Prior Credit Agreement	56
Section 3.03. Borrowings and L/C Credit Extensions	5657

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Article 4
Representations And Warranties
Section 4.01. Corporate Existence, Power and Authority	58
Section 4.02. Financial Statements	5859
Section 4.03. Litigation	5960
Section 4.04. Governmental Authorizations	60
Section 4.05. Members’ Subordinated Certificates	60
Section 4.06. No Violation of Agreements	60
Section 4.07. No Event of Default under the Indentures	6061
Section 4.08. Compliance with ERISA	61
Section 4.09. Compliance with Other Laws	6162
Section 4.10. Tax Status	6162
Section 4.11. Investment Company Act	6162
Section 4.12. Disclosure	6162
Section 4.13. Subsidiaries	62
Section 4.14. Environmental Matters	62
Article 5
Covenants
Section 5.01. Corporate Existence	6263
Section 5.02. Disposition of Assets, Merger, Character of Business, etc	63
Section 5.03. Financial Information	63
Section 5.04. Default Certificates	6465
Section 5.05. Notice of Litigation and Defaults	65
Section 5.06. ERISA	6566
Section 5.07. Payment of Charges	66
Section 5.08. Inspection of Books and Assets	66
Section 5.09. Indebtedness	6667
Section 5.10. Liens	67
Section 5.11. Maintenance of Insurance	68
Section 5.12. Subsidiaries and Joint Ventures	68
Section 5.13. Minimum TIER	69
Section 5.14. Retirement of Patronage Capital	69
Section 5.15. Use of Proceeds	6970
Article 6
Defaults
Section 6.01. Events of Default	6970
Section 6.02. Actions In Respect Of Letters Of Credit Upon Default	72
Section 6.03. Notice of Default	7273

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Article 7
The Administrative Agent
Section 7.01. Appointment and Authorization	7273
Section 7.02. Administrative Agent and Affiliates	73
Section 7.03. General Nature of the Administrative Agent’s Duties	73
Section 7.04. Consultation with Experts	74
Section 7.05. Liability of Administrative Agent	74
Section 7.06. Indemnification	7475
Section 7.07. Credit Decision	75
Section 7.08. Successor Administrative Agent	75
Section 7.09. Co-Documentation Agents, Syndication Agent and Co-Lead Arrangers Not Liable	7576
Section 7.10. Calculations	76
Article 8
Change In Circumstances
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair	76
Section 8.02. Illegality	7677
Section 8.03. Increased Cost and Reduced Return	7778
Section 8.04. Base Rate Loans Substituted for Affected Euro-Dollar Loans	7980
Article 9
Miscellaneous
Section 9.01. Notices	80
Section 9.02. No Waivers	8182
Section 9.03. Expenses; Documentary Taxes; Indemnification	8182
Section 9.04. Sharing of Set-offs	8283
Section 9.05. Amendments and Waivers	83
Section 9.06. Successors and Assigns	84
Section 9.07. Collateral	8687
Section 9.08. Governing Law	8687
Section 9.09. Counterparts; Integration	87
Section 9.10. Several Obligations	8788
Section 9.11. Severability	8788
Section 9.12. Confidentiality	8788
Section 9.13. WAIVER OF JURY TRIAL	88
Section 9.14. USA Patriot Act	8889
Section 9.15. ICC Transactions	8889

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Association, and RBC Capital Markets, 1 each in their capacity as co-lead arranger and joint bookrunner.

“Commitment” means (i) with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the Commitment Schedule hereto and (ii) with respect to any Assignee that becomes a Bank pursuant to Section 9.06(c), the amount of the transferor Bank’s Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may from time to time be reduced pursuant to Sections 2.10 and 2.11; provided that, if the context so requires, the term “Commitment” means the obligation of a Bank to make loans pursuant to Section 2.01(a) and purchase participations in L/C Obligations up to, in the aggregate, such amount to the Borrower hereunder.

“Committed Borrowing” means a Borrowing under Section 2.01(a).

“Committed Loan” means a Revolving Loan; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Committed Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Commitment Termination Date” means October 21, 20162017 or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Consolidated Entity” means at any date any Subsidiary, and any other entity the accounts of which would be combined or consolidated with those of the Borrower in its combined or consolidated financial statements if such statements were prepared as of such date.

“Credit Documentation” has the meaning set forth in Section 9.15.

“Credit Exposure” means with respect to any Bank at any time, (i) the aggregate principal amount of the Loans outstanding and (ii) the Outstanding Amount of all L/C Obligations (with the aggregate amount of each Bank’s participation in L/C Obligations deemed “held” by such Bank for purposes of this definition).

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both (as specified in Section 6.01) would, unless cured or waived, become an Event of Default.

1 RBC Capital Markets is the global brand name for the corporate and investment banking business of Royal Bank of Canada and its affiliates.

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interest on, such RUS Guaranteed Loan which is guaranteed by the United States of America through the RUS.

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Second 2013 Amendment” means that certain Amendment No. 2 to this Agreement dated as of October 28, 2013, among the Borrower and the Banks party thereto.

“Second 2013 Fee Letter” means that certain Fee Letter dated October 9, 2013 among the Borrower, the Administrative Agent and the Syndication Agent.

“Second Amendment Effective Date” means the “Second Amendment Effective Date” as such term is defined in the Second 2013 Amendment.

“Securities and Exchange Commission” means the Securities and Exchange Commission or any other U.S. federal governmental authority succeeding to any or all of the functions of the Securities and Exchange Commission.

“Special Purpose Subsidiary” has the meaning set forth in Section 5.12.

“Standby Letter of Credit” means any Letter of Credit issued under this Agreement, other than (i) a Trade Letter of Credit, (ii) a Performance Letter of Credit or (iii) a Backup Letter of Credit in support of either a performance letter of credit or a trade letter of credit issued by the Borrower.

“Start-up Investments” has the meaning set forth in Section 5.12.

“Subsidiary” of any Person means (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through its Subsidiaries, and (ii) any other Person in which such Person directly or indirectly through Subsidiaries has more than a 50% voting and equity interest; provided that no Person whose only assets are RUS Guaranteed Loans and investments incidental thereto shall be deemed a Subsidiary.

“Superior Indebtedness” means all Indebtedness of the Borrower and its Consolidated Entities (other than Members’ Subordinated Certificates and Qualified Subordinated Indebtedness), but excluding (i) Indebtedness of the Borrower or any of its Consolidated Entities to the extent that the proceeds of such Indebtedness are used to fund Guaranteed Portions of RUS Guaranteed

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20

respective Pro Rata Share allocable to such Letter of Credit pursuant to Section 2.19(a)(iv), with the balance of such fee, if any, payable to the Issuing Bank for its own account. Letter of Credit Fees shall be (i) computed on a quarterly basis in arrears on the basis of the actual number of days elapsed in a year of 360 days (including the first day but excluding the last day), as pro-rated for any partial quarter, as applicable, and (ii) subject to Section 2.19(a)(ii), due and payable on each January 1, April 1, July 1 and October 1, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. Notwithstanding anything to the contrary contained herein, upon the request of the Required Banks, while any payment-related Event of Default exists, all Letter of Credit Fees shall accrue at a rate per annum equal to the Euro-Dollar Margin plus 2%.

(d) Fronting Fee and Documentary and Processing Charges Payable to Issuing Banks, Etc. The Borrower shall pay directly to the relevant Issuing Bank for its own account a fronting fee with respect to each Letter of Credit issued hereunder on the average daily maximum amount available to be drawn under such Letter of Credit in an amount to be agreed between the Borrower and the applicable Issuing Bank of the L/C Obligations (whether or not such maximum amount is then in effect under such Letter of Credit) (the “Fronting Fee”). The Fronting Fee shall be computed on a quarterly basis in arrears on the basis of the actual number of days elapsed in a year of 360 days (including the first day but excluding the last day), as pro-rated for any partial quarter, as applicable, and shall be due and payable on each January 1, April 1, July 1 and October 1, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. In addition, the Borrower shall, with respect to all Letters of Credit issued at its request, pay directly to each Issuing Bank for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuing Bank relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(e) Amendment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Bank on the SecondAmendment Effective Date the upfront fees required to be paid on such date, as set forth in the Second2013 Fee Letter.

Section 2.10. Optional Termination or Reduction of Commitments. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent (which notice the Administrative Agent will promptly deliver to the Banks), (i) terminate Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of Commitments in excess of the aggregate outstanding principal amount of the Loans.

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36

any requirement of notice of termination of the “Commitments” (as defined in the Prior 5-Year Credit Agreement) pursuant to Section 2.10 thereof and of prepayment of loans thereunder to the extent necessary to give effect to Section 3.01(f) and Section 3.02(a) hereof; provided that any such prepayment of Loans shall be subject to Section 2.14 of the Prior 5-Year Credit Agreement.

Section 3.03. Borrowings and L/C Credit Extensions. The obligation of any Bank to make a Loan on the occasion of any Borrowing and the obligation of the Issuing Bank to issue, amend or increase the principal amount thereof or extend any Letter of Credit (other than an extension pursuant to an Automatic Extension Letter of Credit in accordance with the original terms thereof) is subject to the satisfaction of the following conditions, in each case at the time of such Borrowing or L/C Credit Extensions and immediately thereafter:

(a) the fact that the Effective Date shall have occurred on or prior to October 31, 2011;

(b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be;

(c) the fact that the Borrower is in compliance with Section 7.11 of the 1994 Indenture, as such Indenture is in effect as of the date hereof;

(d) the fact that the sum of (i) the aggregate outstanding principal amount of the Loans and (ii) the Outstanding Amount of L/C Obligations will not exceed the aggregate amount of the Commitments (as such Commitments may be increased pursuant to Section 2.17;

(e) the fact that no Default shall have occurred and be continuing;

(f) the fact that the representations and warranties of the Borrower (in the case of a Borrowing or L/C Credit Extension, other than the representations set forth in Section 4.02(c), Section 4.03 and Section 4.14) contained in this Agreement shall be true in all material respects (other than any such representations or warranties that, by their terms, refer to a specific date other than the date of Borrowing or L/C Credit Extension, in which case such representations and warranties shall be true in all material respects as of such specific date); provided that, in the case of the representation set forth in Section 4.06 being made after the Second AmendmentEffective Date, such representation shall be true except to the extent not reasonably expected to have a material adverse effect on the business, financial position or results of operations of the Borrower; and

(g) the fact that (i) there shall be no collateral securing Bonds issued pursuant to any Indenture of a type other than the types of collateral permitted to secure Bonds issued pursuant to such Indenture as of the date hereof, (ii) the allowable amount of eligible collateral then pledged under any Indenture shall not exceed 150% of the aggregate principal amount of Bonds then outstanding

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agrees in writing to maintain the confidentiality of such information on terms substantially similar to those of this Section as if it were a “Bank” party hereto, and (e) right to disclose Confidential Information to its affiliates if such affiliate agrees in writing to maintain the confidentiality of such information on terms substantially similar to those of this Section. Notwithstanding the foregoing, any such information supplied to a Bank Party, Participant, prospective Participant or prospective Assignee under this Agreement shall cease to be Confidential Information if it is or becomes known to such Person by other than unauthorized disclosure, or if it becomes a matter of public knowledge other than as a result of a breach of this Section by such Person.

Section 9.13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.14. USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

Section 9.15. ICC Transactions. Notwithstanding anything to the contrary set forth in this Agreement (without limiting the terms of the penultimate sentence of this Section 9.15), including the 2013 Amendment andthe Second2013 Amendment, or in any of the Notes or other instruments or documents that have been or are in the future executed or delivered pursuant to, or that otherwise relate to, this Agreement, including the 2013 Amendment and the Second2013 Amendment, or to any Committed Borrowings or Loans hereunder (all of the foregoing, collectively with this Agreement, the “Credit Documentation”), (a) to the extent necessary under the Credit Documentation, the Banks hereby consent to, and waive any Default, Event of Default or other breach, violation, default or noncompliance with the provisions of the Credit Documentation that might otherwise be caused by or be attributable to, the “ICC Transactions” as such term is defined in Schedule 9.15 hereto, and (b) the ICC Transactions, the “ICC Assets,” the “ICC Related Companies” (as such terms are respectively defined in Schedule 9.15 hereto), and the assets, liabilities and operations of the ICC Related Companies (including without limitation any circumstances, events, occurrences, actions or omissions relating to, of or by any of the ICC Related Companies), are hereby excluded from, and shall not be taken into account in applying, interpreting or determining compliance with, the provisions of the Credit Documentation (including without limitation, the definitions, representations, warranties, covenants, agreements, conditions and events of default set forth in the Credit Documentation) and may be excluded from any certifications, notices, reports or statements delivered or to be

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COMMITMENT SCHEDULE

Institution	Commitment
The Royal Bank of Scotland plc	$	120,000,000.00
JPMorgan Chase Bank, N.A.	$	120,000,000.00
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$	120,000,000.00
KeyBank National Association	$	130,000,000.00
Royal Bank of Canada	$	155,000,000.00
Mizuho Corporate Bank, Ltd.	$	100,000,000.00
U.S. Bank N.A	$	85,000,000.00
The Bank of Nova Scotia	$	87,500,000.00
SunTrust Bank	$	80,000,000.00
PNC Bank, National Association	$	65,000,000.00
Compass Bank	$	25,000,000.00
Total	$	1,087,500,000.00

Commitment Schedule

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EX-10.6

EXECUTION VERSION

AMENDMENT NO. 2

Dated as of October 28, 2013

to the

REVOLVING CREDIT AGREEMENT

Dated as of October 21, 2011

Among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS PARTY HERETO,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Initial Issuing Bank,

THE ROYAL BANK OF SCOTLAND PLC,

as Syndication Agent

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION

and

THE ROYAL BANK OF CANADA,

as Co-Documentation Agents

AMENDMENT NO. 2

AMENDMENT NO. 2 dated as of October 28 2013 (this “Amendment”) to the Revolving Credit Agreement dated as of October 21, 2011 among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a not-for-profit cooperative association incorporated under the laws of the District of Columbia, the BANKS party thereto from time to time, JPMORGAN CHASE BANK, N.A., as Administrative Agent and as Initial Issuing Bank, THE ROYAL BANK OF SCOTLAND PLC, as Syndication Agent, and THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., KEYBANK NATIONAL ASSOCIATION and THE ROYAL BANK OF CANADA., as Co-Documentation Agents (as amended by Amendment No. 1 dated as of March 28, 2013, the “Existing Credit Agreement” and, as amended by this Amendment, the “Extended Credit Agreement”).

W I T N E S S E T H :

WHEREAS, the Borrower has requested that the Banks party to the Existing Credit Agreement, immediately prior to the effectiveness of this Amendment, (each such Bank, an “Existing Bank”) enter into this Amendment pursuant to which (i) the Existing Banks agree to extend the termination date of their Commitments to October 28, 2018 (the “Extended Commitment Termination Date”) and (ii) certain other provisions of the Existing Credit Agreement will be amended;

WHEREAS, each financial institution identified on Schedule 1 hereto as an “Extending Bank” (each, an “Extending Bank”) has agreed, on the terms and conditions set forth herein, to provide Commitments terminating on the Extended Commitment Termination Date in the amounts set forth on Schedule 1 hereto opposite such Extending Bank’s name under the heading “Commitment” (the “Extended Commitments”); and

WHEREAS, on the Second Amendment Effective Date (as defined in Section 7 below), the existing Commitment of each Extending Bank will be converted into an Extended Commitment;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.Defined Terms; References.  Unless otherwise specifically defined herein, each term used herein that is defined in the Existing Credit Agreement or in the Extended Credit Agreement, as the context shall require, has the meaning assigned to such term in the Existing Credit Agreement or in the Extended Credit Agreement, as applicable.  Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Amendment” and each other similar reference contained in the Existing Credit

Agreement shall, on and after the Second Amendment Effective Date, refer to the Extended Credit Agreement.

Section 2.Amended Terms and Second Amendment Effective Date Transactions.

(a)Each of the parties hereto agrees that, effective on the Second Amendment Effective Date, the Existing Credit Agreement shall be amended to delete the stricken text (indicated textually in the same manner as the following example: stricken text) and to add the double-underlined text (indicated textually in the same manner as the following example:  double-underlined text) as set forth in the amended pages of the Existing Credit Agreement attached hereto as Exhibit A and the Banks party hereto authorize the Administrative Agent and the Borrower to prepare a conformed copy of the Extended Credit Agreement that includes the changes contained in, and consistent with, the amended pages attached as Exhibit A.

(b)On the Second Amendment Effective Date, the Commitment of each Existing Bank that is an Extending Bank will be converted into an Extended Commitment under the Extended Credit Agreement, so that the aggregate Commitment of such Extending Bank under the Extended Credit Agreement shall equal such Extending Bank’s Extended Commitments.

Section 3.Representations of Borrower.  The Borrower represents and warrants, as of the date hereof, that:

(a)the Borrower has the corporate power and authority to execute, deliver and perform its obligations under this Amendment and under the Extended Credit Agreement, and has taken all necessary corporate action to authorize the execution, delivery and performance by it of this Amendment and the Extended Credit Agreement.  The Borrower has duly executed and delivered this Amendment, and this Amendment and the Extended Credit Agreement constitutes its legal, valid and binding obligation enforceable in accordance with its terms, except as enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (regardless of whether enforcement is sought by proceeding in equity or at law);

(b)no material authorization, consent, approval or license of, or declaration, filing or registration with or exemption by, any Governmental Authority, body or agency is required in connection with the execution, delivery and performance by the Borrower of this Amendment. The Banks acknowledge that the Borrower may file this Amendment with the Securities and Exchange Commission after the Second Amendment Effective Date;

(c)the execution, delivery and performance by the Borrower of this Amendment and the Extended Credit Agreement, the borrowings contemplated hereunder and the use of the proceeds thereof will not (i) contravene any material provision of any law, statute, rule or regulation or any order, writ, injunction or decree of any court or Governmental Authority to which the Borrower is subject, (ii) require any consent under, or violate or result in any breach of any of the material terms, covenants, conditions or provisions of, or constitute a material default under, or give rise to any right to accelerate or to require the prepayment, repurchase or redemption of any obligation under, or result in the creation or imposition of (or the obligation to

2

 create or impose) any Lien upon any of the property or assets of the Borrower pursuant to the terms of the Extended Credit Agreement or any material indenture, mortgage, deed of trust, agreement or instrument, in each case to which the Borrower is a party or by which it or any its property or assets is bound or to which it may be subject, or (iii) violate any provision of the articles of incorporation or by-laws, as applicable, of the Borrower.

Section 4.GOVERNING LAW.  (a) THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

(b)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES, TO THE FULLEST EXTENT PERMITTED BY LAW, THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AMENDMENT SHALL AFFECT ANY RIGHT THAT ANY PARTY HERETO OR ANY BANK MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AMENDMENT AGAINST ANY OTHER PARTY HERETO OR ANY BANK OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)EACH PARTY TO THIS AMENDMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 9.01 OF THE EXTENDED CREDIT AGREEMENT.  NOTHING IN THIS AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AMENDMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

3

Section 5.WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 6.Counterparts.  This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

Section 7.Effectiveness. This Amendment shall become effective on the date (the “Second Amendment Effective Date”) on which the Administrative Agent shall have received the following documents or other items, each dated the Second Amendment Effective Date unless otherwise indicated:

(a)receipt by the Administrative Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party), including receipt of consent from (i) each Extending Bank and (ii) the Required Banks under the Existing Credit Agreement;

(b)receipt by the Administrative Agent of an opinion of the General Counsel of the Borrower, substantially in the form of Exhibit F to the Existing Credit Agreement, provided that an enforceability opinion under New York law, that is reasonably acceptable to the Administrative Agent, shall be furnished by the Borrower’s New York counsel, Fulbright & Jaworski LLP, subject to customary assumptions, qualifications and limitations;

(c)receipt by the Administrative Agent of a certificate signed by any one of the Chief Financial Officer, the Chief Executive Officer, the Treasurer, an Assistant Secretary-Treasurer, the Controller or the Vice President, Capital Markets Funding of the Borrower to the effect that the conditions set forth in clauses (c) through (g), inclusive, of Section 3.03 of the Extended Credit Agreement have been satisfied as of the Second Amendment Effective Date and, in the case of clauses (c), (e) and (g), setting forth in reasonable detail the calculations required to establish such compliance;

(d)receipt by the Administrative Agent of a certificate of an officer of the Borrower acceptable to the Administrative Agent stating that all consents, authorizations, notices and filings required or advisable in connection with this Amendment are in full force and effect, and the Administrative Agent shall have received evidence thereof reasonably satisfactory to it;

(e)receipt by the Administrative Agent and the Syndication Agent (or their respective permitted assigns) and by each Bank Party of all fees required to be paid in the respective amounts heretofore mutually agreed in writing, and all expenses required to be reimbursed pursuant to the terms of the Existing Credit Agreement and for which invoices have been presented, at least one (1) business day prior to the Second Amendment Effective Date;

(f)receipt by the Administrative Agent and the Banks of all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-

4

money laundering rules and regulations, including, without limitation, the USA PATRIOT Act (Title III of Pub. L. 107-56; and

(g)receipt by the Administrative Agent of all documents the Administrative Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Amendment all in form and substance reasonably satisfactory to the Administrative Agent.

The Administrative Agent shall promptly notify the Borrower and the Bank Parties of the Second Amendment Effective Date, and such notice shall be conclusive and binding on all parties hereto.

5

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
By:	/s/ J. ANDREW DON
	Name: Title:	J. Andrew Don Senior Vice President and Chief Financial Officer

Signature Page to Amendment No. 2 - 2017

JPMORGAN CHASE BANK, N.A., as Administrative Agent and as Initial Issuing Bank
By:	/s/ JUAN JAVELLANA
	Name: Title:	Juan Javellana Executive Director

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

JPMORGAN CHASE BANK, N.A.
By:	/s/ JUAN JAVELLANA
	Name: Title:	Juan Javellana Executive Director

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

THE ROYAL BANK OF SCOTLAND PLC
By:	/s/ EMILY FREEDMAN
	Name: Title:	Emily Freedman Vice President

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

The Bank of Nova Scotia
By:	/s/ THANE RATTEW
	Name: Title:	Thane Rattew Managing Director

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

THE BANK OF TOKYO-MITSUBUSHI UFJ, LTD.
By:	/s/ ROBERT J. MACFARLANE
	Name: Title:	Robert J. MacFarlane Vice President

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

KEYBANK NATIONAL ASSOCIATION
By:	/s/ SHERRIE I. MANSON
	Name: Title:	Sherrie I. Manson Senior Vice President

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Royal Bank of Canada
By:	/s/ RAHUL SHAH
	Name: Title:	Rahul Shah Authorized Signatory

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Mizuho Bank (USA)
By:	/s/ RAYMOND VENTURA
	Name: Title:	Raymond Ventura Deputy General Manager

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

U.S. Bank National Association
By:	/s/ ERIC J. COSGROVE
	Name: Title:	Eric J. Cosgrove Vice President

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

SunTrust Bank
By:	/s/ ANDREW JOHNSON
	Name: Title:	Andrew Johnson Director

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

PNC Bank, N.A.
By:	/s/ D. JERMAINE JOHNSON
	Name: Title:	D. Jermaine Johnson Senior Vice President

Signature Page to Amendment No. 2 - 2017

SIGNATURE PAGE TO AMENDMENT NO. 2 (THE “AMENDMENT”) TO THE CREDIT AGREEMENT (THE “EXISTING CREDIT AGREEMENT”) DATED AS OF OCTOBER 21, 2011, AS AMENDED BY AMENDMENT NO. 1 DATED AS OF MARCH 28, 2013, AMONG NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, AS BORROWER, THE BANKS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, THE ROYAL BANK OF SCOTLAND PLC AS SYNDICATION AGENT AND THE OTHER AGENTS PARTY THERETO.

Check only one of the following:

x The undersigned is a Bank with an existing Commitment and consents to this Amendment with respect to the full amount of its existing Commitment, which amount will be converted in full to an Extended Commitment.

¨ The undersigned Bank with an existing Commitment consents to this Amendment with respect to its existing Commitment and also confirms its willingness to provide additional Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

¨ The undersigned is a “New Bank” and confirms its willingness to provide a Commitment under the Extended Credit Agreement in an aggregate principal amount of $_______________.

Compass Bank
By:	/s/ MICHAEL DIXON
	Name: Title:	Michael Dixon Senior Vice President

Signature Page to Amendment No. 2 - 2017

SCHEDULE 1

EXTENDED COMMITMENTS

Extending Banks	Commitment
JPMorgan Chase Bank, N.A.	$120,000,000.00
The Royal Bank of Scotland PLC	$120,000,000.00
The Bank of Nova Scotia	$37,500,000.00
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$120,000,000.00
KeyBank National Association	$130,000,000.00
The Royal Bank of Canada	$155,000,000.00
Mizuho Bank (USA)	$100,000,000.00
U.S. Bank N.A.	$85,000,000.00
SunTrust Bank	$75,000,000.00
PNC Bank, National Association	$65,000,000.00
Compass Bank	$25,000,000.00
Total:	$1,032,500,000.00

79580.000005 EMF_US 47487971v6

EXHIBIT 1

79580.000005 EMF_US 47487971v6

NOT A LEGAL DOCUMENT

COMPOSITE COPY

REFLECTING AMENDMENT NO. 1

DATED AS OF MARCH 28, 2013

AND AMENDMENT NO. 2

DATED AS OF OCTOBER 28, 2013

REVOLVING CREDIT AGREEMENT

dated as of

October 21, 2011

among

NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION,

THE BANKS LISTED HEREIN,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Initial Issuing Bank,

THE ROYAL BANK OF SCOTLAND PLC,

as Syndication Agent,

and

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION,

and

ROYAL BANK OF CANADA

as Co-Documentation Agents

J.P. MORGAN SECURITIES LLC,

RBS SECURITIES INC.,

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.,

KEYBANK NATIONAL ASSOCIATION,

79580.000005 EMF_US 47579852v13

TABLE OF CONTENTS

	PAGE
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions	1
Section 1.02. Accounting Terms and Determinations	20
Section 1.03. Types of Borrowings	2021
Section 1.04. Letter of Credit	21
ARTICLE 2
THE CREDITS
Section 2.01. Commitments to Lend and Issue Letters of Credit	21
Section 2.02. Notice of Committed Borrowings	23
Section 2.03. Money Market Borrowings	24
Section 2.04. Notice to Banks; Funding of Loans	2728
Section 2.05. Notes	2829
Section 2.06. Maturity of Loans	29
Section 2.07. Interest Rates	2930
Section 2.08. Method of Electing Interest Rates	3132
Section 2.09. Fees	33
Section 2.10. Optional Termination or Reduction of Commitments	3435
Section 2.11. Mandatory Termination of Commitments	35
Section 2.12. Optional Prepayments	35
Section 2.13. General Provisions as to Payments	35
Section 2.14. Funding Losses	36
Section 2.15. Computation of Interest and Fees	3637
Section 2.16. Taxes	3637
Section 2.17. Increase of Commitments	4041
Section 2.18. Replacement of Banks	42
Section 2.19. Defaulting Banks	4344
Section 2.20. Issuance of Letters of Credit; Drawings and
Reimbursements; Auto-Extension Letters of Credit; Funding of
Participations.	46
ARTICLE 3
CONDITIONS
Section 3.01. Effectiveness	55
Section 3.02. Prior Credit Agreement	56
Section 3.03. Borrowings and L/C Credit Extensions	5657

79580.000005 EMF_US 47579852v13

i

ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.01. Corporate Existence, Power and Authority	5758
Section 4.02. Financial Statements	5859
Section 4.03. Litigation	5960
Section 4.04. Governmental Authorizations	5960
Section 4.05. Members’ Subordinated Certificates	5960
Section 4.06. No Violation of Agreements	5960
Section 4.07. No Event of Default under the Indentures	6061
Section 4.08. Compliance with ERISA	6061
Section 4.09. Compliance with Other Laws	61
Section 4.10. Tax Status	61
Section 4.11. Investment Company Act	6162
Section 4.12. Disclosure	6162
Section 4.13. Subsidiaries	6162
Section 4.14. Environmental Matters	6162
ARTICLE 5
COVENANTS
Section 5.01. Corporate Existence	6263
Section 5.02. Disposition of Assets, Merger, Character of Business, etc	6263
Section 5.03. Financial Information	6263
Section 5.04. Default Certificates	6465
Section 5.05. Notice of Litigation and Defaults	6465
Section 5.06. ERISA	65
Section 5.07. Payment of Charges	6566
Section 5.08. Inspection of Books and Assets	66
Section 5.09. Indebtedness	66
Section 5.10. Liens	67
Section 5.11. Maintenance of Insurance	6768
Section 5.12. Subsidiaries and Joint Ventures	68
Section 5.13. Minimum TIER	69
Section 5.14. Retirement of Patronage Capital	69
Section 5.15. Use of Proceeds	69
ARTICLE 6
DEFAULTS
Section 6.01. Events of Default	6970
Section 6.02. Actions In Respect Of Letters Of Credit Upon Default	72
Section 6.03. Notice of Default	7273

79580.000005 EMF_US 47579852v13

ii

ARTICLE 7
THE ADMINISTRATIVE AGENT
Section 7.01. Appointment and Authorization	7273
Section 7.02. Administrative Agent and Affiliates	7273
Section 7.03. Action by Administrative Agent	7273
Section 7.04. Consultation with Experts	73
Section 7.05. Liability of Administrative Agent	73
Section 7.06. Indemnification	7374
Section 7.07. Credit Decision	74
Section 7.08. Successor Administrative Agent	7475
Section 7.09. Co-Documentation Agents, Syndication Agent and Co-Lead
Arrangers Not Liable	7475
ARTICLE 8
CHANGE IN CIRCUMSTANCES
Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair	75
Section 8.02. Illegality	7576
Section 8.03. Increased Cost and Reduced Return	7677
Section 8.04. Base Rate Loans Substituted for Affected Euro-Dollar
Loans	7879
ARTICLE 9
MISCELLANEOUS
Section 9.01. Notices	79
Section 9.02. No Waivers	8081
Section 9.03. Expenses; Documentary Taxes; Indemnification	8081
Section 9.04. Sharing of Set-offs	8182
Section 9.05. Amendments and Waivers	8182
Section 9.06. Successors and Assigns	83
Section 9.07. Collateral	8586
Section 9.08. Governing Law	8586
Section 9.09. Counterparts; Integration	86
Section 9.10. Several Obligations	8687
Section 9.11. Severability	8687
Section 9.12. Confidentiality	8687
Section 9.13. WAIVER OF JURY TRIAL	87
Section 9.14. USA Patriot Act	8788
Section 9.15. ICC Transactions	8788

79580.000005 EMF_US 47579852v13

iii

Association, and RBC Capital Markets, 1 each in their capacity as co-lead arranger and joint bookrunner.

“Commitment” means (i) with respect to each Bank listed on the signature pages hereof, the amount set forth opposite the name of such Bank on the Commitment Schedule hereto and (ii) with respect to any Assignee that becomes a Bank pursuant to Section 9.06(c), the amount of the transferor Bank’s Commitment assigned to it pursuant to Section 9.06(c), in each case as such amount may from time to time be reduced pursuant to Sections 2.10 and 2.11; provided that, if the context so requires, the term “Commitment” means the obligation of a Bank to make loans pursuant to Section 2.01(a) and purchase participations in L/C Obligations up to, in the aggregate, such amount to the Borrower hereunder.

“Committed Borrowing” means a Borrowing under Section 2.01(a).

“Committed Loan” means a Revolving Loan; provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term “Committed Loan” shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be.

“Commitment Termination Date” means October 2128, 20172018or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.

“Consolidated Entity” means at any date any Subsidiary, and any other entity the accounts of which would be combined or consolidated with those of the Borrower in its combined or consolidated financial statements if such statements were prepared as of such date.

“Credit Documentation” has the meaning set forth in Section 9.15.

“Credit Exposure” means with respect to any Bank at any time, (i) the aggregate principal amount of the Loans outstanding and (ii) the Outstanding Amount of all L/C Obligations (with the aggregate amount of each Bank’s participation in L/C Obligations deemed “held” by such Bank for purposes of this definition).

“Default” means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both (as specified in Section 6.01) would, unless cured or waived, become an Event of Default.

1 RBC Capital Markets is the global brand name for the corporate and investment banking business of Royal Bank of Canada and its affiliates.

79580.000005 EMF_US 47579852v13

5

“Required Banks” means at any time Banks having at least 51% of the sum of (i) the aggregate amount of the unused Commitments, (ii) the aggregate principal outstanding amount of the Loans and (iii) the Outstanding Amount of all L/C Obligations (with the aggregate amount of each Bank’s participation in L/C Obligations deemed “held” by such Bank for purposes of this definition).

“Responsible Officer” means (i) with respect to the Borrower, the Chief Financial Officer, the Chief Executive Officer, the Treasurer, an Assistant Secretary-Treasurer, the Controller, the Vice President, Capital Markets Funding or, in each case, an authorized signatory of such Person and (ii) with respect to any other Person, the president, any vice-president, the chief financial officer, any assistant-treasurer or, in each case, an authorized signatory of such Person.

“Revolving Credit Period” means the period from and including the Effective Date to but excluding the Commitment Termination Date. 2.01(a).

“Revolving Loan” means a loan made by a Bank pursuant to Section

“RUS” means the Rural Utilities Service of the Department of Agriculture of the United States of America (as successor to the Rural Electrification Administration of the Department of Agriculture of the United States of America) or any other regulatory body which succeeds to its functions.

“RUS Guaranteed Loan” means any loan made by any Person, which loan is guaranteed, in whole or in part, as to principal and interest by the United States of America through the RUS pursuant to a guarantee, which guarantee contains provisions no less favorable to the holder thereof than the provisions set forth in the form of Exhibit B-1 or Exhibit B-2 hereto; and “Guaranteed Portion” of any RUS Guaranteed Loan means that portion of principal of, and interest on, such RUS Guaranteed Loan which is guaranteed by the United States of America through the RUS.

“S&P” means Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors.

“Second 2013 Amendment” means that certain Amendment No. 2 to this Agreement dated as of October 28, 2013, among the Borrower and the Banks party thereto.

“Second 2013 Fee Letter” means that certain Fee Letter dated October 9, 2013 among the Borrower, the Administrative Agent and the Syndication Agent.

“Second Amendment Effective Date” means the “Second Amendment Effective Date” as such term is defined in the Second 2013 Amendment.

79580.000005 EMF_US 47579852v13

19

such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. In addition, the Borrower shall, with respect to all Letters of Credit issued at its request, pay directly to each Issuing Bank for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of such Issuing Bank relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(e) Amendment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Bank on the SecondAmendment Effective Date the upfront fees required to be paid on such date, as set forth in the Second2013 Fee Letter.

Section 2.10. Optional Termination or Reduction of Commitments. During the Revolving Credit Period, the Borrower may, upon at least three Domestic Business Days’ notice to the Administrative Agent (which notice the Administrative Agent will promptly deliver to the Banks), (i) terminate the Commitments at any time, if no Loans are outstanding at such time or

(ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $1,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans.

Section 2.11. Mandatory Termination of Commitments. The Commitments shall terminate on the Commitment Termination Date.

Section 2.12. Optional Prepayments. (a) Subject in the case of Euro- Dollar Loans to Section 2.14, the Borrower may (i) on any Domestic Business Day, upon notice to the Administrative Agent, prepay any Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) or (ii) upon at least three Euro-Dollar Business Days’ notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans (or such Money Market Borrowing).

(b) Except as provided in Section 2.12(a), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof.

(c) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank’s ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.

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36

(b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be;

(c) the fact that the Borrower is in compliance with Section 7.11 of the 1994 Indenture, as such Indenture is in effect as of the date hereof;

(d) the fact that the sum of (i) the aggregate outstanding principal amount of the Loans and (ii) the Outstanding Amount of L/C Obligations will not exceed the aggregate amount of the Commitments (as such Commitments may be increased pursuant to Section 2.17;

(e) the fact that no Default shall have occurred and be continuing;

(f) the fact that the representations and warranties of the Borrower (in the case of a Borrowing or L/C Credit Extension, other than the representations set forth in Section 4.02(c), Section 4.03 and Section 4.14) contained in this Agreement shall be true in all material respects (other than any such representations or warranties that, by their terms, refer to a specific date other than the date of Borrowing or L/C Credit Extension, in which case such representations and warranties shall be true in all material respects as of such specific date); provided that, in the case of the representation set forth in Section 4.06 being made after the Second AmendmentEffective Date, such representation shall be true except to the extent not reasonably expected to have a material adverse effect on the business, financial position or results of operations of the Borrower; and

(g) the fact that (i) there shall be no collateral securing Bonds issued pursuant to any Indenture of a type other than the types of collateral permitted to secure Bonds issued pursuant to such Indenture as of the date hereof, (ii) the allowable amount of eligible collateral then pledged under any Indenture shall not exceed 150% of the aggregate principal amount of Bonds then outstanding under such Indenture and (iii) no collateral shall secure Bonds other than (A) eligible collateral under such Indenture, the allowable amount of which is included within the computation under subsection (ii) above or (B) collateral previously so pledged which ceases to be such eligible collateral not as a result of any acts or omissions to act of the Borrower (other than the declaration of an “event of default” as defined in a mortgage which results in the exercise of any right or remedy described in such mortgage).

Each Borrowing or L/C Credit Extension hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing or L/C Credit Extension as to the facts specified in clauses (c), (d), (e), (f) and (g) of this Section 3.03.

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Section 9.13. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 9.14. USA Patriot Act. Each Bank hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank to identify the Borrower in accordance with the Act.

Section 9.15. ICC Transactions. Notwithstanding anything to the contrary set forth in this Agreement (without limiting the terms of the penultimate sentence of this Section 9.15), including the 2013 Amendment andthe Second2013 Amendment, or in any of the Notes or other instruments or documents that have been or are in the future executed or delivered pursuant to, or that otherwise relate to, this Agreement, including the 2013 Amendment and the Second2013 Amendment, or to any Committed Borrowings or Loans hereunder (all of the foregoing, collectively with this Agreement, the “Credit Documentation”), (a) to the extent necessary under the Credit Documentation, the Banks hereby consent to, and waive any Default, Event of Default or other breach, violation, default or noncompliance with the provisions of the Credit Documentation that might otherwise be caused by or be attributable to, the “ICC Transactions” as such term is defined in Schedule 9.15 hereto, and (b) the ICC Transactions, the “ICC Assets,” the “ICC Related Companies” (as such terms are respectively defined in Schedule 9.15 hereto), and the assets, liabilities and operations of the ICC Related Companies (including without limitation any circumstances, events, occurrences, actions or omissions relating to, of or by any of the ICC Related Companies), are hereby excluded from, and shall not be taken into account in applying, interpreting or determining compliance with, the provisions of the Credit Documentation (including without limitation, the definitions, representations, warranties, covenants, agreements, conditions and events of default set forth in the Credit Documentation) and may be excluded from any certifications, notices, reports or statements delivered or to be delivered pursuant to the Credit Documentation. Without limiting the generality of the foregoing, the defined terms “ERISA Group,” “Joint Venture,” “Member” and “Subsidiary,” among others, as used in the Credit Documentation shall not include the ICC Related Companies. Notwithstanding the preceding provisions of this Section 9.15, any new investments in the ICC Related Companies by purchase of equity and/or debt securities, funding (through capital contributions and/or newly originated loans) of working capital or capital expenditure needs of the ICC Related Companies, payment by RTFC (as such term is defined in Schedule 9.15 hereto) or the Borrower of claims of other creditors of the ICC Related Companies, and/or provision of any new guarantees, letters of credit and/or other new credit support or credit enhancement of the debt or other

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COMMITMENT SCHEDULE

Institution	Commitment
JPMorgan Chase Bank, N.A.	$	120,000,000.00
The Royal Bank of Scotland plc	$	120,000,000.00
The Bank of Tokyo-Mitsubishi UFJ, Ltd.	$	120,000,000.00
KeyBank National Association	$	130,000,000.00
Royal Bank of Canada	$	155,000,000.00
Mizuho Corporate Bank, (USA)	$	100,000,000.00
U.S. Bank N.A	$	85,000,000.00
SunTrust Bank	$	75,000,000.00
PNC Bank, National Association	$	65,000,000.00
The Bank of Nova Scotia	$	37,500,000.00
Compass Bank	$	25,000,000.00
Total:	$	1,032,500,000.00

79580.000005 EMF_US 47579852v13

Commitment Schedule

EX-31.1

Exhibit 31.1

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

I, Sheldon C. Petersen, certify that:

1. I have reviewed this report on Form 10-Q of National Rural Utilities Cooperative Finance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 13, 2014

/s/ SHELDON C. PETERSEN

Sheldon C. Petersen

Chief Executive Officer

A signed original of this written statement required by Section 302 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2

Exhibit 31.2

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

I, J. Andrew Don, certify that:

1. I have reviewed this report on Form 10-Qof National Rural Utilities Cooperative Finance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 13, 2014

/s/ J. ANDREW DON

J. Andrew Don

Chief Financial Officer

A signed original of this written statement required by Section 302 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.1

Exhibit 32.1

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sections 1350(a) and (b)), I, the Chief Executive Officer of National Rural Utilities Cooperative Finance Corporation (“CFC”), hereby certify to the best of my knowledge as follows:

1. CFC’s November 30, 2013 Form 10-Q filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CFC.

January 13, 2014

By: /s/ SHELDON C. PETERSEN

Sheldon C. Petersen

Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

National Rural Utilities Cooperative Finance Corporation

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(18 U.S.C. Section 1350)

Pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Sections 1350(a) and (b)), I, the Chief Financial Officer of National Rural Utilities Cooperative Finance Corporation (“CFC”), hereby certify to the best of my knowledge as follows:

1. CFC’s November 30, 2013 Form 10-Q filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CFC.

January 13, 2014

By: /s/ J. ANDREW DON

J. Andrew Don

Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to National Rural Utilities Cooperative Finance Corporation and will be retained by National Rural Utilities Cooperative Finance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Loans and Commitments (Details 3) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013		May 31, 2013		Nov. 30, 2012
Credit Quality
Total loans outstanding	$ 20,378,430	[1]	$ 20,296,317	[1]	$ 19,097,174
Pass
Credit Quality
Total loans outstanding	20,334,545		20,249,372
Criticized
Credit Quality
Total loans outstanding	43,885		46,945
RTFC
Credit Quality
Total loans outstanding	466,863		503,359
RTFC | Pass
Credit Quality
Total loans outstanding	450,668		483,058
RTFC | Criticized
Credit Quality
Total loans outstanding	16,195		20,301
NCSC
Credit Quality
Total loans outstanding	732,253		773,141
NCSC | Pass
Credit Quality
Total loans outstanding	728,482		770,419
NCSC | Criticized
Credit Quality
Total loans outstanding	3,771		2,722
CFC
Credit Quality
Total loans outstanding	19,179,314	[1]	19,019,817	[1]	19,064,837
CFC | Pass
Credit Quality
Total loans outstanding	19,155,395		18,995,895
CFC | Criticized
Credit Quality
Total loans outstanding	23,919		23,922
CFC | Distribution
Credit Quality
Total loans outstanding	15,019,692		14,941,192
CFC | Distribution | Pass
Credit Quality
Total loans outstanding	15,001,056		14,922,558
CFC | Distribution | Criticized
Credit Quality
Total loans outstanding	18,636		18,634
CFC | Power supply
Credit Quality
Total loans outstanding	4,094,415		4,007,669
CFC | Power supply | Pass
Credit Quality
Total loans outstanding	4,089,415		4,002,669
CFC | Power supply | Criticized
Credit Quality
Total loans outstanding	5,000		5,000
CFC | Statewide and associate
Credit Quality
Total loans outstanding	65,207	[1]	70,956	[1]
CFC | Statewide and associate | Pass
Credit Quality
Total loans outstanding	64,924		70,668
CFC | Statewide and associate | Criticized
Credit Quality
Total loans outstanding	$ 283		$ 288

[1] Includes non-performing and restructured loans.

XML

Derivative Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Nov. 30, 2013	May 31, 2013
Interest rate swaps
Derivative Financial Instruments
Notional amount	$ 8,371,662	$ 8,788,329
Weighted-average rate paid (as a percent)	2.51%	2.49%
Weighted-average rate received (as a percent)	1.57%	2.00%
Pay fixed-receive variable
Derivative Financial Instruments
Notional amount	5,446,222	5,287,889
Weighted-average rate paid (as a percent)	3.35%	3.39%
Weighted-average rate received (as a percent)	0.23%	0.26%
Pay variable-receive fixed
Derivative Financial Instruments
Notional amount	$ 2,925,440	$ 3,500,440
Weighted-average rate paid (as a percent)	0.95%	1.12%
Weighted-average rate received (as a percent)	4.06%	4.62%

XML

Short-Term Debt and Credit Arrangements (Details 1) (USD $) In Thousands, unless otherwise specified											6 Months Ended
	Nov. 30, 2013	May 31, 2013	Nov. 30, 2013 Three Year Agreement Maturing On 21 March 2014	May 31, 2013 Three Year Agreement Maturing On 21 March 2014	Nov. 30, 2013 Three-year agreement maturing on October 28, 2016	May 31, 2013 Three-year agreement maturing on October 28, 2016	Nov. 30, 2013 Four-year agreement maturing on October 28, 2017	May 31, 2013 Four-year agreement maturing on October 28, 2017	Nov. 30, 2013 Five-year agreement maturing on October 28, 2018	May 31, 2013 Five-year agreement maturing on October 28, 2018	Nov. 30, 2013 Revolving credit agreements Three Year Agreement Maturing On 21 March 2014		Nov. 30, 2013 Revolving credit agreements Three-year agreement maturing on October 28, 2016		Nov. 30, 2013 Revolving credit agreements Four-year agreement maturing on October 28, 2017		Nov. 30, 2013 Revolving credit agreements Five-year agreement maturing on October 28, 2018
Revolving Credit Agreements
Total available	$ 3,343,109	$ 3,096,512	$ 219,000	$ 219,000	$ 1,006,000	$ 916,000	$ 1,087,500	$ 1,007,500	$ 1,030,609	$ 954,012
Letters of credit outstanding	$ 1,891	$ 3,488	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 1,891	$ 3,488
Facility fee per year											15 basis points	[1]	10 basis points	[1]	10 basis points	[1]	10 basis points	[1]

[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.

XML

Derivative Financial Instruments (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013	Nov. 30, 2012
Derivative Financial Instruments
Derivative forward value			$ 111,760	$ 961
Derivative gains (losses)	(30,780)	(3,766)	75,604	(28,358)
Interest Rate Swap
Derivative Financial Instruments
Derivative cash settlements	(19,471)	(15,456)	(36,156)	(29,319)
Derivative forward value	(11,309)	11,690	111,760	961
Derivative gains (losses)	$ (30,780)	$ (3,766)	$ 75,604	$ (28,358)

XML

Foreclosed Assets (Details Textual) (DRP, Foreclosed Assets, USD $) In Millions, unless otherwise specified	6 Months Ended
	Nov. 30, 2013
DRP | Foreclosed Assets
Proceeds from Sale of Foreclosed Assets	$ 4

XML

General Information and Accounting Policies (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012
Immaterial Correction of Errors
Advances made on loans	$ (3,941,276)	$ (2,486,149)
Net proceeds from sale of loans		0
Proceeds from issuances of short-term debt, net	64,751	90,853
Proceeds from issuances of short term debt with original maturity greater than 90 days	468,142	322,406
Repayments of short term debt with original maturity greater than 90 days	(324,820)	(198,172)
As Filed
Immaterial Correction of Errors
Advances made on loans		(2,584,296)
Net proceeds from sale of loans		98,147
Proceeds from issuances of short-term debt, net		215,087
Proceeds from issuances of short term debt with original maturity greater than 90 days		0
Repayments of short term debt with original maturity greater than 90 days		0
Adjustment
Immaterial Correction of Errors
Advances made on loans		98,147
Net proceeds from sale of loans		(98,147)
Proceeds from issuances of short-term debt, net		(124,234)
Proceeds from issuances of short term debt with original maturity greater than 90 days		322,406
Repayments of short term debt with original maturity greater than 90 days		$ (198,172)

XML

Derivative Financial Instruments (Details 3) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Assets:
Derivative assets	$ 291,757	$ 257,878
Liabilities:
Derivative liabilities	397,695	475,278
Interest rate swaps
Assets:
Gross amounts of recognized assets	291,757	257,878
Grossamounts offset in the condensed consolidated balance sheets	0	0
Net amounts of assets/liabilities presented in the condensed consolidated balance sheets	291,757	257,878
Gross amounts not offset in the condensed consolidated balance sheets - Financial instruments	212,917	203,161
Gross amounts not offset in the condensed consolidated balance sheets - Cash collateral pledged	0	0
Derivative assets	78,840	54,717
Liabilities:
Gross amounts of recognized liabilities	397,695	475,278
Grossamounts offset in the condensed consolidated balance sheets	0	0
Net amounts of assets/liabilities presented in the condensed consolidated balance sheets	397,695	475,278
Gross amounts not offset in the condensed consolidated balance sheets - Financial instruments	212,917	203,161
Gross amounts not offset in the condensed consolidated balance sheets - Cash collateral pledged	0	0
Derivative liabilities	$ 184,778	$ 272,117

XML

Long-Term Debt (Tables)

6 Months Ended

Nov. 30, 2013

Long-Term Debt

Schedule of Long-term Debt Instruments

The following is a summary of long-term debt outstanding:

	November 30,		May 31,
	2013		2013
(dollar amounts in thousands)
Unsecured long-term debt:
Medium-term notes sold through dealers	$	1,780,416	$	1,528,424
Medium-term notes sold to members		143,280		182,790
Subtotal		1,923,696		1,711,214
Unamortized discount		(620)		(627)
Total unsecured medium-term notes		1,923,076		1,710,587
Unsecured notes payable		4,034,075		3,709,074
Unamortized discount		(845)		(920)
Total unsecured notes payable		4,033,230		3,708,154
Total unsecured long-term debt		5,956,306		5,418,741
Secured long-term debt:
Collateral trust bonds		5,434,372		4,639,372
Unamortized discount		(179,976)		(181,640)
Total secured collateral trust bonds		5,254,396		4,457,732
Secured notes payable		1,097,202		819,960
Total secured long-term debt		6,351,598		5,277,692
Total long-term debt	$	12,307,904	$	10,696,433

XML

Short-Term Debt and Credit Arrangements (Details Textual) (USD $) In Millions, unless otherwise specified	Oct. 28, 2013 Three-year agreement maturing on October 28, 2016	Oct. 28, 2013 Four-year agreement maturing on October 28, 2017	Oct. 28, 2013 Five-year agreement maturing on October 28, 2018	Nov. 30, 2013 Revolving credit agreements	May 31, 2013 Revolving credit agreements
Maximum borrowing capacity lines of credit	$ 1,006	$ 1,088	$ 1,033	$ 3,345	$ 3,100
Maximum borrowing capacity letters of credit				100
Line of Credit Facility, Amount Outstanding				$ 0	$ 0

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Loans and Commitments (Details 6) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013	Nov. 30, 2012	May 31, 2013
Recorded investment in individually-impaired loans and the related specific valuation allowance
With no specific allowance recorded	$ 12,584		$ 12,584		$ 51,953
With a specific allowance recorded	5,794		5,794		10,497
Total impaired loans	18,378		18,378		62,450
Related allowance	1,818		1,818		3,427
Average recorded investment
Total impaired loans	19,879	82,324	27,954	289,645
Interest income recognized
Interest impaired loans	0	7,625	136	13,087
Interest income reduction as a result of holding loans on non-accrual status
Interest income reduced	264	373	565	780
CFC | Distribution
Recorded investment in individually-impaired loans and the related specific valuation allowance
With no specific allowance recorded	7,584		7,584		46,953
Average recorded investment
Total impaired loans	7,584	70,706	14,116	277,891
Interest income recognized
Interest impaired loans	0	7,625	136	13,087
CFC | Power Supply
Recorded investment in individually-impaired loans and the related specific valuation allowance
With no specific allowance recorded	5,000		5,000		5,000
Average recorded investment
Total impaired loans	5,000	5,000	5,000	5,000
Interest income recognized
Interest impaired loans	0	0	0	0
RTFC
Recorded investment in individually-impaired loans and the related specific valuation allowance
With a specific allowance recorded	5,794		5,794		10,497
Related allowance	1,818		1,818		3,427
Average recorded investment
Total impaired loans	7,295	6,618	8,838	6,754
Interest income recognized
Interest impaired loans	0	0	0	0
Non-performing loans
Interest income reduction as a result of holding loans on non-accrual status
Interest income reduced	142	373	321	780
Restructured loans
Interest income reduction as a result of holding loans on non-accrual status
Interest income reduced	$ 122	$ 0	$ 244	$ 0

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Loans and Commitments (Details 1) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Notional maturities of committed lines of credit
Total unadvanced commitments		$ 39,000
Unadvanced commitments subject to material adverse change clauses
Notional maturities of committed lines of credit
2014	44,048
2015	63,776
2016	61,000
2017	636,111
2018	894,080
Thereafter	248,785
Total unadvanced commitments	$ 1,947,800	$ 11,720,000

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Long-Term Debt (Details Textual) (USD $)							6 Months Ended
	Nov. 30, 2013	May 31, 2013	Nov. 30, 2013 Subsequent Event [Member]	Jun. 30, 2013 2.35% Collateral Trust Bonds Due 2020	Nov. 30, 2013 3.4% Collateral Trust Bonds Due 2023	Dec. 16, 2013 4.75% Collateral Trust Bonds Due March 1, 2014	Nov. 30, 2013 Committed Loan Facilities Federal Financing Bank Loan Guarantees RUS	Nov. 30, 2013 Committed Loan Facilities Federal Financing Bank	Nov. 30, 2013 Committed Loan Facilities Federal Financing Bank Maximum	Nov. 30, 2013 Unsecured Notes Payable	May 31, 2013 Unsecured Notes Payable	Nov. 30, 2013 Unsecured Notes Payable Federal Financing Bank	May 31, 2013 Unsecured Notes Payable Federal Financing Bank	Nov. 30, 2013 Secured notes payable Federal Agricultural Mortgage Corporation	May 31, 2013 Secured notes payable Federal Agricultural Mortgage Corporation
Debt Instrument [Line Items]
Long-term Debt, Current Maturities, Total	$ 2,208,785,000	$ 3,669,351,000												$ 450,000,000	$ 741,000,000
Long Term Debt, Gross, Noncurrent										4,034,075,000	3,709,074,000	3,999,000,000	3,674,000,000	1,529,000,000	1,542,000,000
Debt Instrument Maximum Borrowing Capacity							500,000,000							3,900,000,000
Proceeds from Issuance of Debt								325,000,000
Debt Instrument, Interest Rate, Stated Percentage				2.35%	3.40%	4.75%
Debt Instrument, Repurchased Face Amount						150,000,000
Debt Instrument, Face Amount						600,000,000
Debt Instrument Carrying Amount Issued				400,000,000	400,000,000
Debt Instrument, Term							20 years
Debt Instrument, Unused Borrowing Capacity, Amount									924,000,000
Unamortized Premium And Issuance Cost			$ 1,400,000

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Fair Value of Financial Instruments (Details Textual) (USD $)																											6 Months Ended
	Nov. 30, 2013	May 31, 2013	Nov. 30, 2013 Subordinated Deferrable Debt	May 31, 2013 Subordinated Deferrable Debt	Nov. 30, 2013 Subordinated certificates	May 31, 2013 Subordinated certificates	Nov. 30, 2013 Fair Value, Inputs, Level 1	May 31, 2013 Fair Value, Inputs, Level 1	Nov. 30, 2013 Fair Value, Inputs, Level 1 Subordinated Deferrable Debt	May 31, 2013 Fair Value, Inputs, Level 1 Subordinated Deferrable Debt	Nov. 30, 2013 Fair Value, Inputs, Level 1 Commercial Paper Sold Through Dealers Net of Discounts Bank Bid Notes and Daily Liquidity Fund Notes Sold Directly to	May 31, 2013 Fair Value, Inputs, Level 1 Commercial Paper Sold Through Dealers Net of Discounts Bank Bid Notes and Daily Liquidity Fund Notes Sold Directly to	Nov. 30, 2013 Fair Value, Inputs, Level 2	May 31, 2013 Fair Value, Inputs, Level 2	Nov. 30, 2013 Fair Value, Inputs, Level 2 Subordinated Deferrable Debt	May 31, 2013 Fair Value, Inputs, Level 2 Subordinated Deferrable Debt	Nov. 30, 2013 Fair Value, Inputs, Level 2 Commercial Paper Sold Directly to Members at Par Commercial Paper Sold Directly to Non Members at Par and Select Notes	May 31, 2013 Fair Value, Inputs, Level 2 Commercial Paper Sold Directly to Members at Par Commercial Paper Sold Directly to Non Members at Par and Select Notes	Nov. 30, 2013 Fair Value, Inputs, Level 2 Collateral Trust Bonds and Medium Term Notes	May 31, 2013 Fair Value, Inputs, Level 2 Collateral Trust Bonds and Medium Term Notes	Nov. 30, 2013 Fair Value, Inputs, Level 3	May 31, 2013 Fair Value, Inputs, Level 3	May 31, 2013 Fair Value, Inputs, Level 3 Subordinated Deferrable Debt	Nov. 30, 2013 Fair Value, Inputs, Level 3 Subordinated certificates	Nov. 30, 2013 Fair Value, Inputs, Level 3 Notes Payable, Other Payables	May 31, 2013 Fair Value, Inputs, Level 3 Notes Payable, Other Payables	Nov. 30, 2013 Maximum	Nov. 30, 2013 Minimum
Maturity Period of Short Term Debt for which Fair Value is Estimated Based on Quoted Market Rates																											90 days	90 days
Cash and Cash Equivalents, Fair Value Disclosure							$ 301,000,000	$ 177,000,000
Restricted Cash and Cash Equivalents	8,651,000	7,696,000					9,000,000	8,000,000
Investments, Fair Value Disclosure							26,000,000	32,000,000
Time Deposits, at Carrying Value	800,000,000	700,000,000											800,000,000	700,000,000
Subordinated Long-term Debt, Noncurrent			400,000,000	400,000,000	1,637,282,000	1,729,226,000			4,000,000	4,000,000					376,000,000	404,000,000							1,881,000,000	1,755,000,000
Loans Receivable, Fair Value Disclosure																					20,746,000,000	21,318,000,000
Debt Service Reserve	39,353,000	39,803,000					39,000,000	40,000,000
Debt, Current	6,466,990,000	7,719,483,000									2,633,000,000	2,840,000,000					1,625,000,000	1,210,000,000	1,639,000,000	2,912,000,000					584,000,000	789,000,000
Other Long-term Debt, Noncurrent																			8,187,000,000	7,410,000,000					5,257,000,000	4,746,000,000
Guarantees, Fair Value Disclosure																					27,000,000	28,000,000
Derivative assets	291,757,000	257,878,000					0	0					291,757,000	257,878,000
Derivative liabilities	$ 397,695,000	$ 475,278,000					$ 0	$ 0					$ 397,695,000	$ 475,278,000

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Guarantees (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013	Nov. 30, 2012
Activity in the guarantee liability account
Beginning balance as of May 31, 2013			$ 24,742
Net change in non-contingent liability	(850)		(850)
Provision for contingent guarantee liability	(73)	92	(42)	101
Ending balance as of November 30, 2013	$ 23,934		$ 23,934
Liability as a percentage of total guarantees	2.19%		2.19%

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Short-Term Debt and Credit Arrangements (Details) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013		May 31, 2013
Short-Term Debt Outstanding
Short Term Debt	$ 4,258,205		$ 4,050,132
Total short-term debt	6,466,990		7,719,483
Long-term debt maturing within one year:
Total long-term debt maturing within one year	2,208,785		3,669,351
Commercial Paper Sold Through Dealers, Net Of Discounts
Short-Term Debt Outstanding
Short Term Debt	1,876,868	[1]	2,009,884	[1]
Commercial Paper Sold Directly To Mebers At Par
Short-Term Debt Outstanding
Short Term Debt	1,011,155	[1]	812,141	[1]
Commercial Paper Sold Directly To Nonmebers At Par
Short-Term Debt Outstanding
Short Term Debt	25,006	[1]	39,298	[1]
Select Notes
Short-Term Debt Outstanding
Short Term Debt	588,590		358,390
Bank Bid Notes
Short-Term Debt Outstanding
Short Term Debt	150,000		150,000
Medium Term Notes Sold Through Dealers
Long-term debt maturing within one year:
Total long-term debt maturing within one year	607,472		989,607
Medium Term Notes Sold to Members
Long-term debt maturing within one year:
Total long-term debt maturing within one year	416,998		391,318
Daily Liquidity Fund Notes Sold DirectlyTomember
Short-Term Debt Outstanding
Short Term Debt	606,586		680,419
Collateral Trust Bonds
Long-term debt maturing within one year:
Total long-term debt maturing within one year	604,994		1,504,949
Loan and Gurantees Subordinated Certificates
Long-term debt maturing within one year:
Total long-term debt maturing within one year	37,827		37,176
Member Capital Securities
Long-term debt maturing within one year:
Total long-term debt maturing within one year	85,615		0
Secured Notes Payable
Long-term debt maturing within one year:
Total long-term debt maturing within one year	451,972		742,402
Unsecured Notes Payable
Long-term debt maturing within one year:
Total long-term debt maturing within one year	$ 3,907		$ 3,899

[1] Backup liquidity is provided by our revolving credit agreements.

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Loans and Commitments

6 Months Ended

Nov. 30, 2013

Loans and Commitments

Loans and Commitments

(3) Loans and Commitments

Loans outstanding to members and unadvanced commitments by loan type and by member class are summarized as follows:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Loans outstanding		Unadvanced commitments (1)		Loans outstanding		Unadvanced commitments (1)
Total by loan type (2):
Long-term fixed-rate loans	$	18,149,347	$	-	$	17,918,268	$	-
Long-term variable-rate loans		691,568		5,134,559		782,006		4,718,162
Loans guaranteed by RUS		204,465		-		210,815		-
Line of credit loans		1,333,050		8,880,648		1,385,228		8,704,586
Total loans outstanding		20,378,430		14,015,207		20,296,317		13,422,748
Deferred origination costs		9,790		-		9,557		-
Less: Allowance for loan losses		(55,199)		-		(54,325)		-
Net loans outstanding	$	20,333,021	$	14,015,207	$	20,251,549	$	13,422,748
Total by member class (2):
CFC:
Distribution	$	15,019,692	$	9,414,509	$	14,941,192	$	8,948,826
Power supply		4,094,415		3,133,967		4,007,669		3,145,518
Statewide and associate		65,207		107,493		70,956		102,087
CFC total		19,179,314		12,655,969		19,019,817		12,196,431
RTFC		466,863		305,649		503,359		317,344
NCSC		732,253		1,053,589		773,141		908,973
Total loans outstanding	$	20,378,430	$	14,015,207	$	20,296,317	$	13,422,748

(1) The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2) Includes non-performing and restructured loans.

Non-performing and restructured loans outstanding and unadvanced commitments to members included in the table on page 12 are summarized as follows by loan type and by company:

	November 30, 2013				May 31, 2013
	Loans		Unadvanced		Loans		Unadvanced
(dollar amounts in thousands)	outstanding		commitments (1)		outstanding		commitments (1)
Non-performing and restructured loans:
Non-performing loans:
CFC:
Line of credit loans	$	5,000	$	-	$	5,000	$	-
RTFC:
Long-term fixed-rate loans		3,010		-		3,690		-
Long-term variable-rate loans		2,784		-		6,807		-
Total non-performing loans	$	10,794	$	-	$	15,497	$	-
Restructured loans:
CFC:
Long-term fixed-rate loans	$	7,584	$	-	$	46,953	$	-
Line of credit loans (2)		-		-		-		5,000
Total restructured loans	$	7,584	$	-	$	46,953	$	5,000

(1) The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2) The unadvanced commitment is part of the terms outlined in the related restructure agreement. Loans advanced under these commitments would be classified as performing. Principal and interest due under these performing loans would be in addition to scheduled payments due under the restructured loan agreement.

Unadvanced Loan Commitments

A total of $1,948 million and $1,703 million of unadvanced commitments at November 30, 2013 and May 31, 2013, respectively, represented unadvanced commitments related to committed lines of credit loans that are not subject to a material adverse change clause at the time of each loan advance. As such, we will be 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 committed lines of credit that are not subject to a material adverse change clause at November 30, 2013, and the related maturities by fiscal year and thereafter as follows:

	Available		Notional maturities of committed lines of credit
(dollar amounts in thousands)	balance		2014		2015		2016		2017		2018		Thereafter
Committed lines of credit	$	1,947,800	$	44,048	$	63,776	$	61,000	$	636,111	$	894,080	$	248,785

The remaining unadvanced commitments totaling $12,067 million and $11,720 million at November 30, 2013 and May 31, 2013, respectively, were generally subject to material adverse change clauses. 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 imposition of borrower-specific restrictions, or by additional conditions that must be met prior to advancing funds.

Unadvanced 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 cover maintenance and capital expenditure work plans for periods of up to five years and draw down on the facility over that time. In addition, borrowers will typically request an amount in excess of their immediate estimated loan requirements to avoid the expense related to seeking additional loan funding for unexpected items.

The above items all contribute to our expectation that the majority of the unadvanced commitments will expire without being fully drawn upon and that the total unadvanced amount does not necessarily represent future cash funding requirements.

Payment Status of Loans

The tables below show an analysis of the age of the recorded investment in loans outstanding by member class:

	November 30, 2013
(dollar amounts in thousands)	30-89 days past due			90 days or more past due (1)			Total past due			Current			Total financing receivables			Non-accrual loans
CFC:
Distribution	$	-		$	-		$	-		$	15,019,692		$	15,019,692		$	7,584
Power supply		-			5,000			5,000			4,089,415			4,094,415			5,000
Statewide and associate		-			-			-			65,207			65,207			-
CFC total		-			5,000			5,000			19,174,314			19,179,314			12,584
RTFC		-			3,858			3,858			463,005			466,863			5,794
NCSC		-			-			-			732,253			732,253			-
Total loans outstanding	$	-		$	8,858		$	8,858		$	20,369,572		$	20,378,430		$	18,378
As a % of total loans		0.00	%		0.04	%		0.04	%		99.96	%		100.00	%		0.09	%

(1) All loans 90 days or more past due are on non-accrual status.

	May 31, 2013
(dollar amounts in thousands)	30-89 days past due			90 days or more past due (1)			Total past due			Current			Total financing receivables			Non-accrual loans
CFC:
Distribution	$	2,841		$	-		$	2,841		$	14,938,351		$	14,941,192		$	7,584
Power supply		-			5,000			5,000			4,002,669			4,007,669			5,000
Statewide and associate		-			-			-			70,956			70,956			-
CFC total		2,841			5,000			7,841			19,011,976			19,019,817			12,584
RTFC		4,163			4,156			8,319			495,040			503,359			10,497
NCSC		-			-			-			773,141			773,141			-
Total loans outstanding	$	7,004		$	9,156		$	16,160		$	20,280,157		$	20,296,317		$	23,081
As a % of total loans		0.03	%		0.05	%		0.08	%		99.92	%		100.00	%		0.11	%

(1) All loans 90 days or more past due are on non-accrual status.

Credit Quality

We monitor the credit quality and performance statistics of our financing receivables in an ongoing manner to provide a balance between the credit needs of our members and the requirements for sound credit quality of the loan portfolio. We evaluate the credit quality of our loans using an internal risk rating system that employs similar criteria for all member classes.

Our internal risk rating system is based on a determination of a borrower’s risk of default utilizing both quantitative and qualitative measurements.

We have grouped our risk ratings into the categories of pass and criticized based on the criteria below.

(i)	Pass: Borrowers that are not experiencing difficulty and/or not showing a potential or well-defined credit weakness.
(ii)	Criticized: Includes borrowers categorized as special mention, substandard and doubtful as described below:

· 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 weakness and the full collection of principal and interest is questionable or improbable.

Borrowers included in the pass, special mention, and substandard categories are reflected in the general portfolio of loans. Borrowers included in the doubtful category are reflected in the impaired portfolio of loans. Each risk rating is reassessed annually based on the receipt of the borrower’s audited financial statements; however, interim downgrades and upgrades may take place at any time as significant events or trends occur.

The following table presents our loan portfolio by risk rating category and member class based on available data as of:

	November 30, 2013						May 31, 2013
(dollar amounts in thousands)	Pass		Criticized		Total		Pass		Criticized		Total
CFC:
Distribution	$	15,001,056	$	18,636	$	15,019,692	$	14,922,558	$	18,634	$	14,941,192
Power supply		4,089,415		5,000		4,094,415		4,002,669		5,000		4,007,669
Statewide and associate		64,924		283		65,207		70,668		288		70,956
CFC total		19,155,395		23,919		19,179,314		18,995,895		23,922		19,019,817
RTFC		450,668		16,195		466,863		483,058		20,301		503,359
NCSC		728,482		3,771		732,253		770,419		2,722		773,141
Total loans outstanding	$	20,334,545	$	43,885	$	20,378,430	$	20,249,372	$	46,945	$	20,296,317

Loan Security

Except when providing line of credit loans, we typically lend to our members on a senior secured basis. Long-term loans are typically secured on a parity with other secured lenders (primarily RUS), if any, by all assets and revenue of the borrower with exceptions typical in utility mortgages. Line of credit loans are generally unsecured. In addition to the lien and security interest we receive under the mortgage, our member borrowers are also required to achieve certain financial ratios as required by loan covenants.

The following table summarizes our secured and unsecured loans outstanding by loan type and by company:

	November 30, 2013								May 31, 2013
(dollar amounts in thousands)	Secured		%		Unsecured		%		Secured		%		Unsecured		%
Total by loan type:
Long-term fixed-rate loans	$	17,089,122	94	%	$	1,060,225	6	%	$	16,871,594	94	%	$	1,046,674	6	%
Long-term variable-rate loans		607,643	88			83,925	12			676,075	86			105,931	14
Loans guaranteed by RUS		204,465	100			-	-			210,815	100			-	-
Line of credit loans		303,417	23			1,029,633	77			294,575	21			1,090,653	79
Total loans outstanding	$	18,204,647	89		$	2,173,783	11		$	18,053,059	89		$	2,243,258	11
Total by company:
CFC	$	17,243,451	90	%	$	1,935,863	10	%	$	17,049,029	90	%	$	1,970,788	10	%
RTFC		446,007	96			20,856	4			482,647	96			20,712	4
NCSC		515,189	70			217,064	30			521,383	67			251,758	33
Total loans outstanding	$	18,204,647	89		$	2,173,783	11		$	18,053,059	89		$	2,243,258	11

Loan Loss Allowance

We maintain an allowance for loan losses at a level estimated by management to provide for probable losses inherent in the loan portfolio.

The activity in the loan loss allowance summarized in the tables below reflects a disaggregation by company of the allowance for loan losses by company:

 

	As of and for the three months ended November 30, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of August 31, 2013	$	43,336	$	8,497	$	3,823	$	55,656
(Recovery of) provision for loan losses		(627)		968		755		1,096
Charge-offs		-		(1,606)		-		(1,606)
Recoveries of loans previously charged-off		53		-		-		53
Balance as of November 30, 2013	$	42,762	$	7,859	$	4,578	$	55,199

	As of and for the three months ended November 30, 2012
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of August 31, 2012	$	136,781	$	8,877	$	6,843	$	152,501
(Recovery of) provision for loan losses		(3,256)		(563)		2		(3,817)
Recoveries of loans previously charged-off		53		-		-		53
Balance as of November 30, 2012	$	133,578	$	8,314	$	6,845	$	148,737

	As of and for the six months ended November 30, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of May 31, 2013	$	41,246	$	9,158	$	3,921	$	54,325
Provision for loan losses		1,410		307		657		2,374
Charge-offs		-		(1,606)		-		(1,606)
Recoveries of loans previously charged-off		106		-		-		106
Balance as of November 30, 2013	$	42,762	$	7,859	$	4,578	$	55,199

	As of and for the six months ended November 30, 2012
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of May 31, 2012	$	126,941	$	8,562	$	7,823	$	143,326
Provision for (recovery of) loan losses		6,531		(248)		(978)		5,305
Recoveries of loans previously charged-off		106		-		-		106
Balance as of November 30, 2012	$	133,578	$	8,314	$	6,845	$	148,737

Our allowance for loan losses includes a specific valuation allowance related to individually-evaluated impaired loans, as well as a general reserve for other probable incurred losses for loans that are collectively evaluated. The tables below present the loan loss allowance and the recorded investment in outstanding loans by impairment methodology and by company:

  

	November 30, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	42,762	$	6,041	$	4,578	$	53,381
Individually evaluated		-		1,818		-		1,818
Total ending balance of the allowance	$	42,762	$	7,859	$	4,578	$	55,199
Recorded investment in loans:
Collectively evaluated	$	19,166,730	$	461,069	$	732,253	$	20,360,052
Individually evaluated		12,584		5,794		-		18,378
Total recorded investment in loans	$	19,179,314	$	466,863	$	732,253	$	20,378,430
Loans to members, net (1)	$	19,136,552	$	459,004	$	727,675	$	20,323,231

	May 31, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	41,246	$	5,731	$	3,921	$	50,898
Individually evaluated		-		3,427		-		3,427
Total ending balance of the allowance	$	41,246	$	9,158	$	3,921	$	54,325
Recorded investment in loans:
Collectively evaluated	$	18,967,864	$	492,862	$	773,141	$	20,233,867
Individually evaluated		51,953		10,497		-		62,450
Total recorded investment in loans	$	19,019,817	$	503,359	$	773,141	$	20,296,317
Loans to members, net (1)	$	18,978,571	$	494,201	$	769,220	$	20,241,992

(1) Excludes deferred origination costs of  $10 million at November 30, 2013 and May 31, 2013.

Impaired Loans

Our recorded investment in individually-impaired loans and the related specific valuation allowance is summarized below by member class:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Recorded investment		Related allowance		Recorded investment		Related allowance
With no specific allowance recorded:
CFC/Distribution	$	7,584	$	-	$	46,953	$	-
CFC/Power Supply		5,000		-		5,000		-
Total		12,584		-		51,953		-
With a specific allowance recorded:
RTFC		5,794		1,818		10,497		3,427
Total		5,794		1,818		10,497		3,427
Total impaired loans	$	18,378	$	1,818	$	62,450	$	3,427

The recorded investment for impaired loans was equal to the total unpaid principal balance for impaired loans as of November 30, 2013 and May 31, 2013. The table below represents the average recorded investment in impaired loans and the interest income recognized by member class:

	For the three months ended November 30,
	2013		2012		2013		2012
(dollar amounts in thousands)	Average recorded investment				Interest income recognized
CFC/Distribution	$	7,584	$	70,706	$	-	$	7,625
CFC/Power Supply		5,000		5,000		-		-
RTFC		7,295		6,618		-		-
Total impaired loans	$	19,879	$	82,324	$	-	$	7,625

	For the six months ended November 30,
	Average recorded investment				Interest income recognized
(dollar amounts in thousands)	2013		2012		2013		2012
CFC/Distribution	$	14,116	$	277,891	$	136	$	13,087
CFC/Power Supply		5,000		5,000		-		-
RTFC		8,838		6,754		-		-
Total impaired loans	$	27,954	$	289,645	$	136	$	13,087

Non-performing and Restructured Loans

Foregone interest income as a result of holding loans on non-accrual status:

	For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Non-performing loans	$	142	$	373	$	321	$	780
Restructured loans		122		-		244		-
Total	$	264	$	373	$	565	$	780

At November 30, 2013 and May 31, 2013, non-performing loans totaled $11 million or 0.1 percent, of loans outstanding and $15 million or 0.1 percent, of loans outstanding, respectively. One borrower in this group is currently in bankruptcy. The members of the borrower filed a disclosure statement and draft plan of liquidation on October 18, 2013. Certain secured noteholders filed a disclosure statement and draft plan of reorganization on December 17, 2013. Each disclosure statement and plan is subject to certain changes, approval of the bankruptcy court and voting by impaired creditors. A status conference and hearing on both disclosure statements is scheduled for January 14, 2014. Another borrower in this group is contesting a ruling that it is required to repay state Universal Service Fund (“USF”) payments received. There is one other borrower in this group that is currently seeking a buyer for its system, as it is not anticipated that it will have sufficient cash flow to repay its loans without the proceeds from the sale of the business. It is currently anticipated that even with the sale of the business, there will not be sufficient funds to repay the full amount owed. We have approval rights with respect to the sale of this company.

At November 30, 2013 and May 31, 2013, we had restructured loans totaling $8 million, or 0.04 percent, of loans outstanding and $47 million, or 0.2 percent, of loans outstanding, respectively, all of which were performing according to their restructured terms. No interest income was accrued on restructured loans during the three months ended November 30, 2013 compared to $8 million of interest income during the prior-year period. Approximately $0.1 million of interest income was accrued on restructured loans during the six months ended November 30, 2013,  compared with $ 13 million of interest income in the prior-year period. One of the restructured loans totaling $39 million at May 31, 2013, was refinanced without concession during the first quarter of fiscal year 2014, with the new loan classified as performing at November 30, 2013. This loan was on accrual status since the time of restructuring. At November 30, 2013, all restructured loans were on non-accrual status.

We believe our allowance for loan loss is adequate to cover the losses inherent in our loan portfolio at November 30, 2013.

Pledging of Loans and Loans on Deposit

We are required to pledge eligible mortgage notes in an amount at least equal to the outstanding balance of our secured debt.

The following table summarizes our loans outstanding as collateral pledged to secure our collateral trust bonds, Clean Renewable Energy Bonds and notes payable to the Federal Agricultural Mortgage Corporation and the amount of the corresponding debt outstanding (see Note 5, Short-Term Debt and Credit Arrangements and Note 6, Long-Term Debt).

(dollar amounts in thousands)	November 30, 2013		May 31, 2013
Collateral trust bonds:
2007 indenture
Distribution system mortgage notes	$	5,536,853	$	5,674,804
RUS guaranteed loans qualifying as permitted investments		163,630		165,823
Total pledged collateral	$	5,700,483	$	5,840,627
Collateral trust bonds outstanding		4,579,372		4,679,372
1994 indenture
Distribution system mortgage notes	$	1,599,727	$	1,641,858
Collateral trust bonds outstanding		1,460,000		1,465,000
Federal Agricultural Mortgage Corporation:
Distribution and power supply system mortgage notes	$	1,693,828	$	1,795,947
Notes payable outstanding		1,529,286		1,542,474
Clean Renewable Energy Bonds Series 2009A:
Distribution and power supply system mortgage notes	$	22,467	$	23,536
Cash		8,651		7,634
Total pledged collateral	$	31,118	$	31,170
Notes payable outstanding		19,888		19,888

We are required to maintain collateral on deposit in an amount at least equal to the balance of debt outstanding to the Federal Financing Bank of the United States Treasury issued under the Guaranteed Underwriter program of the U.S. Department of Agriculture (the “Guaranteed Underwriter Program”). See Note 6, Long-Term Debt.

The following table shows the collateral on deposit and the amount of the corresponding debt outstanding:

(dollar amounts in thousands)	November 30, 2013		May 31, 2013
Federal Financing Bank
Distribution and power supply system mortgage notes on deposit	$	4,453,299	$	3,903,786
Notes payable outstanding		3,999,000		3,674,000

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Guarantees (Details Textual) (USD $)	6 Months Ended
	Nov. 30, 2013	May 31, 2013
Guarantor Obligations [Line Items]
Guarantor Obligations, Current Carrying Value	$ 1,094,229,000	$ 1,112,771,000
Guarantee Obligations Unsecured	406,000,000	410,000,000
Guarantee Obligations Unsecured Commitment as Percentage of Total Commitment	37.00%
Value of bonds issued under liquidity provider obligations	578,000,000
Guaranty Liabilities Contingent and Noncontingent	23,934,000	24,742,000
Guaranty Liabilities Contingent	2,000,000	2,000,000
Guaranty Liabilities	22,000,000	23,000,000
Long-term variable-rate bonds
Guarantor Obligations [Line Items]
Value of bonds issued under liquidity provider obligations	453,000,000
Letter of Credit Secured | Letter of Credit
Guarantor Obligations [Line Items]
Guarantee Obligations Secured	161,000,000
Master Letter of Credit | Letter of Credit
Guarantor Obligations [Line Items]
Letter of Credit Facility Maximum Additional Amount Potentially Required to be Issued	172,000,000
Hybrid Letter of Credit | Letter of Credit
Guarantor Obligations [Line Items]
Letter of Credit Facility Commitments that Can be Used for Issuance of Letters of Credit or Line of Credit Loan	1,371,000,000
Letter of Credit Facility Remaining Commitment	1,019,000,000
Hybrid Letter of Credit Subject to Material Adverse Change Clauses | Letter of Credit
Guarantor Obligations [Line Items]
Letter of Credit Facility Commitments that Can be Used for Issuance of Letters of Credit or Line of Credit Loan	352,000,000
Financial guarantees
Guarantor Obligations [Line Items]
Guarantor Obligations, Current Carrying Value	451,594,000	447,683,000
Financial guarantees | Long-term variable-rate bonds
Guarantor Obligations [Line Items]
Guarantor Obligations, Current Carrying Value	453,000,000	473,000,000
Financial guarantees | Long-term fixed-rate bonds
Guarantor Obligations [Line Items]
Guarantor Obligations, Current Carrying Value	74,000,000
Guarantor Obligations, Maximum Exposure, Undiscounted	121,000,000
Other guarantees
Guarantor Obligations [Line Items]
Guarantor Obligations, Current Carrying Value	115,645,000	117,118,000
Guarantor Obligations, Maximum Exposure, Undiscounted	117,000,000
Long Term Tax Exempt Loans
Guarantor Obligations [Line Items]
Letter of Credit Obligations Liquidity Provided to Member Carrying Value	$ 125,000,000

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Loans and Commitments (Details 7) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Pledging of Loans and Loans on Deposit
Cash	$ 8,651	$ 7,696
Collateral trust bonds 2007 indenture
Pledging of Loans and Loans on Deposit
Debt outstanding	4,579,372	4,679,372
Loans outstanding and pledged as collateral	5,700,483	5,840,627
Collateral trust bonds 1994 indenture
Pledging of Loans and Loans on Deposit
Debt outstanding	1,460,000	1,465,000
Notes payable | Federal Agricultural Mortgage Corporation
Pledging of Loans and Loans on Deposit
Debt outstanding	1,529,286	1,542,474
Notes payable | Federal Financing Bank
Pledging of Loans and Loans on Deposit
Debt outstanding	3,999,000	3,674,000
Clean Renewable Energy Bonds Series 2009A
Pledging of Loans and Loans on Deposit
Debt outstanding	19,888	19,888
Cash	8,651	7,634
Total pledged collateral	31,118	31,170
Mortgage notes | Distribution system mortgage notes | Federal Agricultural Mortgage Corporation
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	1,693,828	1,795,947
Mortgage notes | Distribution system mortgage notes | Collateral trust bonds 2007 indenture
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	5,536,853	5,674,804
Mortgage notes | Distribution system mortgage notes | Collateral trust bonds 1994 indenture
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	1,599,727	1,641,858
Mortgage notes | Distribution and power supply system mortgage notes | Clean Renewable Energy Bonds Series 2009A
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	22,467	23,536
RUS guaranteed loans qualifying as permitted investments | Collateral trust bonds 2007 indenture
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	163,630	165,823
Mortgage notes receivable on deposit | Distribution and power supply system mortgage notes | Federal Financing Bank
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	$ 4,453,299	$ 3,903,786

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Nov. 30, 2013

Fair Value of Financial Instruments

Fair Value, by Balance Sheet Grouping

Carrying and fair values for our financial instruments are presented as follows:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Carrying value		Fair value		Carrying value		Fair value
Assets:
Cash and cash equivalents	$	301,377	$	301,377	$	177,062	$	177,062
Restricted cash		8,651		8,651		7,696		7,696
Investments		26,388		26,388		31,632		31,632
Time deposits		800,000		800,000		700,000		700,000
Deferred compensation investments		4,169		4,169		3,716		3,716
Loans to members, net		20,333,021		20,746,388		20,251,549		21,318,406
Debt service reserve funds		39,353		39,353		39,803		39,803
Derivative instruments		291,757		291,757		257,878		257,878
Liabilities:
Short-term debt		6,466,990		6,480,895		7,719,483		7,751,021
Long-term debt		12,307,904		13,443,765		10,696,433		12,156,097
Guarantee liability		23,934		26,862		24,742		27,730
Derivative instruments		397,695		397,695		475,278		475,278
Subordinated deferrable debt		400,000		375,532		400,000		404,300
Members’ subordinated certificates		1,637,282		1,754,549		1,729,226		1,880,672
Off-balance sheet instruments:
Commitments		-		-		-		-

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Fair Value Measurement (Tables)

6 Months Ended

Nov. 30, 2013

Fair Value Measurement

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table presents our assets and liabilities that are measured at fair value on a recurring basis:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Level 1		Level 2			Level 1		Level 2
Derivative assets	$	-	$	291,757	$	-	$	257,878
Derivative liabilities		-		397,695		-		475,278
Investments in common and preferred stock		26,388		-		31,632		-
Deferred compensation investments		4,169		-		3,716		-

Fair Value Measurements, Nonrecurring

The following table provides the carrying/fair value of the related individual assets at November 30, 2013 and May 31, 2013:

	Level 3 Fair Value
(dollar amounts in thousands)	November 30, 2013		May 31, 2013
Non-performing loans, net of specific reserves	$	8,976	$	12,070

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Derivative Financial Instruments (Details 2) (Interest rate swaps, USD $) In Thousands, unless otherwise specified	Nov. 30, 2013		May 31, 2013
Derivative Financial Instruments
Notional amount	$ 8,371,662		$ 8,788,329
Counterparty Group
Derivative Financial Instruments
Notional amount	6,629,231
Entity's required payment	(163,026)
Entity's amount collected	88,745
Entity's net payment	(74,281)
Counterparty Group | Mutual rating trigger falls to Baa1/BBB+
Derivative Financial Instruments
Notional amount	1,500	[1]
Entity's required payment	(40)
Entity's amount collected	0	[1]
Entity's net payment	(40)	[1]
Counterparty Group | Mutual rating trigger falls below Baa1/BBB+
Derivative Financial Instruments
Notional amount	6,627,731	[1]
Entity's required payment	(162,986)
Entity's amount collected	88,745	[1]
Entity's net payment	$ (74,241)	[1]

[1] Stated senior unsecured credit ratings are for Moody’s Investors Service and Standard & Poor’s Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

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Loans and Commitments (Details Textual) (USD $)	1 Months Ended	6 Months Ended	9 Months Ended		6 Months Ended		9 Months Ended		12 Months Ended	6 Months Ended								6 Months Ended
	May 31, 2013	Nov. 30, 2013	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013 Performing Financing Receivable		Nov. 30, 2013 Performing Financing Receivable		May 31, 2013 Performing Financing Receivable	Nov. 30, 2013 Commitments to Extend Credit		May 31, 2013 Commitments to Extend Credit		May 31, 2013 Commitments to Extend Credit Performing Financing Receivable		Nov. 30, 2013 Unadvanced commitments subject to material adverse change clauses	May 31, 2013 Unadvanced commitments subject to material adverse change clauses	Nov. 30, 2013 Unadvanced commitments not subject to material adverse change clauses
Financing Receivable, Recorded Investment, Past Due [Line Items]
Other Commitment	$ 39,000,000				$ 0	[1]	$ 0	[1]		$ 14,015,207,000	[1],[2]	$ 13,422,748,000	[1],[2]	$ 5,000,000	[1]	$ 1,947,800,000	$ 11,720,000,000
Loans and Leases Receivable Unadvanced Commitments Period Maximum										5 years								5 years
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums, Commercial	9,557,000	9,790,000	9,790,000	8,033,000						0		0
Loans and Leases Receivable Commercial Net of Deferred Income Additions	15,000,000		11,000,000				8,000,000		47,000,000
Amount of Financing Receivable Refinanced					$ 13,000,000
Loans and Leases Receivable Commercial, Net of Deferred Income, Percentage	100.00%	100.00%	100.00%		0.10%		0.10%		0.20%
Intercompany Loans, Description		At November 30, 2013 and May 31, 2013, non-performing loans totaled $11 million or 0.1 percent, of loans outstanding and $15 million or 0.1 percent, of loans outstanding

[1] The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

[2] Includes non-performing and restructured loans.

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Segment Information (Tables)

6 Months Ended

Nov. 30, 2013

Segment Information

Schedule of Segment Reporting Information, by Segment

The following tables contain the segment presentation for the condensed consolidated statements of operations for the six months ended November 30, 2013 and 2012 and condensed consolidated balance sheets at November 30, 2013 and 2012.

	For the six months ended November 30, 2013
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	472,831	$	25,345	$	(17,851)	$	480,325
Interest expense		(332,200)		(18,581)		17,851		(332,930)
Net interest income		140,631		6,764		-		147,395
Provision for loan losses		(2,374)		-		-		(2,374)
Net interest income after provision for loan losses		138,257		6,764		-		145,021
Non-interest income:
Fee and other income		8,187		694		400		9,281
Derivative gains		74,351		1,253		-		75,604
Results of operations from foreclosed assets		(7,318)		-		-		(7,318)
Total non-interest income		75,220		1,947		400		77,567
Non-interest expense:
General and administrative expenses		(32,663)		(4,125)		(400)		(37,188)
Provision for guarantee liability		(42)		-		-		(42)
Other		(299)		1		-		(298)
Total non-interest expense		(33,004)		(4,124)		(400)		(37,528)
Income prior to income taxes		180,473		4,587		-		185,060
Income tax expense		-		(1,802)		-		(1,802)
Net income	$	180,473	$	2,785	$	-	$	183,258
Assets:
Total loans outstanding	$	20,342,560	$	1,199,116	$	(1,163,246)	$	20,378,430
Deferred origination costs		9,790		-		-		9,790
Less: Allowance for loan losses		(55,199)		-		-		(55,199)
Loans to members, net		20,297,151		1,199,116		(1,163,246)		20,333,021
Other assets		2,079,206		140,738		(121,601)		2,098,343
Total assets	$	22,376,357	$	1,339,854	$	(1,284,847)	$	22,431,364

	For the six months ended November 30, 2012
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	473,682	$	28,333	$	(20,300)	$	481,715
Interest expense		(350,034)		(21,163)		20,300		(350,897)
Net interest income		123,648		7,170		-		130,818
Provision for loan losses		(5,305)		-		-		(5,305)
Net interest income after provision for loan losses		118,343		7,170		-		125,513
Non-interest income:
Fee and other income		22,533		686		(454)		22,765
Derivative losses		(26,436)		(1,922)		-		(28,358)
Results of operations from foreclosed assets		(5,674)		-		-		(5,674)
Total non-interest income		(9,577)		(1,236)		(454)		(11,267)
Non-interest expense:
General and administrative expenses		(32,297)		(4,778)		454		(36,621)
Recovery of guarantee liability		101		-		-		101
Other		(4,547)		-		-		(4,547)
Total non-interest expense		(36,743)		(4,778)		454		(41,067)
Income prior to income taxes		72,023		1,156		-		73,179
Income tax expense		-		(452)		-		(452)
Net income	$	72,023	$	704	$	-	$	72,727
Assets:
Total loans outstanding	$	19,064,837	$	1,230,471	$	(1,198,134)	$	19,097,174
Deferred origination costs		8,033		-		-		8,033
Less: Allowance for loan losses		(148,737)		-		-		(148,737)
Loans to members, net		18,924,133		1,230,471		(1,198,134)		18,956,470
Other assets		1,623,931		153,837		(123,844)		1,653,924
Total assets	$	20,548,064	$	1,384,308	$	(1,321,978)	$	20,610,394

The following tables contain the segment presentation for the condensed consolidated statements of operations for the three months ended November 30, 2013 and 2012.

	For the three months ended November 30, 2013
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	235,505	$	12,582	$	(8,833)	$	239,254
Interest expense		(164,980)		(9,198)		8,833		(165,345)
Net interest income		70,525		3,384		-		73,909
Provision for loan losses		(1,096)		-		-		(1,096)
Net interest income after provision for loan losses		69,429		3,384		-		72,813
Non-interest income:
Fee and other income		4,163		342		620		5,125
Derivative losses		(29,232)		(1,548)		-		(30,780)
Results of operations from foreclosed assets		(3,269)		-		-		(3,269)
Total non-interest income		(28,338)		(1,206)		620		(28,924)
Non-interest expense:
General and administrative expenses		(15,942)		(2,011)		(620)		(18,573)
Provision for guarantee liability		(73)		-		-		(73)
Other		(151)		1		-		(150)
Total non-interest expense		(16,166)		(2,010)		(620)		(18,796)
Income prior to income taxes		24,925		168		-		25,093
Income tax expense		-		(101)		-		(101)
Net income	$	24,925	$	67	$	-	$	24,992

	For the three months ended November 30, 2012
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	237,711	$	13,946	$	(10,027)	$	241,630
Interest expense		(173,870)		(10,458)		10,027		(174,301)
Net interest income		63,841		3,488		-		67,329
Recovery of loan losses		3,817		-		-		3,817
Net interest income after recovery of loan losses		67,658		3,488		-		71,146
Non-interest income:
Fee and other income		17,741		292		(226)		17,807
Derivative losses		(3,391)		(375)		-		(3,766)
Results of operations from foreclosed assets		(909)		-		-		(909)
Total non-interest income		13,441		(83)		(226)		13,132
Non-interest expense:
General and administrative expenses		(17,425)		(2,252)		226		(19,451)
Recovery of guarantee liability		92		-		-		92
Other		(4,384)		-		-		(4,384)
Total non-interest expense		(21,717)		(2,252)		226		(23,743)
Income prior to income taxes		59,382		1,153		-		60,535
Income tax expense		-		(454)		-		(454)
Net income	$	59,382	$	699	$	-	$	60,081

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General Information and Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Nov. 30, 2013		Nov. 30, 2012		Nov. 30, 2013		Nov. 30, 2012
Components of interest income
Interest on investments	$ 1,817		$ 1,576		$ 3,753		$ 2,514
Fee income	3,154	[1]	1,876	[1]	5,170	[1]	3,904	[1]
Total interest income	239,254		241,630		480,325		481,715
Long-term fixed-rate loans
Components of interest income
Total interest income	221,952		218,247		446,535		436,187
Long-term variable-rate loans
Components of interest income
Total interest income	4,826		4,893		9,654		10,918
Line of credit loans
Components of interest income
Total interest income	7,505		7,413		15,077		15,105
Restructured loans
Components of interest income
Total interest income	$ 0		$ 7,625		$ 136		$ 13,087

[1] Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

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Investments

6 Months Ended

Nov. 30, 2013

Investments

Investments

(2) Investments

Our investments include Federal Agricultural Mortgage Corporation Series A preferred stock with a cost basis of $30 million and fair value of  $24 million and $29 million at November 30, 2013 and May 31, 2013, respectively, and an unrealized loss of $6 million and $1 million, respectively, recorded in accumulated other comprehensive income on the condensed consolidated balance sheet. The investment has been in a continuous unrealized loss position for less than twelve months. Management does not intend to sell this investment in the foreseeable future and believes the decline is temporary. Our investment in this Series A preferred stock is classified as available-for-sale and therefore recorded in the condensed consolidated balance sheets at fair value.

Our investments also include Federal Agricultural Mortgage Corporation Class A common stock with a cost basis of $0.5 million and a fair value of $2.3 million and $2.2 million at November 30, 2013 and May 31, 2013, respectively, and an unrealized gain of $1.8 million and $1.7 million, respectively, recorded in accumulated other comprehensive income on the condensed consolidated balance sheet. Our investment in this Class A common stock is classified as available-for-sale and therefore recorded in the condensed consolidated balance sheets at fair value.

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General Information and Accounting Policies (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Nov. 30, 2013		Nov. 30, 2012		Nov. 30, 2013		Nov. 30, 2012
Interest expense on debt:
Debt issuance costs	$ 1,782	[1]	$ 1,905	[1]	$ 3,647	[1]	$ 3,842	[1]
Fee expense	2,115	[2]	2,345	[2]	4,719	[2]	4,507	[2]
Total interest expense	165,345		174,301		332,930		350,897
Short-term debt
Interest expense on debt:
Interest expense on debt	1,607	[3]	1,697	[3]	3,039	[3]	3,316	[3]
Medium-term notes
Interest expense on debt:
Interest expense on debt	20,980	[3]	24,833	[3]	42,551	[3]	52,716	[3]
Collateral trust bonds
Interest expense on debt:
Interest expense on debt	74,858	[3]	82,271	[3]	151,656	[3]	163,710	[3]
Subordinated deferrable debt
Interest expense on debt:
Interest expense on debt	4,750	[3]	2,807	[3]	9,500	[3]	5,613	[3]
Subordinated certificates
Interest expense on debt:
Interest expense on debt	20,494	[3]	20,528	[3]	41,120	[3]	40,882	[3]
Long-term notes payable
Interest expense on debt:
Interest expense on debt	$ 38,759	[3]	$ 37,915	[3]	$ 76,698	[3]	$ 76,311	[3]

[1] Includes amortization of all deferred charges related to the issuance of debt, principally underwriters’ fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

[2] Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

[3] Represents interest expense and the amortization of discounts on debt.

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Loans and Commitments (Details 4) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013		May 31, 2013		Nov. 30, 2012
Loan Security
Total loans outstanding	$ 20,378,430	[1]	$ 20,296,317	[1]	$ 19,097,174
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	100.00%		100.00%
Unsecured
Loan Security
Total loans outstanding	2,173,783		2,243,258
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	11.00%		11.00%
Secured long-term debt
Loan Security
Total loans outstanding	18,204,647		18,053,059
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	89.00%		89.00%
Long-term fixed-rate bonds | Unsecured
Loan Security
Total loans outstanding	1,060,225		1,046,674
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	6.00%		6.00%
Long-term fixed-rate bonds | Secured long-term debt
Loan Security
Total loans outstanding	17,089,122		16,871,594
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	94.00%		94.00%
Long-term variable-rate bonds | Unsecured
Loan Security
Total loans outstanding	83,925		105,931
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	12.00%		14.00%
Long-term variable-rate bonds | Secured long-term debt
Loan Security
Total loans outstanding	607,643		676,075
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	88.00%		86.00%
RUS guaranteed loans qualifying as permitted investments | Unsecured
Loan Security
Total loans outstanding	0		0
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	0.00%		0.00%
RUS guaranteed loans qualifying as permitted investments | Secured long-term debt
Loan Security
Total loans outstanding	204,465		210,815
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	100.00%		100.00%
Line of credit loans | Unsecured
Loan Security
Total loans outstanding	1,029,633		1,090,653
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	77.00%		79.00%
Line of credit loans | Secured long-term debt
Loan Security
Total loans outstanding	303,417		294,575
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	23.00%		21.00%
CFC
Loan Security
Total loans outstanding	19,179,314	[1]	19,019,817	[1]	19,064,837
CFC | Unsecured
Loan Security
Total loans outstanding	1,935,863		1,970,788
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	10.00%		10.00%
CFC | Secured long-term debt
Loan Security
Total loans outstanding	17,243,451		17,049,029
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	90.00%		90.00%
RTFC
Loan Security
Total loans outstanding	466,863	[1]	503,359	[1]
RTFC | Unsecured
Loan Security
Total loans outstanding	20,856		20,712
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	4.00%		4.00%
RTFC | Secured long-term debt
Loan Security
Total loans outstanding	446,007		482,647
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	96.00%		96.00%
NCSC
Loan Security
Total loans outstanding	732,253	[1]	773,141	[1]
NCSC | Unsecured
Loan Security
Total loans outstanding	217,064		251,758
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	30.00%		33.00%
NCSC | Secured long-term debt
Loan Security
Total loans outstanding	$ 515,189		$ 521,383
Loans And Leases Receivable Commercial Net Of Deferred Income Percentage	70.00%		67.00%

[1] Includes non-performing and restructured loans.

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Subordinated Deferrable Debt (Details Textual) (Subordinated Deferrable Debt, USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Nov. 30, 2013	May 31, 2013
Subordinated Deferrable Debt
Amounts Outstanding	$ 400,000	$ 400,000
4.75 percent due 2043
Subordinated Deferrable Debt
Amounts Outstanding	$ 400,000	$ 400,000
Interest rate (as a percent)	4.75%	4.75%

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
ASSETS
Cash and cash equivalents	$ 301,377	$ 177,062
Restricted cash	8,651	7,696
Investments	26,388	31,632
Time deposits	800,000	700,000
Loans to members	20,388,220	20,305,874
Less: Allowance for loan losses	(55,199)	(54,325)
Loans to members, net	20,333,021	20,251,549
Accrued interest and other receivables	205,084	175,183
Fixed assets, net	104,866	104,508
Debt service reserve funds	39,353	39,803
Debt issuance costs, net	41,457	38,949
Foreclosed assets, net	255,607	261,472
Derivative assets	291,757	257,878
Other assets	23,803	25,919
Total assets	22,431,364	22,071,651
LIABILITIES AND EQUITY
Short-term debt	6,466,990	7,719,483
Accrued interest payable	134,150	144,945
Long-term debt	12,307,904	10,696,433
Deferred income	74,115	25,717
Derivative liabilities	397,695	475,278
Other liabilities	64,492	69,308
Commitments and contingencies
Total liabilities	21,482,628	21,260,390
CFC equity:
Retained equity	930,424	791,090
Accumulated other comprehensive income	2,651	8,381
Total CFC equity	933,075	799,471
Noncontrolling interest	15,661	11,790
Total equity	948,736	811,261
Total liabilities and equity	22,431,364	22,071,651
Subordinated deferrable debt
LIABILITIES AND EQUITY
Subordinated debt	400,000	400,000
Membership subordinated certificates
LIABILITIES AND EQUITY
Subordinated debt	644,757	644,757
Loan and guarantee subordinated certificates
LIABILITIES AND EQUITY
Subordinated debt	690,390	696,719
Member capital securities
LIABILITIES AND EQUITY
Subordinated debt	302,135	387,750
Total members' subordinated certificates
LIABILITIES AND EQUITY
Subordinated debt	$ 1,637,282	$ 1,729,226

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Foreclosed Assets (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Nov. 30, 2013
Activity for foreclosed assets
Beginning balance	$ 261,472
Results of operations	(7,318)
Cash investments (proceeds)	1,453
Ending balance	255,607
CAH
Activity for foreclosed assets
Beginning balance	248,049
Results of operations	(6,651)
Cash investments (proceeds)	5,953
Ending balance	247,351
DRP
Activity for foreclosed assets
Beginning balance	13,423
Results of operations	(667)
Cash investments (proceeds)	(4,500)
Ending balance	$ 8,256

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 183,258	$ 72,727
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of deferred income	(6,104)	(4,710)
Amortization of debt issuance costs and deferred charges	3,647	3,842
Amortization of discount on long-term debt	2,367	0
Amortization of issuance costs for revolving bank lines of credit	1,332	0
Depreciation	2,838	2,625
Provision for loan losses	2,374	5,305
Provision for (recovery of) guarantee liability	42	(101)
Results of operations of foreclosed assets	7,318	5,674
Derivative forward value	(111,760)	(961)
Changes in operating assets and liabilities:
Accrued interest and other receivables	(30,795)	13,386
Accrued interest payable	(10,795)	(6,329)
Deferred income	54,502	0
Other	(3,665)	4,921
Net cash provided by operating activities	94,559	96,379
CASH FLOWS FROM INVESTING ACTIVITIES
Advances made on loans	(3,941,276)	(2,486,149)
Principal collected on loans	3,859,164	2,300,104
Net investment in fixed assets	(3,196)	(2,961)
Proceeds from foreclosed assets	8,567	29,110
Investments in foreclosed assets	(10,020)	(57,111)
Time deposit investments	(100,000)	(250,000)
Change in restricted cash	(955)	(955)
Net cash used in investing activities	(187,716)	(467,962)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuances of short-term debt, net	64,751	90,853
Proceeds from issuances of short term debt with original maturity greater than 90 days	468,142	322,406
Repayments of short term debt with original maturity greater than 90 days	(324,820)	(198,172)
Proceeds from issuance of long-term debt	1,769,662	1,254,167
Payments for retirement of long-term debt	(1,713,395)	(730,293)
Proceeds from issuance of members’ subordinated certificates	1,608	55,548
Payments for retirement of members’ subordinated certificates	(5,945)	(6,066)
Payments for retirement of patronage capital	(39,630)	(33,991)
Cash paid portion of debt exchange premium	0	(133,406)
Net cash provided by financing activities	217,472	619,599
NET INCREASE IN CASH AND CASH EQUIVALENTS	124,315	248,016
BEGINNING CASH AND CASH EQUIVALENTS	177,062	191,167
ENDING CASH AND CASH EQUIVALENTS	301,377	439,183
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	336,379	353,383
Cash paid for income taxes	152	89
Non-cash financing and investing activities:
Net decrease in debt service reserve funds/debt service reserve certificates	(450)	0
Collateral trust bonds issued as debt exchange premium	0	39,647
Revolving bank lines of credit
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance costs for debt	(2,751)	(1,447)
Subordinated deferrable debt
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance costs for debt	$ (150)	$ 0

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Equity (Details Textual) (USD $)	6 Months Ended						1 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013 Patronage capital allocated	Nov. 30, 2012 Patronage capital allocated	Nov. 30, 2013 Members' capital reserve	Nov. 30, 2012 Members' capital reserve	May 31, 2013 CFC Cooperative educational fund Authorized Allocations	Jul. 31, 2013 CFC Patronage capital allocated Authorized Allocations	Jul. 31, 2013 CFC Members' capital reserve
Equity
Allocation of net earnings							$ 1,000,000	$ 81,000,000	$ 138,000,000
Retirement of net allocated earnings	$ 40,724,000	$ 35,341,000	$ 40,724,000	$ 35,341,000	$ 0	$ 0		$ 41,000,000
Retirement of allocated net earnings, percentage								50.00%

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Investments (Details Textual) (USD $) In Millions, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Federal Agricultural Mortgage Corporation Class A common stock
Investments
Investment at fair value	$ 2.3	$ 2.2
Unrealized gain recorded in accumulated other comprehensive income, included in common stock carrying value	1.8	1.7
Federal Agricultural Mortgage Corporation Series A preferred stock
Investments
Investment at fair value	24.0	29.0
Cost of purchases, included in preferred stock carrying value	30
Cost of purchases, included in common stock carrying value	0.5
Unrealized loss recorded in accumulated other comprehensive income, included in preferred stock carrying value	$ 6	$ 1

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Fair Value Measurement (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013	Nov. 30, 2012
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Net of Tax	$ (1,335)	$ 893	$ (5,244)	$ 887

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Loans and Commitments (Tables)

6 Months Ended

Nov. 30, 2013

Loans and Commitments

Schedule of Financing Receivable and Unadvanced Commitments

Loans outstanding to members and unadvanced commitments by loan type and by member class are summarized as follows:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Loans outstanding		Unadvanced commitments (1)		Loans outstanding		Unadvanced commitments (1)
Total by loan type (2):
Long-term fixed-rate loans	$	18,149,347	$	-	$	17,918,268	$	-
Long-term variable-rate loans		691,568		5,134,559		782,006		4,718,162
Loans guaranteed by RUS		204,465		-		210,815		-
Line of credit loans		1,333,050		8,880,648		1,385,228		8,704,586
Total loans outstanding		20,378,430		14,015,207		20,296,317		13,422,748
Deferred origination costs		9,790		-		9,557		-
Less: Allowance for loan losses		(55,199)		-		(54,325)		-
Net loans outstanding	$	20,333,021	$	14,015,207	$	20,251,549	$	13,422,748
Total by member class (2):
CFC:
Distribution	$	15,019,692	$	9,414,509	$	14,941,192	$	8,948,826
Power supply		4,094,415		3,133,967		4,007,669		3,145,518
Statewide and associate		65,207		107,493		70,956		102,087
CFC total		19,179,314		12,655,969		19,019,817		12,196,431
RTFC		466,863		305,649		503,359		317,344
NCSC		732,253		1,053,589		773,141		908,973
Total loans outstanding	$	20,378,430	$	14,015,207	$	20,296,317	$	13,422,748

(1) The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2) Includes non-performing and restructured loans.

Schedule of Non Performing and Restructured Loans and Unadvanced Commitments to Members

Non-performing and restructured loans outstanding and unadvanced commitments to members included in the table on page 12 are summarized as follows by loan type and by company:

	November 30, 2013				May 31, 2013
	Loans		Unadvanced		Loans		Unadvanced
(dollar amounts in thousands)	outstanding		commitments (1)		outstanding		commitments (1)
Non-performing and restructured loans:
Non-performing loans:
CFC:
Line of credit loans	$	5,000	$	-	$	5,000	$	-
RTFC:
Long-term fixed-rate loans		3,010		-		3,690		-
Long-term variable-rate loans		2,784		-		6,807		-
Total non-performing loans	$	10,794	$	-	$	15,497	$	-
Restructured loans:
CFC:
Long-term fixed-rate loans	$	7,584	$	-	$	46,953	$	-
Line of credit loans (2)		-		-		-		5,000
Total restructured loans	$	7,584	$	-	$	46,953	$	5,000

(1) The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2) The unadvanced commitment is part of the terms outlined in the related restructure agreement. Loans advanced under these commitments would be classified as performing. Principal and interest due under these performing loans would be in addition to scheduled payments due under the restructured loan agreement.

Schedule of Available Balance and Maturities of Committed Lines of Credit

The following table summarizes the available balance under committed lines of credit that are not subject to a material adverse change clause at November 30, 2013, and the related maturities by fiscal year and thereafter as follows:

	Available		Notional maturities of committed lines of credit
(dollar amounts in thousands)	balance		2014		2015		2016		2017		2018		Thereafter
Committed lines of credit	$	1,947,800	$	44,048	$	63,776	$	61,000	$	636,111	$	894,080	$	248,785

Past Due Financing Receivables

The tables below show an analysis of the age of the recorded investment in loans outstanding by member class:

	November 30, 2013
(dollar amounts in thousands)	30-89 days past due			90 days or more past due (1)			Total past due			Current			Total financing receivables			Non-accrual loans
CFC:
Distribution	$	-		$	-		$	-		$	15,019,692		$	15,019,692		$	7,584
Power supply		-			5,000			5,000			4,089,415			4,094,415			5,000
Statewide and associate		-			-			-			65,207			65,207			-
CFC total		-			5,000			5,000			19,174,314			19,179,314			12,584
RTFC		-			3,858			3,858			463,005			466,863			5,794
NCSC		-			-			-			732,253			732,253			-
Total loans outstanding	$	-		$	8,858		$	8,858		$	20,369,572		$	20,378,430		$	18,378
As a % of total loans		0.00	%		0.04	%		0.04	%		99.96	%		100.00	%		0.09	%

(1) All loans 90 days or more past due are on non-accrual status.

	May 31, 2013
(dollar amounts in thousands)	30-89 days past due			90 days or more past due (1)			Total past due			Current			Total financing receivables			Non-accrual loans
CFC:
Distribution	$	2,841		$	-		$	2,841		$	14,938,351		$	14,941,192		$	7,584
Power supply		-			5,000			5,000			4,002,669			4,007,669			5,000
Statewide and associate		-			-			-			70,956			70,956			-
CFC total		2,841			5,000			7,841			19,011,976			19,019,817			12,584
RTFC		4,163			4,156			8,319			495,040			503,359			10,497
NCSC		-			-			-			773,141			773,141			-
Total loans outstanding	$	7,004		$	9,156		$	16,160		$	20,280,157		$	20,296,317		$	23,081
As a % of total loans		0.03	%		0.05	%		0.08	%		99.92	%		100.00	%		0.11	%

(1) All loans 90 days or more past due are on non-accrual status.

Financing Receivable Credit Quality Indicators

The following table presents our loan portfolio by risk rating category and member class based on available data as of:

	November 30, 2013						May 31, 2013
(dollar amounts in thousands)	Pass		Criticized		Total		Pass		Criticized		Total
CFC:
Distribution	$	15,001,056	$	18,636	$	15,019,692	$	14,922,558	$	18,634	$	14,941,192
Power supply		4,089,415		5,000		4,094,415		4,002,669		5,000		4,007,669
Statewide and associate		64,924		283		65,207		70,668		288		70,956
CFC total		19,155,395		23,919		19,179,314		18,995,895		23,922		19,019,817
RTFC		450,668		16,195		466,863		483,058		20,301		503,359
NCSC		728,482		3,771		732,253		770,419		2,722		773,141
Total loans outstanding	$	20,334,545	$	43,885	$	20,378,430	$	20,249,372	$	46,945	$	20,296,317

Schedule of Financing Receivable Secured and Unsecured

The following table summarizes our secured and unsecured loans outstanding by loan type and by company:

	November 30, 2013								May 31, 2013
(dollar amounts in thousands)	Secured		%		Unsecured		%		Secured		%		Unsecured		%
Total by loan type:
Long-term fixed-rate loans	$	17,089,122	94	%	$	1,060,225	6	%	$	16,871,594	94	%	$	1,046,674	6	%
Long-term variable-rate loans		607,643	88			83,925	12			676,075	86			105,931	14
Loans guaranteed by RUS		204,465	100			-	-			210,815	100			-	-
Line of credit loans		303,417	23			1,029,633	77			294,575	21			1,090,653	79
Total loans outstanding	$	18,204,647	89		$	2,173,783	11		$	18,053,059	89		$	2,243,258	11
Total by company:
CFC	$	17,243,451	90	%	$	1,935,863	10	%	$	17,049,029	90	%	$	1,970,788	10	%
RTFC		446,007	96			20,856	4			482,647	96			20,712	4
NCSC		515,189	70			217,064	30			521,383	67			251,758	33
Total loans outstanding	$	18,204,647	89		$	2,173,783	11		$	18,053,059	89		$	2,243,258	11

Allowance for Credit Losses on Financing Receivables

The activity in the loan loss allowance summarized in the tables below reflects a disaggregation by company of the allowance for loan losses by company:

 

	As of and for the three months ended November 30, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of August 31, 2013	$	43,336	$	8,497	$	3,823	$	55,656
(Recovery of) provision for loan losses		(627)		968		755		1,096
Charge-offs		-		(1,606)		-		(1,606)
Recoveries of loans previously charged-off		53		-		-		53
Balance as of November 30, 2013	$	42,762	$	7,859	$	4,578	$	55,199

	As of and for the three months ended November 30, 2012
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of August 31, 2012	$	136,781	$	8,877	$	6,843	$	152,501
(Recovery of) provision for loan losses		(3,256)		(563)		2		(3,817)
Recoveries of loans previously charged-off		53		-		-		53
Balance as of November 30, 2012	$	133,578	$	8,314	$	6,845	$	148,737

	As of and for the six months ended November 30, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of May 31, 2013	$	41,246	$	9,158	$	3,921	$	54,325
Provision for loan losses		1,410		307		657		2,374
Charge-offs		-		(1,606)		-		(1,606)
Recoveries of loans previously charged-off		106		-		-		106
Balance as of November 30, 2013	$	42,762	$	7,859	$	4,578	$	55,199

	As of and for the six months ended November 30, 2012
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Balance as of May 31, 2012	$	126,941	$	8,562	$	7,823	$	143,326
Provision for (recovery of) loan losses		6,531		(248)		(978)		5,305
Recoveries of loans previously charged-off		106		-		-		106
Balance as of November 30, 2012	$	133,578	$	8,314	$	6,845	$	148,737

Allowance for Credit Losses and Recorded Investment in Financing Receivables

The tables below present the loan loss allowance and the recorded investment in outstanding loans by impairment methodology and by company:

  

	November 30, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	42,762	$	6,041	$	4,578	$	53,381
Individually evaluated		-		1,818		-		1,818
Total ending balance of the allowance	$	42,762	$	7,859	$	4,578	$	55,199
Recorded investment in loans:
Collectively evaluated	$	19,166,730	$	461,069	$	732,253	$	20,360,052
Individually evaluated		12,584		5,794		-		18,378
Total recorded investment in loans	$	19,179,314	$	466,863	$	732,253	$	20,378,430
Loans to members, net (1)	$	19,136,552	$	459,004	$	727,675	$	20,323,231

	May 31, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	41,246	$	5,731	$	3,921	$	50,898
Individually evaluated		-		3,427		-		3,427
Total ending balance of the allowance	$	41,246	$	9,158	$	3,921	$	54,325
Recorded investment in loans:
Collectively evaluated	$	18,967,864	$	492,862	$	773,141	$	20,233,867
Individually evaluated		51,953		10,497		-		62,450
Total recorded investment in loans	$	19,019,817	$	503,359	$	773,141	$	20,296,317
Loans to members, net (1)	$	18,978,571	$	494,201	$	769,220	$	20,241,992

(1) Excludes deferred origination costs of  $10 million at November 30, 2013 and May 31, 2013.

Impaired Financing Receivable with Related Allowance Recorded Investment

Our recorded investment in individually-impaired loans and the related specific valuation allowance is summarized below by member class:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Recorded investment		Related allowance		Recorded investment		Related allowance
With no specific allowance recorded:
CFC/Distribution	$	7,584	$	-	$	46,953	$	-
CFC/Power Supply		5,000		-		5,000		-
Total		12,584		-		51,953		-
With a specific allowance recorded:
RTFC		5,794		1,818		10,497		3,427
Total		5,794		1,818		10,497		3,427
Total impaired loans	$	18,378	$	1,818	$	62,450	$	3,427

Impaired Financing Receivable Average Recorded Investment and Interest Income Recognized

The recorded investment for impaired loans was equal to the total unpaid principal balance for impaired loans as of November 30, 2013 and May 31, 2013. The table below represents the average recorded investment in impaired loans and the interest income recognized by member class:

	For the three months ended November 30,
	2013		2012		2013		2012
(dollar amounts in thousands)	Average recorded investment				Interest income recognized
CFC/Distribution	$	7,584	$	70,706	$	-	$	7,625
CFC/Power Supply		5,000		5,000		-		-
RTFC		7,295		6,618		-		-
Total impaired loans	$	19,879	$	82,324	$	-	$	7,625

	For the six months ended November 30,
	Average recorded investment				Interest income recognized
(dollar amounts in thousands)	2013		2012		2013		2012
CFC/Distribution	$	14,116	$	277,891	$	136	$	13,087
CFC/Power Supply		5,000		5,000		-		-
RTFC		8,838		6,754		-		-
Total impaired loans	$	27,954	$	289,645	$	136	$	13,087

Schedule of Loans and Leases Receivable Impaired Interest Reduced on Nonaccrual Loans

Foregone interest income as a result of holding loans on non-accrual status:

	For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Non-performing loans	$	142	$	373	$	321	$	780
Restructured loans		122		-		244		-
Total	$	264	$	373	$	565	$	780

Schedule of Financing Receivables Pledged as Collateral Against Debt Instruments

The following table summarizes our loans outstanding as collateral pledged to secure our collateral trust bonds, Clean Renewable Energy Bonds and notes payable to the Federal Agricultural Mortgage Corporation and the amount of the corresponding debt outstanding (see Note 5, Short-Term Debt and Credit Arrangements and Note 6, Long-Term Debt).

(dollar amounts in thousands)	November 30, 2013		May 31, 2013
Collateral trust bonds:
2007 indenture
Distribution system mortgage notes	$	5,536,853	$	5,674,804
RUS guaranteed loans qualifying as permitted investments		163,630		165,823
Total pledged collateral	$	5,700,483	$	5,840,627
Collateral trust bonds outstanding		4,579,372		4,679,372
1994 indenture
Distribution system mortgage notes	$	1,599,727	$	1,641,858
Collateral trust bonds outstanding		1,460,000		1,465,000
Federal Agricultural Mortgage Corporation:
Distribution and power supply system mortgage notes	$	1,693,828	$	1,795,947
Notes payable outstanding		1,529,286		1,542,474
Clean Renewable Energy Bonds Series 2009A:
Distribution and power supply system mortgage notes	$	22,467	$	23,536
Cash		8,651		7,634
Total pledged collateral	$	31,118	$	31,170
Notes payable outstanding		19,888		19,888

Schedule of Financing Receivables on Deposit Pledged as Collateral Against Debt Instruments

The following table shows the collateral on deposit and the amount of the corresponding debt outstanding:

(dollar amounts in thousands)	November 30, 2013		May 31, 2013
Federal Financing Bank
Distribution and power supply system mortgage notes on deposit	$	4,453,299	$	3,903,786
Notes payable outstanding		3,999,000		3,674,000

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Loans and Commitments (Details) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013		Aug. 31, 2013	May 31, 2013		Nov. 30, 2012	Aug. 31, 2012	May 31, 2012
Loans outstanding
Total loans outstanding	$ 20,378,430	[1]		$ 20,296,317	[1]	$ 19,097,174
Deferred origination costs	9,790			9,557		8,033
Less: Allowance for loan losses	(55,199)		(55,656)	(54,325)		(148,737)	(152,501)	(143,326)
Loans to members, net	20,333,021			20,251,549		18,956,470
Unadvanced commitments
Total Unadvanced commitments				39,000
Nonperforming Financing Receivable
Loans outstanding
Total loans outstanding	10,794			15,497
Restructured financing receivable
Loans outstanding
Total loans outstanding	7,584			46,953
Unadvanced commitments
Total Unadvanced commitments	0	[2]
Unadvanced commitments
Loans outstanding
Deferred origination costs	0			0
Less: Allowance for loan losses	0			0
Loans to members, net	14,015,207			13,422,748
Unadvanced commitments
Total Unadvanced commitments	14,015,207	[1],[2]		13,422,748	[1],[2]
Unadvanced commitments | Restructured financing receivable
Unadvanced commitments
Total Unadvanced commitments				5,000	[2]
CFC
Loans outstanding
Total loans outstanding	19,179,314	[1]		19,019,817	[1]	19,064,837
Deferred origination costs	9,790					8,033
Less: Allowance for loan losses	(42,762)		(43,336)	(41,246)		(133,578)	(136,781)	(126,941)
Loans to members, net	20,297,151					18,924,133
CFC | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	12,655,969	[1],[2]		12,196,431	[1],[2]
CFC | Distribution
Loans outstanding
Total loans outstanding	15,019,692	[1]		14,941,192	[1]
CFC | Distribution | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	9,414,509	[1],[2]		8,948,826	[1],[2]
CFC | Power supply
Loans outstanding
Total loans outstanding	4,094,415	[1]		4,007,669	[1]
CFC | Power supply | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	3,133,967	[1],[2]		3,145,518	[1],[2]
CFC | Statewide and associate
Loans outstanding
Total loans outstanding	65,207	[1]		70,956	[1]
CFC | Statewide and associate | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	107,493	[1],[2]		102,087	[1],[2]
RTFC
Loans outstanding
Total loans outstanding	466,863	[1]		503,359	[1]
RTFC | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	305,649	[1],[2]		317,344	[1],[2]
NCSC
Loans outstanding
Total loans outstanding	732,253	[1]		773,141	[1]
NCSC | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	1,053,589	[1],[2]		908,973	[1],[2]
Long-term fixed-rate loans
Loans outstanding
Total loans outstanding	18,149,347	[1]		17,918,268	[1]
Long-term fixed-rate loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	0	[1],[2]		0	[1],[2]
Long-term fixed-rate loans | CFC | Restructured financing receivable
Loans outstanding
Total loans outstanding	7,584			46,953
Unadvanced commitments
Total Unadvanced commitments	0	[2]
Long-term fixed-rate loans | RTFC | Nonperforming Financing Receivable
Loans outstanding
Total loans outstanding	3,010			3,690
Long-term variable-rate loans
Loans outstanding
Total loans outstanding	691,568	[1]		782,006	[1]
Long-term variable-rate loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	5,134,559	[1],[2]		4,718,162	[1],[2]
Long-term variable-rate loans | RTFC | Nonperforming Financing Receivable
Loans outstanding
Total loans outstanding	2,784			6,807
Loans guaranteed by RUS
Loans outstanding
Total loans outstanding	204,465	[1]		210,815	[1]
Loans guaranteed by RUS | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	0	[1],[2]		0	[1],[2]
Line of credit loans
Loans outstanding
Total loans outstanding	1,333,050	[1]		1,385,228	[1]
Line of credit loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	8,880,648	[1],[2]		8,704,586	[1],[2]
Line of credit loans | CFC | Nonperforming Financing Receivable
Loans outstanding
Total loans outstanding	5,000			5,000
Line of credit loans | CFC | Restructured financing receivable
Loans outstanding
Total loans outstanding	0			0
Unadvanced commitments
Total Unadvanced commitments	0	[2],[3]
Line of credit loans | CFC | Unadvanced commitments | Restructured financing receivable
Unadvanced commitments
Total Unadvanced commitments				$ 5,000	[2],[3]

[1] Includes non-performing and restructured loans.

[2] The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

[3] The unadvanced commitment is part of the terms outlined in the related restructure agreement. Loans advanced under these commitments would be classified as performing. Principal and interest due under these performing loans would be in addition to scheduled payments due under the restructured loan agreement.

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Short-Term Debt and Credit Arrangements (Tables)

6 Months Ended

Nov. 30, 2013

Short-Term Debt and Credit Arrangements

Schedule of Debt

The following is a summary of short-term debt outstanding:

	November 30,		May 31,
(dollar amounts in thousands)	2013		2013
Short-term debt:
Commercial paper sold through dealers, net of discounts (1)	$	1,876,868	$	2,009,884
Commercial paper sold directly to members, at par (1)		1,011,155		812,141
Commercial paper sold directly to non-members, at par (1)		25,006		39,298
Select notes		588,590		358,390
Daily liquidity fund notes sold directly to members		606,586		680,419
Bank bid notes		150,000		150,000
Subtotal short-term debt		4,258,205		4,050,132
Long-term debt maturing within one year:
Medium-term notes sold through dealers		607,472		989,607
Medium-term notes sold to members		416,998		391,318
Secured collateral trust bonds		604,994		1,504,949
Loan and gurantees subordinated certificates		37,827		37,176
Member capital securities		85,615		-
Secured notes payable		451,972		742,402
Unsecured notes payable		3,907		3,899
Total long-term debt maturing within one year		2,208,785		3,669,351
Total short-term debt	$	6,466,990	$	7,719,483

(1) Backup liquidity is provided by our revolving credit agreements.

Schedule of Line of Credit Facilities

The following table presents the total available and the outstanding letters of credit under our revolving credit agreements:

	Total available				Letters of credit outstanding
	November 30,		May 31,		November 30,		May 31,			Facility fee per
(dollar amounts in thousands)	2013		2013		2013		2013		Maturity	year (1)
Three-year agreement	$	219,000	$	219,000	$	-	$	-	March 21, 2014	15 basis points
Three-year agreement		1,006,000		916,000		-		-	October 28, 2016	10 basis points
Four-year agreement		1,087,500		1,007,500		-		-	October 28, 2017	10 basis points
Five-year agreement		1,030,609		954,012		1,891		3,488	October 28, 2018	10 basis points
Total	$	3,343,109	$	3,096,512	$	1,891	$	3,488

(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.

Schedule of Line of Credit Facility Covenants

The following represents our required and actual financial ratios under the revolving credit agreements:

			Actual
	Requirement		November 30, 2013		May 31, 2013
Minimum average adjusted TIER over the six most recent     fiscal quarters (1)		1.025		1.27		1.27
Minimum adjusted TIER for the most recent fiscal year (1) (2)		1.05		1.29		1.29
Maximum ratio of adjusted senior debt to total equity (1)		10.00		5.74		5.85

(1) In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody’s Investors Service and Standard & Poor’s Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

(2) We must meet this requirement to retire patronage capital

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			6 Months Ended
	Nov. 30, 2013		Nov. 30, 2012	Nov. 30, 2013		Nov. 30, 2012	Aug. 31, 2013	May 31, 2013		Aug. 31, 2012	May 31, 2012
Statement of operations:
Total interest income	$ 239,254		$ 241,630	$ 480,325		$ 481,715
Total interest expense	165,345		174,301	332,930		350,897
Net interest income	73,909		67,329	147,395		130,818
(Provision for) recovery of loan losses	(1,096)		3,817	(2,374)		(5,305)
Net interest income after provision for loan losses	72,813		71,146	145,021		125,513
Non-interest income:
Fee and other income	5,125		17,807	9,281		22,765
Derivative gains (losses)	(30,780)		(3,766)	75,604		(28,358)
Results of operations of foreclosed assets	(3,269)		(909)	(7,318)		(5,674)
Total non-interest income	(28,924)		13,132	77,567		(11,267)
Non-interest expense:
General and administrative expenses	(18,573)		(19,451)	(37,188)		(36,621)
Provision for (recovery of) guarantee liability	73		(92)	42		(101)
Other	150		4,384	298		4,547
Total non-interest expense	18,796		23,743	37,528		41,067
Income prior to income taxes	25,093		60,535	185,060		73,179
Income tax (expense) benefit	(101)		(454)	(1,802)		(452)
Net income	24,992		60,081	183,258		72,727
Assets:
Total loans outstanding	20,378,430	[1]	19,097,174	20,378,430	[1]	19,097,174		20,296,317	[1]
Deferred origination costs	9,790		8,033	9,790		8,033		9,557
Less: Allowance for loan losses	(55,199)		(148,737)	(55,199)		(148,737)	(55,656)	(54,325)		(152,501)	(143,326)
Loans to members, net	20,333,021		18,956,470	20,333,021		18,956,470		20,251,549
Other assets	2,098,343		1,653,924	2,098,343		1,653,924
Total assets	22,431,364		20,610,394	22,431,364		20,610,394		22,071,651
Other
Statement of operations:
Total interest income	12,582		13,946	25,345		28,333
Total interest expense	(9,198)		(10,458)	(18,581)		(21,163)
Net interest income	3,384		3,488	6,764		7,170
(Provision for) recovery of loan losses	0		0	0		0
Net interest income after provision for loan losses	3,384		3,488	6,764		7,170
Non-interest income:
Fee and other income	342		292	694		686
Derivative gains (losses)	(1,548)		(375)	1,253		(1,922)
Results of operations of foreclosed assets	0		0	0		0
Total non-interest income	(1,206)		(83)	1,947		(1,236)
Non-interest expense:
General and administrative expenses	(2,011)		(2,252)	(4,125)		(4,778)
Provision for (recovery of) guarantee liability	0		0	0		0
Other	1		0	1		0
Total non-interest expense	(2,010)		(2,252)	(4,124)		(4,778)
Income prior to income taxes	168		1,153	4,587		1,156
Income tax (expense) benefit	(101)		(454)	(1,802)		(452)
Net income	67		699	2,785		704
Assets:
Total loans outstanding	1,199,116		1,230,471	1,199,116		1,230,471
Deferred origination costs	0		0	0		0
Less: Allowance for loan losses	0		0	0		0
Loans to members, net	1,199,116		1,230,471	1,199,116		1,230,471
Other assets	140,738		153,837	140,738		153,837
Total assets	1,339,854		1,384,308	1,339,854		1,384,308
Elimination
Statement of operations:
Total interest income	(8,833)		(10,027)	(17,851)		(20,300)
Total interest expense	8,833		10,027	17,851		20,300
Net interest income	0		0	0		0
(Provision for) recovery of loan losses	0		0	0		0
Net interest income after provision for loan losses	0		0	0		0
Non-interest income:
Fee and other income	620		(226)	400		(454)
Derivative gains (losses)	0		0	0		0
Results of operations of foreclosed assets	0		0	0		0
Total non-interest income	620		(226)	400		(454)
Non-interest expense:
General and administrative expenses	(620)		226	(400)		454
Provision for (recovery of) guarantee liability	0		0	0		0
Other	0		0	0		0
Total non-interest expense	(620)		226	(400)		454
Income prior to income taxes	0		0	0		0
Income tax (expense) benefit	0		0	0		0
Net income	0		0	0		0
Assets:
Total loans outstanding	(1,163,246)		(1,198,134)	(1,163,246)		(1,198,134)
Deferred origination costs	0		0	0		0
Less: Allowance for loan losses	0		0	0		0
Loans to members, net	(1,163,246)		(1,198,134)	(1,163,246)		(1,198,134)
Other assets	(121,601)		(123,844)	(121,601)		(123,844)
Total assets	(1,284,847)		(1,321,978)	(1,284,847)		(1,321,978)
CFC
Statement of operations:
Total interest income	235,505		237,711	472,831		473,682
Total interest expense	(164,980)		(173,870)	(332,200)		(350,034)
Net interest income	70,525		63,841	140,631		123,648
(Provision for) recovery of loan losses	627		3,256	(1,410)		(6,531)
Net interest income after provision for loan losses	69,429		67,658	138,257		118,343
Non-interest income:
Fee and other income	4,163		17,741	8,187		22,533
Derivative gains (losses)	(29,232)		(3,391)	74,351		(26,436)
Results of operations of foreclosed assets	(3,269)		(909)	(7,318)		(5,674)
Total non-interest income	(28,338)		13,441	75,220		(9,577)
Non-interest expense:
General and administrative expenses	(15,942)		(17,425)	(32,663)		(32,297)
Provision for (recovery of) guarantee liability	(73)		92	(42)		101
Other	(151)		(4,384)	(299)		(4,547)
Total non-interest expense	(16,166)		(21,717)	(33,004)		(36,743)
Income prior to income taxes	24,925		59,382	180,473		72,023
Income tax (expense) benefit	0		0	0		0
Net income	24,925		59,382	180,473		72,023
Assets:
Total loans outstanding	19,179,314	[1]	19,064,837	19,179,314	[1]	19,064,837		19,019,817	[1]
Deferred origination costs	9,790		8,033	9,790		8,033
Less: Allowance for loan losses	(42,762)		(133,578)	(42,762)		(133,578)	(43,336)	(41,246)		(136,781)	(126,941)
Loans to members, net	20,297,151		18,924,133	20,297,151		18,924,133
Other assets	2,079,206		1,623,931	2,079,206		1,623,931
Total assets	$ 22,376,357		$ 20,548,064	$ 22,376,357		$ 20,548,064

[1] Includes non-performing and restructured loans.

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General Information and Accounting Policies

6 Months Ended

Nov. 30, 2013

General Information and Accounting Policies

General Information and Accounting Policies

(1) General Information and Accounting Policies

(a) Basis of Presentation

The accompanying financial statements include the consolidated accounts of National Rural Utilities Cooperative Finance Corporation (“CFC”), Rural Telephone Finance Cooperative (“RTFC”), National Cooperative Services Corporation (“NCSC”) and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions, after elimination of intercompany accounts and transactions.

Unless stated otherwise, references to “we,” “our” or “us” represent the consolidation of CFC, RTFC, NCSC and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions. Foreclosed assets are held by two subsidiaries controlled by CFC. Denton Realty Partners, LP (“DRP”) holds a land development loan and a related limited partnership interest. CAH holds our investment in cable and telecommunications operating entities in the United States Virgin Islands (“USVI”), British Virgin Islands and St. Maarten.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. The accounting estimates that require our most significant and subjective judgments include the allowance for loan losses and the determination of the fair value of our derivatives and certain aspects of our foreclosed assets. While we use our best estimates and judgments based on the known facts at the date of the financial statements, actual results could differ from these estimates as future events occur.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2013.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of our results of operations and financial position for the interim periods presented.

(b) Variable Interest Entities

We are required to consolidate the financial results of RTFC and NCSC because CFC is the primary beneficiary of variable interests in RTFC and NCSC due to its exposure to absorbing the majority of their expected losses and because CFC manages the lending activities of RTFC and NCSC. Under separate guarantee agreements, RTFC and NCSC pay CFC a fee to indemnify against loan losses. CFC is the sole lender to and manages the business operations of RTFC through a management agreement in effect until December 1, 2016, which is automatically renewed for one-year terms thereafter unless terminated by either party. CFC is the primary source of funding to and manages the lending activities of NCSC through a management agreement that is automatically renewable on an annual basis unless terminated by either party. NCSC funds its lending programs through loans from CFC or debt guaranteed by CFC. In connection with these guarantees, NCSC must pay a guarantee fee and purchase from CFC interest-bearing subordinated term certificates in proportion to the related guarantee.

RTFC and NCSC creditors have no recourse against CFC in the event of a default by RTFC and NCSC, unless there is a guarantee agreement under which CFC has guaranteed NCSC or RTFC debt obligations to a third party. At November 30, 2013, CFC had guaranteed $82 million of NCSC debt, derivative instruments and guarantees with third parties, and CFC’s maximum potential exposure for these instruments totaled $89 million. The maturities for NCSC obligations guaranteed by CFC run through 2031. Guarantees of NCSC debt and derivative instruments are not included in Note 10, Guarantees, as the debt and derivatives are reported on the condensed consolidated balance sheet. At November 30, 2013, CFC guaranteed $2 million of RTFC guarantees with third parties. The maturities for RTFC obligations guaranteed by CFC run through 2015 and are renewed on an annual basis. All CFC loans to RTFC and NCSC are secured by all assets and revenue of RTFC and NCSC. At November 30, 2013, RTFC had total assets of $583 million including loans outstanding to members of $467 million, and NCSC had total assets of $757 million including loans outstanding of $732 million. At November 30, 2013, CFC had committed to lend RTFC up to $4,000 million, of which $447 million was outstanding. At November 30, 2013, CFC had committed to provide up to $3,000 million of credit to NCSC, of which $799 million was outstanding, representing $717 million of outstanding loans and $82 million of credit enhancements.

(c) Loan Sales

We account for the sale of loans resulting from direct loan sales to third parties and securitization transactions by removing the financial assets from our condensed consolidated balance sheets when control has been surrendered. We retain the servicing performance obligations on these loans and recognize related servicing fees on an accrual basis over the period for which servicing activity is provided. Deferred transaction costs and unamortized deferred loan origination costs related to the loans sold are included in the calculation of the gain or loss on the sale. We do not hold any continuing interest in the loans sold to date other than servicing performance obligations. We have no obligation to repurchase loans from the purchaser, except in the case of breaches of representations and warranties.

During the six months ended November 30, 2013 and 2012, we sold CFC loans with outstanding balances totaling $37 million and $98 million, respectively, at par for cash. We recorded a loss on sale of loans, representing the unamortized deferred loan origination costs and transaction costs for the loans sold, which was immaterial during the six months ended November 30, 2013 and 2012.

(d) Interest Income

Interest income on loans is recognized using the effective interest method. The following table presents the components of interest income:

	For the three months ended				For the six months ended
	November 30,				November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Interest on long-term fixed-rate loans	$	221,952	$	218,247	$	446,535	$	436,187
Interest on long-term variable-rate loans		4,826		4,893		9,654		10,918
Interest on line of credit loans		7,505		7,413		15,077		15,105
Interest on restructured loans		-		7,625		136		13,087
Interest on investments		1,817		1,576		3,753		2,514
Fee income (1)		3,154		1,876		5,170		3,904
Total interest income	$	239,254	$	241,630	$	480,325	$	481,715

(1) Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Deferred income on the condensed consolidated balance sheets primarily includes deferred conversion fees totaling $69 million and $21 million at November 30, 2013 and May 31, 2013, respectively.

(e) Interest Expense

The following table presents the components of interest expense:

	For the three months ended				For the six months ended
	November 30,				November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Interest expense on debt (1):
Short-term debt	$	1,607	$	1,697	$	3,039	$	3,316
Medium-term notes		20,980		24,833		42,551		52,716
Collateral trust bonds		74,858		82,271		151,656		163,710
Subordinated deferrable debt		4,750		2,807		9,500		5,613
Subordinated certificates		20,494		20,528		41,120		40,882
Long-term notes payable		38,759		37,915		76,698		76,311
Debt issuance costs (2)		1,782		1,905		3,647		3,842
Fee expense (3)		2,115		2,345		4,719		4,507
Total interest expense	$	165,345	$	174,301	$	332,930	$	350,897

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to the issuance of debt, principally underwriters’ fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3) Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements.

We exclude indirect costs, if any, related to funding activities from interest expense.

(f) Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We use derivatives such as interest rate swaps and treasury rate locks to mitigate interest rate risk. Consistent with the accounting standards for derivative financial instruments, we record derivative instruments (including certain derivative instruments embedded in other contracts) on the condensed consolidated balance sheets as either an asset or liability measured at fair value. In recording the fair value of derivative assets and liabilities, we do not net our positions under contracts with individual counterparties. Accrued cash settlements on our derivatives are recorded as accrued interest and other receivables and accrued interest payable line items of the condensed consolidated balance sheet. Changes in the fair value of derivative instruments along with realized gains and losses from cash settlements are recognized in the derivative gains (losses) line item of the condensed consolidated statement of operations unless specific hedge accounting criteria are met.

We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. If applicable hedge accounting criteria are satisfied, the change in fair value of derivative instruments is recorded to other comprehensive income, and net cash settlements are recorded in interest expense. The gain or loss on derivatives used as a cash flow hedge of a forecasted debt transaction is recorded as a component of other comprehensive income (loss) and amortized as interest expense using the effective interest method over the term of the hedged debt. Any ineffectiveness in the hedging relationship is recognized in the derivative gains (losses) line of the statement of operations.

Cash activity associated with interest rate swaps is classified as an operating activity in the condensed consolidated statements of cash flows.

(g) Reclassifications

Reclassifications of prior period amounts have been made to conform to the current reporting format and the presentation in our Form 10-Q for the six months ended November 30, 2013. Specifically, time deposits with financial institutions have been reclassified from the investments line item and presented as a separate line item on the condensed consolidated balance sheet as of May 31, 2013.

(h) Immaterial Correction of Errors

During the third quarter of fiscal year 2013, we identified two errors in the condensed consolidated statement of cash flows related to (1) the classification of advances and sale proceeds of loans sold and (2) the presentation of short-term debt with an original maturity of greater than 90 days. We corrected our previously reported condensed consolidated statement of cash flows for the six months ended November 30, 2012 herein to reflect the impact of the immaterial errors. The errors and the corrections have no effect on the change in cash, our total cash balance, liquidity, condensed consolidated balance sheet, condensed consolidated statement of operations, key ratios or covenant compliance for any period. We concluded that the errors were not material to any of the previously reported quarterly or annual periods.

The effect of recording the correction of the immaterial errors in the condensed consolidated statement of cash flows for the six months ended November 30, 2012, is presented below:

	For the six months ended November 30, 2012
(dollar amounts in thousands)	As Filed			Adjustment			Corrected
Advances made on loans	$	(2,584,296	)	$	98,147		$	(2,486,149	)
Net proceeds from sale of loans		98,147			(98,147	)		-
Proceeds from issuances of short-term debt, net		215,087			(124,234	)		90,853
Proceeds from issuances of short term debt with original maturity greater than		-			322,406			322,406
90 days
Repayments of short term debt with original maturity greater than 90 days		-			(198,172	)		(198,172	)

(i) New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update, Disclosures about Offsetting Assets and Liabilities, which requires enhanced disclosures about certain financial assets and liabilities that are subject to enforceable master netting agreements or similar agreements, or that have otherwise been offset on the balance sheet under certain specific conditions that permit net presentation. In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies that the scope of the above guidance is limited to derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. The guidance was effective for the Company beginning in the first quarter of fiscal year 2014. See Note 8, Derivative Financial Instruments, for additional disclosures about offsetting assets and liabilities.

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which requires enhanced disclosures of the amounts reclassified out of Accumulated Other Comprehensive Income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of Accumulated Other Comprehensive Income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. The guidance was effective for the Company beginning in the first quarter of fiscal year 2014 and did not have a material effect on the condensed consolidated financial statements, as the amounts reclassified out of other comprehensive income are immaterial for all periods presented.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013	Nov. 30, 2012
Interest income	$ 239,254	$ 241,630	$ 480,325	$ 481,715
Interest expense	(165,345)	(174,301)	(332,930)	(350,897)
Net interest income	73,909	67,329	147,395	130,818
(Provision for) recovery of loan losses	(1,096)	3,817	(2,374)	(5,305)
Net interest income after (provision for) recovery of loan losses	72,813	71,146	145,021	125,513
Non-interest income:
Fee and other income	5,125	17,807	9,281	22,765
Derivative (losses) gains	(30,780)	(3,766)	75,604	(28,358)
Results of operations of foreclosed assets	(3,269)	(909)	(7,318)	(5,674)
Total non-interest income	(28,924)	13,132	77,567	(11,267)
Non-interest expense:
Salaries and employee benefits	(9,018)	(10,148)	(19,346)	(20,553)
Other general and administrative expenses	(9,555)	(9,303)	(17,842)	(16,068)
(Provision for) recovery of guarantee liability	(73)	92	(42)	101
Other	(150)	(4,384)	(298)	(4,547)
Total non-interest expense	(18,796)	(23,743)	(37,528)	(41,067)
Income prior to income taxes	25,093	60,535	185,060	73,179
Income tax expense	(101)	(454)	(1,802)	(452)
Net income	24,992	60,081	183,258	72,727
Less: Net income attributable to the noncontrolling interest	(67)	(699)	(2,785)	(704)
Net income attributable to CFC	$ 24,925	$ 59,382	$ 180,473	$ 72,023

XML

Fair Value Measurement

6 Months Ended

Nov. 30, 2013

Fair Value Measurement

Fair Value Disclosures

(11) Fair Value Measurement

Fair Value

Assets and liabilities measured at fair value on either a recurring or non-recurring basis on the condensed consolidated balance sheets at November 30, 2013 and May 31, 2013 consisted of investments in common stock and preferred stock, derivative instruments, and collateral-dependent non-performing loans.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We account for derivative instruments in the condensed consolidated balance sheets as either an asset or liability measured at fair value. There is not an active secondary market for the types of interest rate swaps we use. Our process to estimate the fair value of our derivative instruments involves multiple steps including consideration of indicative quotes from counterparties and use of a discounted cash flow model. We obtain indicative quotes from the interest rate swap counterparties to estimate fair value on a quarterly basis. The indicative quotes are based on the expected future cash flow and the estimated yield curve.

We perform analysis to validate the indicative quotes obtained from our swap counterparties and investigate any significant differences. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. We only enter into swap agreements with counterparties that are participating in our revolving lines of credit at the time the exchange agreements are executed. All of our swap agreements are subject to master netting agreements.

Our valuation technique for interest rate swaps is based on discounted cash flows and we utilize observable inputs, which reflect market data. To calculate fair value, we determine the forward curve. The forward curve allows us to determine the projected floating rate cash flows and the discount factors needed to calculate the net present value of each interest payment. The significant observable inputs for our derivatives include Spot LIBOR rates, Eurodollar futures contracts, and market swap rates.

Fair values for our interest rate swaps are classified as a Level 2 valuation. We record the change in the fair value of our derivatives for each reporting period in the derivative gains (losses) line, included in non-interest income in the condensed consolidated statements of operations, as currently none of our derivatives qualify for hedge accounting. 

Our investments in equity securities include investments in the Federal Agricultural Mortgage Corporation Class A common stock and Series A preferred stock and are recorded in the condensed consolidated balance sheet at fair value. We calculate fair value of the investments based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. Fair values for these securities are classified as a Level 1 valuation. For the three and six months ended November 30, 2013 we recorded an unrealized loss of $1 million and $5 million, respectively, compared to an unrealized gain of $1 million for the prior-year periods in accumulated other comprehensive income on the condensed consolidated balance sheet.

Deferred compensation investments are recorded in the condensed consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the quoted price on the stock exchange where the funds are traded. That stock exchange is an active market based on the volume of shares transacted. The amounts are invested in highly liquid indices and mutual funds and are classified within Level 1 of the fair value hierarchy.

The following table presents our assets and liabilities that are measured at fair value on a recurring basis:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Level 1		Level 2			Level 1		Level 2
Derivative assets	$	-	$	291,757	$	-	$	257,878
Derivative liabilities		-		397,695		-		475,278
Investments in common and preferred stock		26,388		-		31,632		-
Deferred compensation investments		4,169		-		3,716		-

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. Any adjustments to fair value usually result from application of lower-of-cost or fair value accounting or write-downs of individual assets. At November 30, 2013 and May 31, 2013, we measured certain collateral-dependent non-performing loans at fair value. We utilize the collateral fair value underlying the loan in estimating the specific loan loss allowance. To estimate the fair value of the collateral, we may use third party valuation specialists, internal estimates or a combination of both. The valuation technique used to determine fair value of the non-performing loans provided by both our internal staff and third party specialists includes market multiples (i.e., comparable companies). The significant unobservable inputs used in the determination of fair value include EBITDA multiples ranging from 3.5x to 5.0x. The material inputs used in estimating fair value by both internal staff and third party specialists are Level 3 within the fair value hierarchy. In these instances, the valuation is considered to be a non-recurring item. The significant unobservable inputs for Level 3 assets that are valued using fair values obtained from third party specialists are reviewed by our Credit Risk Management group to assess the reasonableness of the assumptions used and the accuracy of the work performed. In cases where we rely on third party inputs, we use the final unadjusted third party valuation analysis as support for any financial statement adjustments and disclosures to the financial statements. The valuation techniques and significant unobservable inputs for assets classified as Level 3 in the fair value hierarchy, which are measured using an internal model, are independently reviewed by other internal staff.

Assets measured at fair value on a non-recurring basis at November 30, 2013 and May 31, 2013, were classified as Level 3 within the fair value hierarchy. Any increase or decrease to significant unobservable inputs used in the determination of fair value will not have a material impact on the fair value measurement of those assets or to the results of operations of the Company. For the three and six months ended November 30, 2013 and 2012, respectively, there were no losses on our non-performing loans.  The following table provides the carrying/fair value of the related individual assets at November 30, 2013 and May 31, 2013:

	Level 3 Fair Value
(dollar amounts in thousands)	November 30, 2013		May 31, 2013
Non-performing loans, net of specific reserves	$	8,976	$	12,070

XML

Document And Entity Information	6 Months Ended
	Nov. 30, 2013
Document Information [Line Items]
Entity Registrant Name	NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/
Entity Central Index Key	0000070502
Current Fiscal Year End Date	--05-31
Entity Filer Category	Non-accelerated Filer
Trading Symbol	NRU
Entity Common Stock, Shares Outstanding	0
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Nov. 30, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

XML

Fair Value of Financial Instruments

6 Months Ended

Nov. 30, 2013

Fair Value of Financial Instruments

Fair Value of Financial Instruments

(12) Fair Value of Financial Instruments

Carrying and fair values for our financial instruments are presented as follows:

	November 30, 2013				May 31, 2013
(dollar amounts in thousands)	Carrying value		Fair value		Carrying value		Fair value
Assets:
Cash and cash equivalents	$	301,377	$	301,377	$	177,062	$	177,062
Restricted cash		8,651		8,651		7,696		7,696
Investments		26,388		26,388		31,632		31,632
Time deposits		800,000		800,000		700,000		700,000
Deferred compensation investments		4,169		4,169		3,716		3,716
Loans to members, net		20,333,021		20,746,388		20,251,549		21,318,406
Debt service reserve funds		39,353		39,353		39,803		39,803
Derivative instruments		291,757		291,757		257,878		257,878
Liabilities:
Short-term debt		6,466,990		6,480,895		7,719,483		7,751,021
Long-term debt		12,307,904		13,443,765		10,696,433		12,156,097
Guarantee liability		23,934		26,862		24,742		27,730
Derivative instruments		397,695		397,695		475,278		475,278
Subordinated deferrable debt		400,000		375,532		400,000		404,300
Members’ subordinated certificates		1,637,282		1,754,549		1,729,226		1,880,672
Off-balance sheet instruments:
Commitments		-		-		-		-

See Note 11, Fair Value Measurement, for more details on assets and liabilities measured at fair value on a recurring or non-recurring basis on our condensed consolidated balance sheets. 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. There were no transfers between levels of the fair value hierarchy during the six months ended November 30, 2013 and the year ended May 31, 2013.

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 and preferred stock investments that have no stated maturity. Below is a summary of significant methodologies used in estimating fair value amounts at November 30, 2013 and May 31, 2013.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and certificates of deposit with original maturities of less than 90 days. Cash and cash equivalents are valued at the carrying value, which approximates fair value. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, cash and cash equivalents classified within Level 1 of the fair value hierarchy totaled $301 million and $177 million, respectively.

Restricted Cash

Restricted cash consists of cash and cash equivalents for which use is contractually restricted. Restricted cash is valued at the carrying value, which approximates fair value. Restricted cash is classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, restricted cash classified within Level 1 of the fair value hierarchy totaled $9 million and $8 million, respectively.

Investments

Our investments include investments in the Federal Agricultural Mortgage Corporation Class A common stock and Series A preferred stock. The Class A common stock and Series A preferred stock are classified as available-for-sale securities and recorded in the condensed consolidated balance sheets at fair value. We calculate fair value based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. The common stock and preferred stock are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, investments classified within Level 1 of the fair value hierarchy totaled $26 million and $32 million, respectively.

Time Deposits

Time deposits with financial institutions in interest bearing accounts have maturities of less than one year as of the reporting date and are valued at the carrying value, which approximates fair value. The deposits are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, time deposits classified within Level 2 of the fair value hierarchy totaled $800 million and $700 million, respectively.

Deferred Compensation Investments

CFC offers a non-qualified 457(b) deferred compensation plan to highly compensated employees. Such amounts deferred by employees are invested by the company. The deferred compensation investments are recorded in the condensed consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the quoted price on the stock exchange where the funds are traded. That stock exchange is an active market based on the volume of shares transacted. The amounts are invested in highly liquid indices and mutual funds and are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, deferred compensation investments classified within Level 1 of the fair value hierarchy totaled $4 million.

Loans to Members, net

As part of receiving a loan from us, our members have additional requirements and rights that are not typical of other financial institutions, such as the ability to receive a patronage capital allocation, the general requirement to purchase subordinated certificates or member capital securities to meet their capital contribution requirements as a condition of obtaining additional credit from us, the option to select fixed rates from one year to maturity with the fixed rate resetting or repricing at the end of each selected rate term, the ability to convert from a fixed rate to another fixed rate or the variable rate at any time, and certain interest rate discounts that are specific to the borrower’s activity with us. These features make it difficult to obtain market data for similar loans. Therefore, we must use other methods to estimate the fair value.

Fair values for fixed-rate loans are estimated using a discounted cash flow technique by discounting the future expected cash flows using the current rates at which we would make similar loans to new borrowers for the same remaining maturities. The maturity date used in the fair value calculation of loans with a fixed rate for a selected rate term is the next repricing date since these borrowers must reprice their loans at various times throughout the life of the loan at the current market rate.

Loans with different risk characteristics, specifically non-performing and restructured loans, are valued by 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. See Note 11, Fair Value Measurement, for more details about how we calculate the fair value of certain non-performing loans.

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.

Loans to members are classified within Level 3 of the fair value hierarchy and at November 30, 2013 and May 31, 2013, totaled $20,746 million and $21,318 million, respectively.

Debt Service Reserve Funds

Debt service reserve funds represent cash and/or investments on deposit with the bond trustee for tax-exempt bonds that we guarantee. Debt service reserve fund investments are comprised of actively traded tax exempt municipal bonds and commercial paper. Carrying value is considered to be equal to fair value. Debt service reserve funds are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, debt service reserve funds classified within Level 1 of the fair value hierarchy totaled $39 million and $40 million, respectively.

Short-Term Debt

Short-term debt consists of commercial paper, select notes, bank bid notes, daily liquidity fund and other long-term debt due within one year. The fair value of short-term debt with maturities less than or equal to 90 days is carrying value, which is a reasonable estimate of fair value. The fair value of short-term debt with maturities greater than 90 days is estimated based on discounted cash flows and quoted market rates for debt with similar maturities. Short-term debt classified within Level 1 of the fair value hierarchy is comprised of dealer commercial paper, bank bid notes, and daily liquidity fund. At November 30, 2013 and May 31, 2013, short-term debt classified within the Level 1 of the fair value hierarchy is based on quoted prices in active markets and totaled $2,633 million and $2,840 million, respectively. Short-term debt classified within Level 2 of the fair value hierarchy is comprised of member commercial paper, non-member commercial paper and select notes. At November 30, 2013 and May 31, 2013, short-term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows using discount rates consistent with current market rates for similar products with similar remaining terms and totaled $1,625 million and $1,210 million, respectively.

Short-term debt classified within Level 2 also includes our collateral trust bonds and medium-term notes maturing within one year. At November 30, 2013 and May 31, 2013, short-term debt classified within the Level 2 of the fair value hierarchy totaled $1,639 million and $2,912 million, respectively. The fair value of short term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows using a pricing model that incorporates available market information such as indicative benchmark yields and credit spread assumptions that are provided by third party pricing services such as our banks that underwrite our other debt transactions.

Short-term debt classified within the Level 3 of the fair value hierarchy includes our notes payable, members’ subordinated certificates and members’ capital securities due within one year and totaled $584 million and $789 million at November 30, 2013 and May 31, 2013, respectively. The fair value of short term debt classified within Level 3 of the fair value hierarchy was determined based on discounted cash flows using benchmark yields and spreads for similar instruments supplied by underwriter quotes for similar instruments, if available. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk.

Long-Term Debt

Long-term debt consists of collateral trust bonds, medium-term notes and long-term notes payable. We issue all collateral trust bonds and some medium-term notes in underwritten public transactions. Collateral trust bonds and medium-term notes are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, long-term debt classified within the Level 2 of the fair value hierarchy totaled $8,187 million and $7,410 million, respectively. The fair value of long- term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows. There is no active secondary trading for all underwritten collateral trust bonds and medium-term notes; therefore, dealer quotes and recent market prices are both used in estimating fair value. There is essentially no secondary market for the medium-term notes issued to our members or in transactions that are not underwritten; therefore, fair value is estimated based on observable benchmark yields and spreads for similar instruments supplied by banks that underwrite our other debt transactions.

The long-term notes payable are issued in private placement transactions and there is no secondary trading of such debt. Long-term notes payable are classified within Level 3 of the fair value hierarchy. Long-term debt classified within the Level 3 of the fair value hierarchy totaled $5,257 million and $4,746 million at November 30, 2013 and May 31, 2013, respectively. The fair value was determined based on discounted cash flows using benchmark yields and spreads for similar instruments supplied by underwriter quotes for similar instruments, if available. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk.

Guarantees

The fair value of our guarantee liability is based on the fair value of our contingent and non-contingent exposure related to our guarantees. The fair value of our contingent exposure for guarantees is based on management’s estimate of our exposure to losses within the guarantee portfolio using a discounted cash flow method. The fair value of our non-contingent exposure for guarantees issued is estimated based on the total unamortized balance of guarantee fees paid and guarantee fees to be paid discounted at our current short-term funding rate, which represents management’s estimate of the fair value of our obligation to stand ready to perform. Guarantees are classified within Level 3 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, guarantees classified within Level 3 of the fair value hierarchy totaled $27 million and $28 million, respectively.

Subordinated Deferrable Debt

Subordinated deferrable debt outstanding was issued in an underwritten public transaction. There is not active secondary trading for this subordinated deferrable debt; therefore, dealer quotes and recent market prices are both used in estimating fair value based on a discounted cash flow method. Subordinated deferrable debt is classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, subordinated deferrable debt classified within the Level 2 of the fair value hierarchy totaled $376 million and $404 million, respectively.

Members’ Subordinated Certificates

Members’ subordinated certificates include (i) membership subordinated certificates issued to our members, (ii) loan and guarantee subordinated certificates issued as a condition of obtaining loan funds or guarantees and (iii) member capital securities issued as voluntary investments by our members. Membership, loan and guarantee subordinated certificates are non-transferable other than among members with CFC’s consent. There is no ready market from which to obtain fair value quotes for membership, loan and guarantee subordinated certificates. These certificates are valued at par. There also is no ready market from which to obtain fair value quotes for member capital securities. Fair value for member capital securities is based on the discounted cash flows using the coupon interest rate on the last business day of the reporting period. Members’ subordinated certificates are classified within Level 3 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, members’ subordinated certificates classified within Level 3 of the fair value hierarchy totaled $1,755 million and $1,881 million, respectively.

Derivative Instruments

We record derivative instruments in the condensed consolidated balance sheets as either an asset or liability measured at fair value. Because there is not an active secondary market for the types of interest rate swaps we use, we obtain indicative quotes from the interest rate swap counterparties to estimate fair value on a quarterly basis. The indicative quotes are based on the expected future cash flow and estimated yield curves. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. Derivative instruments are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, derivative asset instruments classified within Level 2 of the fair value hierarchy totaled $292 million and $258 million, respectively, and derivative liability instruments classified within Level 2 of the fair value hierarchy totaled $398 million and $475 million, respectively.

Commitments

The fair value of our commitments is estimated as the carrying value, or zero. Extensions of credit under these commitments, if exercised, would result in loans priced at market rates.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	Nov. 30, 2013	Nov. 30, 2012
Net income	$ 24,992	$ 60,081	$ 183,258	$ 72,727
Other comprehensive (loss) income:
Add: Unrealized (losses) gains on securities	(1,335)	893	(5,244)	887
Less: Realized gains on derivatives	(249)	(253)	(495)	(505)
Other comprehensive (loss) income	(1,584)	640	(5,739)	382
Total comprehensive income	23,408	60,721	177,519	73,109
Less: Total comprehensive income attributable to noncontrolling interest	(62)	(694)	(2,776)	(693)
Total comprehensive income attributable to CFC	$ 23,346	$ 60,027	$ 174,743	$ 72,416

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Long-Term Debt

6 Months Ended

Nov. 30, 2013

Long-Term Debt

Long-Term Debt

(6) Long-Term Debt

The following is a summary of long-term debt outstanding:

	November 30,		May 31,
	2013		2013
(dollar amounts in thousands)
Unsecured long-term debt:
Medium-term notes sold through dealers	$	1,780,416	$	1,528,424
Medium-term notes sold to members		143,280		182,790
Subtotal		1,923,696		1,711,214
Unamortized discount		(620)		(627)
Total unsecured medium-term notes		1,923,076		1,710,587
Unsecured notes payable		4,034,075		3,709,074
Unamortized discount		(845)		(920)
Total unsecured notes payable		4,033,230		3,708,154
Total unsecured long-term debt		5,956,306		5,418,741
Secured long-term debt:
Collateral trust bonds		5,434,372		4,639,372
Unamortized discount		(179,976)		(181,640)
Total secured collateral trust bonds		5,254,396		4,457,732
Secured notes payable		1,097,202		819,960
Total secured long-term debt		6,351,598		5,277,692
Total long-term debt	$	12,307,904	$	10,696,433

In June 2013, we issued $400 million of 2.35 percent collateral trust bonds due 2020 and in November 2013, we issued  $400 million of 3.40 percent collateral trust bonds due 2023. On December 16, 2013, we redeemed $150 million of our $600 million 4.75 percent collateral trust bonds due March 1, 2014. The premium and unamortized issuance costs totaling $1.4 million will be recorded during the third quarter of fiscal 2014.

At November 30, 2013 and May 31, 2013, we had unsecured notes payable totaling $3,999 million and $3,674 million, respectively, outstanding under bond purchase agreements with the Federal Financing Bank and a bond guarantee agreement with RUS issued under the Guaranteed Underwriter program, which provides guarantees to the Federal Financing Bank. During the six months ended November 30, 2013, we borrowed $325 million under our committed loan facilities with the Federal Financing Bank. On November 21, 2013, we closed on a $500 million commitment from RUS to guarantee a loan from the Federal Financing Bank as part of the Guaranteed Underwriter Program that is available for advance through October 15, 2016. Advances under this facility have a 20 year maturity repayment period. In the aggregate at November 30, 2013, we had up to $924 million available under committed loan facilities from the Federal Financing Bank as part of this program.

At November 30, 2013 and May 31, 2013, secured notes payable include $1,529 million and $1,542 million, respectively, in debt outstanding to the Federal Agricultural Mortgage Corporation under a note purchase agreement totaling $3,900 million. Under the terms of the note purchase agreement, we can borrow up to $3,900 million at any time from the date of the agreement through January 11, 2016, and thereafter automatically extend the agreement on each anniversary date of the closing for an additional year, unless prior to any such anniversary date, the Federal Agricultural Mortgage Corporation provides CFC with a notice that the draw period will not be extended beyond the remaining term.

The agreement with the Federal Agricultural Mortgage Corporation is a revolving credit facility that allows us to borrow, repay and re-borrow funds at any time through maturity or from time to time as market conditions permit, provided that the principal amount at any time outstanding under the note purchase agreement is not more than the total available under the agreement. 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 agreement. See Note 3, Loans and Commitments, for additional information on the collateral pledged to secure notes payable under these programs. At November 30, 2013 and May 31, 2013, $450 million and $741 million, respectively, in debt outstanding to the Federal Agricultural Mortgage Corporation had a remaining maturity of less than one year and was classified as short-term debt.

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Short-Term Debt and Credit Arrangements

6 Months Ended

Nov. 30, 2013

Short-Term Debt and Credit Arrangements

Short-Term Debt and Credit Arrangements

(5) Short-Term Debt and Credit Arrangements

The following is a summary of short-term debt outstanding:

	November 30,		May 31,
(dollar amounts in thousands)	2013		2013
Short-term debt:
Commercial paper sold through dealers, net of discounts (1)	$	1,876,868	$	2,009,884
Commercial paper sold directly to members, at par (1)		1,011,155		812,141
Commercial paper sold directly to non-members, at par (1)		25,006		39,298
Select notes		588,590		358,390
Daily liquidity fund notes sold directly to members		606,586		680,419
Bank bid notes		150,000		150,000
Subtotal short-term debt		4,258,205		4,050,132
Long-term debt maturing within one year:
Medium-term notes sold through dealers		607,472		989,607
Medium-term notes sold to members		416,998		391,318
Secured collateral trust bonds		604,994		1,504,949
Loan and gurantees subordinated certificates		37,827		37,176
Member capital securities		85,615		-
Secured notes payable		451,972		742,402
Unsecured notes payable		3,907		3,899
Total long-term debt maturing within one year		2,208,785		3,669,351
Total short-term debt	$	6,466,990	$	7,719,483

(1) Backup liquidity is provided by our revolving credit agreements.

Revolving Credit Agreements

At November 30, 2013 and May 31, 2013, we had $3,345 million and $3,100 million, respectively, of commitments under revolving credit agreements. We may request letters of credit for up to $100 million under each agreement in place at November 30, 2013, which then reduces the amount available under the facility. Our bank lines of credit may be used for general corporate purposes; however, we use them primarily as backup liquidity for dealer and member commercial paper.

The following table presents the total available and the outstanding letters of credit under our revolving credit agreements:

	Total available				Letters of credit outstanding
	November 30,		May 31,		November 30,		May 31,			Facility fee per
(dollar amounts in thousands)	2013		2013		2013		2013		Maturity	year (1)
Three-year agreement	$	219,000	$	219,000	$	-	$	-	March 21, 2014	15 basis points
Three-year agreement		1,006,000		916,000		-		-	October 28, 2016	10 basis points
Four-year agreement		1,087,500		1,007,500		-		-	October 28, 2017	10 basis points
Five-year agreement		1,030,609		954,012		1,891		3,488	October 28, 2018	10 basis points
Total	$	3,343,109	$	3,096,512	$	1,891	$	3,488

(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 October 28, 2013, we amended our $1,006 million three-year, $1,088 million four-year, and $1,033 million five-year revolving credit agreements to extend the maturity dates for the three-year, four-year, and five-year revolving credit agreements to October 28, 2016, 2017 and 2018, respectively. The other terms of the facilities remain unchanged.

The following represents our required and actual financial ratios under the revolving credit agreements:

			Actual
	Requirement		November 30, 2013		May 31, 2013
Minimum average adjusted TIER over the six most recent     fiscal quarters (1)		1.025		1.27		1.27
Minimum adjusted TIER for the most recent fiscal year (1) (2)		1.05		1.29		1.29
Maximum ratio of adjusted senior debt to total equity (1)		10.00		5.74		5.85

(1) In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody’s Investors Service and Standard & Poor’s Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

(2) We must meet this requirement to retire patronage capital.

At November 30, 2013 and May 31, 2013, we were in compliance with all covenants and conditions under our revolving credit agreements and there were no borrowings outstanding under these agreements.

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Foreclosed Assets (Tables)

6 Months Ended

Nov. 30, 2013

Foreclosed Assets

Schedule of Foreclosed Assets Roll Forward

The activity for foreclosed assets is summarized below:

	As of and for the six months ended November 30, 2013
(dollar amounts in thousands)	CAH		DRP		Total
Balance as of May 31, 2013	$	248,049	$	13,423	$	261,472
Results of operations		(6,651)		(667)		(7,318)
Cash investments (proceeds)		5,953		(4,500)		1,453
Balance as of November 30, 2013	$	247,351	$	8,256	$	255,607

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Segment Information

6 Months Ended

Nov. 30, 2013

Segment Information

Segment Reporting

(13) Segment Information

The following tables contain the segment presentation for the condensed consolidated statements of operations for the six months ended November 30, 2013 and 2012 and condensed consolidated balance sheets at November 30, 2013 and 2012.

	For the six months ended November 30, 2013
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	472,831	$	25,345	$	(17,851)	$	480,325
Interest expense		(332,200)		(18,581)		17,851		(332,930)
Net interest income		140,631		6,764		-		147,395
Provision for loan losses		(2,374)		-		-		(2,374)
Net interest income after provision for loan losses		138,257		6,764		-		145,021
Non-interest income:
Fee and other income		8,187		694		400		9,281
Derivative gains		74,351		1,253		-		75,604
Results of operations from foreclosed assets		(7,318)		-		-		(7,318)
Total non-interest income		75,220		1,947		400		77,567
Non-interest expense:
General and administrative expenses		(32,663)		(4,125)		(400)		(37,188)
Provision for guarantee liability		(42)		-		-		(42)
Other		(299)		1		-		(298)
Total non-interest expense		(33,004)		(4,124)		(400)		(37,528)
Income prior to income taxes		180,473		4,587		-		185,060
Income tax expense		-		(1,802)		-		(1,802)
Net income	$	180,473	$	2,785	$	-	$	183,258
Assets:
Total loans outstanding	$	20,342,560	$	1,199,116	$	(1,163,246)	$	20,378,430
Deferred origination costs		9,790		-		-		9,790
Less: Allowance for loan losses		(55,199)		-		-		(55,199)
Loans to members, net		20,297,151		1,199,116		(1,163,246)		20,333,021
Other assets		2,079,206		140,738		(121,601)		2,098,343
Total assets	$	22,376,357	$	1,339,854	$	(1,284,847)	$	22,431,364

	For the six months ended November 30, 2012
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	473,682	$	28,333	$	(20,300)	$	481,715
Interest expense		(350,034)		(21,163)		20,300		(350,897)
Net interest income		123,648		7,170		-		130,818
Provision for loan losses		(5,305)		-		-		(5,305)
Net interest income after provision for loan losses		118,343		7,170		-		125,513
Non-interest income:
Fee and other income		22,533		686		(454)		22,765
Derivative losses		(26,436)		(1,922)		-		(28,358)
Results of operations from foreclosed assets		(5,674)		-		-		(5,674)
Total non-interest income		(9,577)		(1,236)		(454)		(11,267)
Non-interest expense:
General and administrative expenses		(32,297)		(4,778)		454		(36,621)
Recovery of guarantee liability		101		-		-		101
Other		(4,547)		-		-		(4,547)
Total non-interest expense		(36,743)		(4,778)		454		(41,067)
Income prior to income taxes		72,023		1,156		-		73,179
Income tax expense		-		(452)		-		(452)
Net income	$	72,023	$	704	$	-	$	72,727
Assets:
Total loans outstanding	$	19,064,837	$	1,230,471	$	(1,198,134)	$	19,097,174
Deferred origination costs		8,033		-		-		8,033
Less: Allowance for loan losses		(148,737)		-		-		(148,737)
Loans to members, net		18,924,133		1,230,471		(1,198,134)		18,956,470
Other assets		1,623,931		153,837		(123,844)		1,653,924
Total assets	$	20,548,064	$	1,384,308	$	(1,321,978)	$	20,610,394

The following tables contain the segment presentation for the condensed consolidated statements of operations for the three months ended November 30, 2013 and 2012.

	For the three months ended November 30, 2013
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	235,505	$	12,582	$	(8,833)	$	239,254
Interest expense		(164,980)		(9,198)		8,833		(165,345)
Net interest income		70,525		3,384		-		73,909
Provision for loan losses		(1,096)		-		-		(1,096)
Net interest income after provision for loan losses		69,429		3,384		-		72,813
Non-interest income:
Fee and other income		4,163		342		620		5,125
Derivative losses		(29,232)		(1,548)		-		(30,780)
Results of operations from foreclosed assets		(3,269)		-		-		(3,269)
Total non-interest income		(28,338)		(1,206)		620		(28,924)
Non-interest expense:
General and administrative expenses		(15,942)		(2,011)		(620)		(18,573)
Provision for guarantee liability		(73)		-		-		(73)
Other		(151)		1		-		(150)
Total non-interest expense		(16,166)		(2,010)		(620)		(18,796)
Income prior to income taxes		24,925		168		-		25,093
Income tax expense		-		(101)		-		(101)
Net income	$	24,925	$	67	$	-	$	24,992

	For the three months ended November 30, 2012
(dollar amounts in thousands)	CFC		Other		Elimination		Consolidated
Statement of operations:
Interest income	$	237,711	$	13,946	$	(10,027)	$	241,630
Interest expense		(173,870)		(10,458)		10,027		(174,301)
Net interest income		63,841		3,488		-		67,329
Recovery of loan losses		3,817		-		-		3,817
Net interest income after recovery of loan losses		67,658		3,488		-		71,146
Non-interest income:
Fee and other income		17,741		292		(226)		17,807
Derivative losses		(3,391)		(375)		-		(3,766)
Results of operations from foreclosed assets		(909)		-		-		(909)
Total non-interest income		13,441		(83)		(226)		13,132
Non-interest expense:
General and administrative expenses		(17,425)		(2,252)		226		(19,451)
Recovery of guarantee liability		92		-		-		92
Other		(4,384)		-		-		(4,384)
Total non-interest expense		(21,717)		(2,252)		226		(23,743)
Income prior to income taxes		59,382		1,153		-		60,535
Income tax expense		-		(454)		-		(454)
Net income	$	59,382	$	699	$	-	$	60,081

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Equity

6 Months Ended

Nov. 30, 2013

Equity

Equity

(9) Equity

In May 2013, the CFC Board of Directors authorized the allocation of $1 million of fiscal year 2013 net earnings to the cooperative educational fund. In July 2013, the CFC Board of Directors authorized the allocation of the fiscal year 2013 net earnings as follows: $138 million to the members’ capital reserve and $81 million to members in the form of patronage capital. In July 2013, the CFC Board of Directors authorized the retirement of allocated net earnings totaling $41 million, representing 50 percent of the fiscal year 2013 allocation. This amount was returned to members in cash on October 1, 2013. 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.

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Guarantees (Details) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Guarantees
Guarantor Obligations, Current Carrying Value	$ 1,094,229	$ 1,112,771
CFC
Guarantees
Guarantor Obligations, Current Carrying Value	1,043,809	1,063,113
CFC | Distribution
Guarantees
Guarantor Obligations, Current Carrying Value	224,521	245,265
CFC | Power supply
Guarantees
Guarantor Obligations, Current Carrying Value	813,891	810,900
CFC | Statewide and associate
Guarantees
Guarantor Obligations, Current Carrying Value	5,397	6,948
RTFC
Guarantees
Guarantor Obligations, Current Carrying Value	2,304	3,711
NCSC
Guarantees
Guarantor Obligations, Current Carrying Value	48,116	45,947
Letters of credit
Guarantees
Guarantor Obligations, Current Carrying Value	451,594	447,683
Other guarantees
Guarantees
Guarantor Obligations, Current Carrying Value	115,645	117,118
Long-term tax-exempt bonds
Guarantees
Guarantor Obligations, Current Carrying Value	526,990	547,970
Long-term fixed-rate bonds | Letters of credit
Guarantees
Guarantor Obligations, Current Carrying Value	74,000
Long-term variable-rate bonds | Letters of credit
Guarantees
Guarantor Obligations, Current Carrying Value	$ 453,000	$ 473,000

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Subordinated Deferrable Debt

6 Months Ended

Nov. 30, 2013

Subordinated Deferrable Debt

Subordinated Deferrable Debt

(7) Subordinated Deferrable Debt

At November 30, 2013 and May 31, 2013, we had $400 million of 4.75 percent subordinated deferrable debt outstanding due 2043. Subordinated deferrable debt currently outstanding is callable at par on or after April 30, 2023.

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Derivative Financial Instruments

6 Months Ended

Nov. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

(8) Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We utilize derivatives such as interest rate swaps and treasury rate locks for forecasted transactions to mitigate interest rate risk.

The following table shows the notional amounts outstanding and the weighted-average rate paid and received for our interest rate swaps by type:

		November 30, 2013					May 31, 2013
			Weighted-		Weighted-				Weighted-		Weighted-
		Notional	average		average		Notional		average		average
(dollar amounts in thousands)		amount	rate paid		rate received		amount		rate paid		rate received
Pay fixed-receive variable	$	5,446,222	3.35	%	0.23	%	$	5,287,889	3.39	%	0.26	%
Pay variable-receive fixed		2,925,440	0.95		4.06			3,500,440	1.12		4.62
Total interest rate swaps	$	8,371,662	2.51		1.57		$	8,788,329	2.49		2.00

The derivative gains (losses) line item of the condensed consolidated statement of operations includes cash settlements and derivative forward value for derivative instruments that do not meet hedge accounting criteria. Gains and losses recorded on the condensed consolidated statements of operations for our interest rate swaps are summarized below:

	For the three months ended				For the six months ended
	November 30,				November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Derivative cash settlements	$	(19,471)	$	(15,456)	$	(36,156)	$	(29,319)
Derivative forward value		(11,309)		11,690		111,760		961
Derivative (losses) gains	$	(30,780)	$	(3,766)	$	75,604	$	(28,358)

Rating Triggers

Some of our interest rate swaps have credit risk-related contingent features referred to as rating triggers. Rating triggers are not separate financial instruments and are not required to be accounted for separately as derivatives. At November 30, 2013, the following notional amounts of derivative instruments had rating triggers based on our senior unsecured credit ratings from Moody’s Investors Service or Standard & Poor’s Corporation falling to a level specified in the applicable agreements and are grouped into the categories below. In calculating the payments and collections required upon termination, we netted the agreements for each counterparty, as allowed by the underlying master agreements. At November 30, 2013, our senior unsecured credit ratings from Moody’s Investors Service and Standard & Poor’s Corporation were A2 and A, respectively. At November 30, 2013, both Moody’s Investors Service and Standard & Poor’s Corporation had our ratings on stable outlook.

	Notional		Our required		Amount we		Net
(dollar amounts in thousands)	amount		payment		would collect		total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	1,500	$	(40)	$	-	$	(40)
fall below Baa1/BBB+ (1)		6,627,731		(162,986)		88,745		(74,241)
Total	$	6,629,231	$	(163,026)	$	88,745	$	(74,281)

(1) Stated senior unsecured credit ratings are for Moody’s Investors Service and Standard & Poor’s Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

In addition to the rating triggers listed on page 21, at November 30, 2013, we had a total notional amount of $450 million of derivative instruments with one counterparty that would require the pledging of collateral totaling $11 million (the fair value of such derivative instruments excluding credit risk) if our senior unsecured ratings from Moody’s Investors Service were to fall below Baa2 or if the ratings from Standard & Poor’s Corporation were to fall below BBB. The aggregate fair value of all interest rate swaps with rating triggers that were in a net liability position at November 30, 2013, including credit risk, was $171 million.

Offsetting Derivatives Assets and Liabilities

As noted previously, 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 to the transaction. Notwithstanding netting provisions, our derivative assets and liabilities are not offset in the accompanying condensed consolidated balance sheets. The following table provides information on the gross fair value of derivative assets and liabilities and the gross amounts that are not offset in the condensed consolidated balance sheets.

November 30, 2013

Net amounts of

Gross amounts

Gross amounts

assets/liabilities

not offset in the condensed

offset in the

presented

consolidated balance sheets

Gross amounts

condensed

in the condensed

Cash

of recognized

consolidated

consolidated

Financial

collateral

Net

(dollar amounts in thousands)

assets/liabilities

balance sheets

balance sheets

instruments

pledged

amount

Assets:

Derivatives - Interest rate swaps

$

291,757

$

-

$

291,757

$

212,917

$

-

$

78,840

Liabilities:

Derivatives - Interest rate swaps

397,695

-

397,695

212,917

-

184,778

May 31, 2013

Net amounts of

Gross amounts

Gross amounts

assets/liabilities

not offset in the condensed

offset in the

presented

consolidated balance sheets

Gross amounts

condensed

in the condensed

Cash

of recognized

consolidated

consolidated

Financial

collateral

Net

(dollar amounts in thousands)

assets/liabilities

balance sheets

balance sheets

instruments

pledged

amount

Assets:

Derivatives - Interest rate swaps

$

257,878

$

-

$

257,878

$

203,161

$

-

$

54,717

Liabilities:

Derivatives - Interest rate swaps

475,278

-

475,278

203,161

-

272,117

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Guarantees

6 Months Ended

Nov. 30, 2013

Guarantees

Guarantees

(10) Guarantees

The following table summarizes total guarantees by type of guarantee and member class:

	November 30,		May 31,
(dollar amounts in thousands)	2013		2013
Total by type:
Long-term tax-exempt bonds	$	526,990	$	547,970
Letters of credit		451,594		447,683
Other guarantees		115,645		117,118
Total	$	1,094,229	$	1,112,771
Total by member class:
CFC:
Distribution	$	224,521	$	245,265
Power supply		813,891		810,900
Statewide and associate		5,397		6,948
CFC total		1,043,809		1,063,113
RTFC		2,304		3,711
NCSC		48,116		45,947
Total	$	1,094,229	$	1,112,771

The maturities for the long-term tax-exempt bonds and the related guarantees run through calendar year 2042. Amounts in the table represent the outstanding principal amount of the guaranteed bonds. At November 30, 2013, our maximum potential exposure for the $74 million of fixed-rate tax-exempt bonds is $121 million, representing principal and interest. Of the amounts shown in the table above for long-term tax-exempt bonds, $453 million and $473 million as of November 30, 2013 and May 31, 2013, respectively, are adjustable or floating-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 could be required to pay related to the remaining adjustable and floating-rate bonds. Many of these bonds have a call provision that in the event of a default allow us to trigger the call provision. This would limit our exposure to future interest payments on these bonds. Our maximum potential exposure is secured by a mortgage lien on all of the member system’s assets and future revenue. If the debt is accelerated because of a determination that the interest thereon is not tax-exempt, the system’s obligation to reimburse us for any guarantee payments will be treated as a long-term loan.

The maturities for letters of credit run through calendar year 2024. The amounts shown in the table above represent our maximum potential exposure, of which $161 million is secured at November 30, 2013. Security provisions include a mortgage lien on substantially all of the system’s assets, future revenue and the system’s investment in our commercial paper.

In addition to the letters of credit listed in the table, under master letter of credit facilities in place at November 30, 2013, we may be required to issue up to an additional $172 million in letters of credit to third parties for the benefit of our members. As of November 30, 2013, all of our master letter of credit facilities were subject to material adverse change clauses at the time of issuance. Also, at November 30, 2013 we had hybrid letter of credit facilities totaling $1,371 million that represent commitments that may be used for the issuance of letters of credit or line of credit loan advances, at the option of a borrower, and are included in unadvanced loan commitments for line of credit loans reported in Note 3, Loans and Commitments. Hybrid letter of credit facilities subject to material adverse change clauses at the time of issuance totaled $352 million at November 30, 2013. 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 time the loan was approved and confirm that the borrower is currently in compliance with the letter of credit terms and conditions. The remaining commitment under hybrid letter of credit facilities of $1,019 million may be used for the issuance of letters of credit as long as the borrower is in compliance with the terms and conditions of the facility.

The maturities for other guarantees listed in the table run through calendar year 2025. The maximum potential exposure for these other guarantees is $117 million, all of which is unsecured.

At November 30, 2013 and May 31, 2013, we had $406 million and $410 million of guarantees, respectively, representing 37 percent of total guarantees for each period, under which our right of recovery from our members was not secured.

At November 30, 2013, we were the liquidity provider for a total of $578 million of variable-rate tax-exempt bonds issued for our member cooperatives. As liquidity provider on these $578 million of tax-exempt bonds, we are required to purchase bonds that are tendered or put by investors. Investors provide notice to the remarketing agent that they will tender or put a certain amount of bonds at the next interest rate reset date. If the remarketing agent is unable to sell such bonds to other investors by the next interest rate reset date, we have unconditionally agreed to purchase such bonds. On a total of $453 million of the bonds for which we are liquidity provider, we also provide a guarantee of all principal and interest, which is shown in the chart on page 23 as a tax-exempt bond guarantee. On a total of $125 million of tax-exempt bonds, our obligation as liquidity provider is in the form of a letter of credit which is reflected in our letters of credit. During the six months ended November 30, 2013, we were not required to perform as liquidity provider pursuant to these obligations.

Guarantee Liability

At November 30, 2013 and May 31, 2013, we recorded a guarantee liability of $24 million and $25 million, respectively, which represents the contingent and non-contingent exposures related to guarantees and liquidity obligations associated with our members’ debt. The contingent guarantee liability at November 30, 2013 and May 31, 2013 was $2 million based on management’s estimate of exposure to losses within the guarantee portfolio. The remaining balance of the total guarantee liability of $22 million and $23 million, respectively, at November 30, 2013 and May 31, 2013 relates to our non-contingent obligation to stand ready to perform over the term of our guarantees and liquidity obligations that we have entered into or modified since January 1, 2003.

Activity in the guarantee liability account is summarized below:

	As of and for the
	six months ended
(dollar amounts in thousands)	November 30, 2013
Beginning balance as of May 31, 2013	$	24,742
Net change in non-contingent liability		(850)
Provision for contingent guarantee liability		42
Ending balance as of November 30, 2013	$	23,934
Liability as a percentage of total guarantees		2.19	%

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Fair Value Measurement (Details 1) (Level 3, USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Level 3
Non-performing loans, net of specific reserves	$ 8,976	$ 12,070

XML

Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Assets:
Restricted cash	$ 8,651	$ 7,696
Time deposits	800,000	700,000
Debt service reserve funds	39,353	39,803
Derivative instruments	291,757	257,878
Liabilities:
Short-term debt	6,466,990	7,719,483
Long-term debt	12,307,904	10,696,433
Derivative instruments	397,695	475,278
Subordinated deferrable debt
Liabilities:
Subordinated debt	400,000	400,000
Members' subordinated certificates
Liabilities:
Subordinated debt	1,637,282	1,729,226
Carrying value
Assets:
Cash and cash equivalents	301,377	177,062
Restricted cash	8,651	7,696
Investments	26,388	31,632
Time deposits	800,000	700,000
Deferred compensation investments	4,169	3,716
Loans to members, net	20,333,021	20,251,549
Debt service reserve funds	39,353	39,803
Derivative instruments	291,757	257,878
Liabilities:
Short-term debt	6,466,990	7,719,483
Long-term debt	12,307,904	10,696,433
Guarantee liability	23,934	24,742
Derivative instruments	397,695	475,278
Off-balance sheet instruments:
Commitments	0	0
Carrying value | Subordinated deferrable debt
Liabilities:
Subordinated debt	400,000	400,000
Carrying value | Members' subordinated certificates
Liabilities:
Subordinated debt	1,637,282	1,729,226
Fair value
Assets:
Cash and cash equivalents	301,377	177,062
Restricted cash	8,651	7,696
Investments	26,388	31,632
Time deposits	800,000	700,000
Deferred compensation investments	4,169	3,716
Loans to members, net	20,746,388	21,318,406
Debt service reserve funds	39,353	39,803
Derivative instruments	291,757	257,878
Liabilities:
Short-term debt	6,480,895	7,751,021
Long-term debt	13,443,765	12,156,097
Guarantee liability	26,862	27,730
Derivative instruments	397,695	475,278
Off-balance sheet instruments:
Commitments	0	0
Fair value | Subordinated deferrable debt
Liabilities:
Subordinated debt	375,532	404,300
Fair value | Members' subordinated certificates
Liabilities:
Subordinated debt	$ 1,754,549	$ 1,880,672

XML

Fair Value Measurement (Details) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Fair value of assets and liabilities
Derivative assets	$ 291,757	$ 257,878
Derivative liabilities	397,695	475,278
Level 1
Fair value of assets and liabilities
Derivative assets	0	0
Derivative liabilities	0	0
Investments in common and preferred stock	26,388	31,632
Deferred Compensation Plan Assets	4,169	3,716
Level 2
Fair value of assets and liabilities
Derivative assets	291,757	257,878
Derivative liabilities	397,695	475,278
Investments in common and preferred stock	0	0
Deferred Compensation Plan Assets	$ 0	$ 0

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General Information and Accounting Policies (Details Textual) (USD $)	6 Months Ended
	Nov. 30, 2013	Nov. 30, 2012	May 31, 2013
Variable Interest Entities
Number of subsidiaries controlled by the entity, holding foreclosed assets	2
Loans outstanding	$ 20,333,021,000	$ 18,956,470,000	$ 20,251,549,000
Loans Receivable Cost of Loans Sold	37,000,000	98,000,000
Deferred Loan Conversion Fees	69,000,000		21,000,000
RTFC
Variable Interest Entities
Renewal period of the management agreement	1 year
Consolidated variable interest entities | RTFC
Variable Interest Entities
Guarantee amount	2,000,000
Total assets including loans outstanding to members	583,000,000
Loans outstanding	467,000,000
Maximum amount committed to extend loan	4,000,000,000
Commitment outstanding	447,000,000
Consolidated variable interest entities | NCSC
Variable Interest Entities
Guarantee amount	82,000,000
Maximum potential exposure	89,000,000
Total assets including loans outstanding to members	757,000,000
Loans outstanding	732,000,000
Maximum amount committed to extend loan	3,000,000,000
Commitment outstanding	799,000,000
Loans outstanding	717,000,000
Credit enhancements	$ 82,000,000

XML

Long-Term Debt (Details) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013	May 31, 2013
Long-term debt
Total long-term debt	$ 12,307,904	$ 10,696,433
Unsecured long-term debt
Long-term debt
Total long-term debt	5,956,306	5,418,741
Unsecured medium-term notes
Long-term debt
Long-term debt before unamortized discount	1,923,696	1,711,214
Unamortized discount	(620)	(627)
Total long-term debt	1,923,076	1,710,587
Medium-term notes sold through dealers
Long-term debt
Long-term debt before unamortized discount	1,780,416	1,528,424
Medium-term notes sold to members
Long-term debt
Long-term debt before unamortized discount	143,280	182,790
Unsecured notes payable
Long-term debt
Long-term debt before unamortized discount	4,034,075	3,709,074
Unamortized discount	(845)	(920)
Total long-term debt	4,033,230	3,708,154
Secured long-term debt
Long-term debt
Total long-term debt	6,351,598	5,277,692
Collateral trust bonds
Long-term debt
Long-term debt before unamortized discount	5,434,372	4,639,372
Unamortized discount	(179,976)	(181,640)
Total long-term debt	5,254,396	4,457,732
Secured notes payable
Long-term debt
Total long-term debt	$ 1,097,202	$ 819,960

XML

General Information and Accounting Policies (Tables)

6 Months Ended

Nov. 30, 2013

General Information and Accounting Policies

Interest and Other Income

The following table presents the components of interest income:

	For the three months ended				For the six months ended
	November 30,				November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Interest on long-term fixed-rate loans	$	221,952	$	218,247	$	446,535	$	436,187
Interest on long-term variable-rate loans		4,826		4,893		9,654		10,918
Interest on line of credit loans		7,505		7,413		15,077		15,105
Interest on restructured loans		-		7,625		136		13,087
Interest on investments		1,817		1,576		3,753		2,514
Fee income (1)		3,154		1,876		5,170		3,904
Total interest income	$	239,254	$	241,630	$	480,325	$	481,715

(1) Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Schedule of Components of Interest (Expense)

The following table presents the components of interest expense:

	For the three months ended				For the six months ended
	November 30,				November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Interest expense on debt (1):
Short-term debt	$	1,607	$	1,697	$	3,039	$	3,316
Medium-term notes		20,980		24,833		42,551		52,716
Collateral trust bonds		74,858		82,271		151,656		163,710
Subordinated deferrable debt		4,750		2,807		9,500		5,613
Subordinated certificates		20,494		20,528		41,120		40,882
Long-term notes payable		38,759		37,915		76,698		76,311
Debt issuance costs (2)		1,782		1,905		3,647		3,842
Fee expense (3)		2,115		2,345		4,719		4,507
Total interest expense	$	165,345	$	174,301	$	332,930	$	350,897

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to the issuance of debt, principally underwriters’ fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3) Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

Schedule of Quantifying Prior Year Misstatements Corrected in Current Year Financial Statements

The effect of recording the correction of the immaterial errors in the condensed consolidated statement of cash flows for the six months ended November 30, 2012, is presented below:

	For the six months ended November 30, 2012
(dollar amounts in thousands)	As Filed		Adjustment	Corrected
Advances made on loans	$	(2,584,296)	98,147	(2,486,149)
Net proceeds from sale of loans		98,147	(98,147)	-
Proceeds from issuances of short-term debt, net		215,087	(124,234)	90,853
Proceeds from issuances of short term debt with original maturity greater than 90 days		-	322,406	322,406
Repayments of short term debt with original maturity greater than 90 days		-	(198,172)	(198,172)

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Derivative Financial Instruments (Tables)

6 Months Ended

Nov. 30, 2013

Derivative Financial Instruments

Schedule of Derivative Instruments

The following table shows the notional amounts outstanding and the weighted-average rate paid and received for our interest rate swaps by type:

		November 30, 2013					May 31, 2013
			Weighted-		Weighted-				Weighted-		Weighted-
		Notional	average		average		Notional		average		average
(dollar amounts in thousands)		amount	rate paid		rate received		amount		rate paid		rate received
Pay fixed-receive variable	$	5,446,222	3.35	%	0.23	%	$	5,287,889	3.39	%	0.26	%
Pay variable-receive fixed		2,925,440	0.95		4.06			3,500,440	1.12		4.62
Total interest rate swaps	$	8,371,662	2.51		1.57		$	8,788,329	2.49		2.00

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

Gains and losses recorded on the condensed consolidated statements of operations for our interest rate swaps are summarized below:

	For the three months ended				For the six months ended
	November 30,				November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Derivative cash settlements	$	(19,471)	$	(15,456)	$	(36,156)	$	(29,319)
Derivative forward value		(11,309)		11,690		111,760		961
Derivative (losses) gains	$	(30,780)	$	(3,766)	$	75,604	$	(28,358)

Disclosure of Credit Derivatives

At November 30, 2013, the following notional amounts of derivative instruments had rating triggers based on our senior unsecured credit ratings from Moody’s Investors Service or Standard & Poor’s Corporation falling to a level specified in the applicable agreements and are grouped into the categories below.

	Notional		Our required		Amount we		Net
(dollar amounts in thousands)	amount		payment		would collect		total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	1,500	$	(40)	$	-	$	(40)
fall below Baa1/BBB+ (1)		6,627,731		(162,986)		88,745		(74,241)
Total	$	6,629,231	$	(163,026)	$	88,745	$	(74,281)

(1) Stated senior unsecured credit ratings are for Moody’s Investors Service and Standard & Poor’s Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument

Offsetting Assets and Liabilities

The following table provides information on the gross fair value of derivative assets and liabilities and the gross amounts that are not offset in the condensed consolidated balance sheets.

November 30, 2013

Net amounts of

Gross amounts

Gross amounts

assets/liabilities

not offset in the condensed

offset in the

presented

consolidated balance sheets

Gross amounts

condensed

in the condensed

Cash

of recognized

consolidated

consolidated

Financial

collateral

Net

(dollar amounts in thousands)

assets/liabilities

balance sheets

balance sheets

instruments

pledged

amount

Assets:

Derivatives - Interest rate swaps

$

291,757

$

-

$

291,757

$

212,917

$

-

$

78,840

Liabilities:

Derivatives - Interest rate swaps

397,695

-

397,695

212,917

-

184,778

May 31, 2013

Net amounts of

Gross amounts

Gross amounts

assets/liabilities

not offset in the condensed

offset in the

presented

consolidated balance sheets

Gross amounts

condensed

in the condensed

Cash

of recognized

consolidated

consolidated

Financial

collateral

Net

(dollar amounts in thousands)

assets/liabilities

balance sheets

balance sheets

instruments

pledged

amount

Assets:

Derivatives - Interest rate swaps

$

257,878

$

-

$

257,878

$

203,161

$

-

$

54,717

Liabilities:

Derivatives - Interest rate swaps

475,278

-

475,278

203,161

-

272,117

XML

Short-Term Debt and Credit Arrangements (Details 2)	6 Months Ended		12 Months Ended
	Nov. 30, 2013		May 31, 2013
Requirement
Minimum average adjusted TIER over the six most recent fiscal quarters	1.025	[1]	1.025	[1]
Minimum adjusted TIER for the most recent fiscal year	1.05	[1],[2]	1.05	[1],[2]
Maximum ratio of adjusted senior debt to total equity	10.00	[1]	10.00	[1]
Actual
Minimum average adjusted TIER over the six most recent fiscal quarters	1.27	[1]	1.27	[1]
Minimum adjusted TIER for the most recent fiscal year	1.29	[1],[2]	1.29	[1],[2]
Maximum ratio of adjusted senior debt to total equity	5.74	[1]	5.85	[1]

[1] In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody’s Investors Service and Standard & Poor’s Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

[2] We must meet this requirement to retire patronage capital.

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Loans and Commitments (Details 5) (USD $) In Thousands, unless otherwise specified	3 Months Ended			6 Months Ended
	Nov. 30, 2013		Nov. 30, 2012	Nov. 30, 2013		Nov. 30, 2012	May 31, 2013
Activity in the loan loss allowance
Balance at the beginning of the period	$ 55,656		$ 152,501	$ 54,325		$ 143,326
(Recovery of) provision for loan losses	1,096		(3,817)	2,374		5,305
Charge-offs	1,606			1,606
Recoveries of loans previously charged-off	53		53	106		106
Balance at the end of the period	55,199		148,737	55,199		148,737
Ending balance of the allowance:
Collectively evaluated	53,381			53,381			50,898
Individually evaluated	1,818			1,818			3,427
Total ending balance of the allowance	55,199		148,737	55,199		148,737
Recorded investment in loans:
Collectively evaluated	20,360,052			20,360,052			20,233,867
Individually evaluated	18,378			18,378			62,450
Total loans outstanding	20,378,430	[1]	19,097,174	20,378,430	[1]	19,097,174	20,296,317	[1]
Loans to members, net	20,323,231			20,323,231			20,241,992	[2]
RTFC
Activity in the loan loss allowance
Balance at the beginning of the period	8,497		8,877	9,158		8,562
(Recovery of) provision for loan losses	968		(563)	307		(248)
Charge-offs	1,606			1,606
Recoveries of loans previously charged-off	0		0	0		0
Balance at the end of the period	7,859		8,314	7,859		8,314
Ending balance of the allowance:
Collectively evaluated	6,041			6,041			5,731
Individually evaluated	1,818			1,818			3,427
Total ending balance of the allowance	7,859		8,314	7,859		8,314
Recorded investment in loans:
Collectively evaluated	461,069			461,069			492,862
Individually evaluated	5,794			5,794			10,497
Total loans outstanding	466,863			466,863			503,359
Loans to members, net	459,004			459,004			494,201	[2]
NCSC
Activity in the loan loss allowance
Balance at the beginning of the period	3,823		6,843	3,921		7,823
(Recovery of) provision for loan losses	755		2	657		(978)
Charge-offs	0			0
Recoveries of loans previously charged-off	0		0	0		0
Balance at the end of the period	4,578		6,845	4,578		6,845
Ending balance of the allowance:
Collectively evaluated	4,578			4,578			3,921
Individually evaluated	0			0			0
Total ending balance of the allowance	4,578		6,845	4,578		6,845
Recorded investment in loans:
Collectively evaluated	732,253			732,253			773,141
Individually evaluated	0			0			0
Total loans outstanding	732,253			732,253			773,141
Loans to members, net	727,675			727,675			769,220	[2]
CFC
Activity in the loan loss allowance
Balance at the beginning of the period	43,336		136,781	41,246		126,941
(Recovery of) provision for loan losses	(627)		(3,256)	1,410		6,531
Charge-offs	0			0
Recoveries of loans previously charged-off	53		53	106		106
Balance at the end of the period	42,762		133,578	42,762		133,578
Ending balance of the allowance:
Collectively evaluated	42,762			42,762			41,246
Individually evaluated	0			0			0
Total ending balance of the allowance	42,762		133,578	42,762		133,578
Recorded investment in loans:
Collectively evaluated	19,166,730			19,166,730			18,967,864
Individually evaluated	12,584			12,584			51,953
Total loans outstanding	19,179,314	[1]	19,064,837	19,179,314	[1]	19,064,837	19,019,817	[1]
Loans to members, net	$ 19,136,552			$ 19,136,552			$ 18,978,571	[2]

[1] Includes non-performing and restructured loans.

[2] Excludes deferred origination costs of $10 million at November 30, 2013 and May 31, 2013.

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $) In Thousands	Total	Noncontrolling interest	Total CFC equity	Accumulated other comprehensive income	CFC retained equity	Unallocated net income (loss)	Members' capital reserve	Patronage capital allocated	Membership fees and education fund
Balance at May. 31, 2012	$ 490,755	$ 7,592	$ 483,163	$ 9,199	$ 473,964	$ (346,941)	$ 272,126	$ 546,366	$ 2,413
Patronage capital retirement	(35,341)	0	(35,341)	0	(35,341)	0	0	(35,341)	0
Net income	72,727	704	72,023	0	72,023	72,023	0	0	0
Other comprehensive income (loss)	382	(11)	393	393	0	0	0	0	0
Other	(367)	(2)	(365)	0	(365)	0	0	0	(365)
Balance at Nov. 30, 2012	528,156	8,283	519,873	9,592	510,281	(274,918)	272,126	511,025	2,048
Balance at May. 31, 2013	811,261	11,790	799,471	8,381	791,090	(213,255)	410,259	591,581	2,505
Patronage capital retirement	(40,724)	0	(40,724)	0	(40,724)	0	0	(40,724)	0
Net income	183,258	2,785	180,473	0	180,473	180,473	0	0	0
Other comprehensive income (loss)	(5,739)	(9)	(5,730)	(5,730)	0	0	0	0	0
Other	680	1,095	(415)	0	(415)	0	0	0	(415)
Balance at Nov. 30, 2013	$ 948,736	$ 15,661	$ 933,075	$ 2,651	$ 930,424	$ (32,782)	$ 410,259	$ 550,857	$ 2,090

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Foreclosed Assets

6 Months Ended

Nov. 30, 2013

Foreclosed Assets

Foreclosed Assets

(4) Foreclosed Assets

Assets received in satisfaction of loan receivables are initially recorded at fair value when received and are subsequently evaluated periodically for impairment. These assets are classified on the condensed consolidated balance sheets as foreclosed assets. At November 30, 2013, all foreclosed assets were held by DRP and CAH, which are wholly-owned subsidiaries of CFC.

The activity for foreclosed assets is summarized below:

	As of and for the six months ended November 30, 2013
(dollar amounts in thousands)	CAH		DRP		Total
Balance as of May 31, 2013	$	248,049	$	13,423	$	261,472
Results of operations		(6,651)		(667)		(7,318)
Cash investments (proceeds)		5,953		(4,500)		1,453
Balance as of November 30, 2013	$	247,351	$	8,256	$	255,607

During the six months ended November 30, 2013, our investment in the DRP foreclosed assets decreased primarily due to net cash proceeds received of $4 million from the sale of raw land and developed lots.

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Derivative Financial Instruments (Details Textual) (USD $)				6 Months Ended
	Nov. 30, 2013 Interest rate swaps	May 31, 2013 Interest rate swaps	Nov. 30, 2013 Interest rate swaps Specific Counterparty	Nov. 30, 2013 Forward starting swaps Specific Counterparty
Derivative [Line Items]
Notional amount	$ 8,371,662,000	$ 8,788,329,000	$ 450,000,000
Assets Needed to be Posted as Collateral for Immediate Settlement Aggregate Fair Value	11,000,000
Derivative, Net Liability Position, Aggregate Fair Value	$ 171,000,000
Number of counterparties				1

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Guarantees (Tables)

6 Months Ended

Nov. 30, 2013

Guarantees

Schedule of Guarantor Obligations

The following table summarizes total guarantees by type of guarantee and member class:

	November 30,		May 31,
(dollar amounts in thousands)	2013		2013
Total by type:
Long-term tax-exempt bonds	$	526,990	$	547,970
Letters of credit		451,594		447,683
Other guarantees		115,645		117,118
Total	$	1,094,229	$	1,112,771
Total by member class:
CFC:
Distribution	$	224,521	$	245,265
Power supply		813,891		810,900
Statewide and associate		5,397		6,948
CFC total		1,043,809		1,063,113
RTFC		2,304		3,711
NCSC		48,116		45,947
Total	$	1,094,229	$	1,112,771

Schedule of Activity in Guarantee Liability Account

Activity in the guarantee liability account is summarized below:

	As of and for the
	six months ended
(dollar amounts in thousands)	November 30, 2013
Beginning balance as of May 31, 2013	$	24,742
Net change in non-contingent liability		(850)
Provision for contingent guarantee liability		42
Ending balance as of November 30, 2013	$	23,934
Liability as a percentage of total guarantees		2.19	%

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Loans and Commitments (Details 2) (USD $) In Thousands, unless otherwise specified	Nov. 30, 2013		May 31, 2013		Nov. 30, 2012
Payment Status of Loans
30-89 days past due	$ 0		$ 7,004
90 days or more past due	8,858	[1]	9,156	[1]
Total past due	8,858		16,160
Current	20,369,572		20,280,157
Total financing receivables	20,378,430	[2]	20,296,317	[2]	19,097,174
Non-accrual loans	18,378		23,081
As a % of total loans
30-89 days past due	0.00%		0.03%
90 days or more past due	0.04%	[1]	0.05%	[1]
Total past due	0.04%		0.08%
Current	99.96%		99.92%
Total recorded investment in loans	100.00%		100.00%
Non-accrual loans	0.09%		0.11%
RTFC
Payment Status of Loans
30-89 days past due	0		4,163
90 days or more past due	3,858	[1]	4,156	[1]
Total past due	3,858		8,319
Current	463,005		495,040
Total financing receivables	466,863		503,359
Non-accrual loans	5,794		10,497
NCSC
Payment Status of Loans
30-89 days past due	0		0
90 days or more past due	0	[1]	0	[1]
Total past due	0		0
Current	732,253		773,141
Total financing receivables	732,253		773,141
Non-accrual loans	0		0
CFC
Payment Status of Loans
30-89 days past due	0		2,841
90 days or more past due	5,000	[1]	5,000	[1]
Total past due	5,000		7,841
Current	19,174,314		19,011,976
Total financing receivables	19,179,314	[2]	19,019,817	[2]	19,064,837
Non-accrual loans	12,584		12,584
CFC | Distribution
Payment Status of Loans
30-89 days past due	0		2,841
90 days or more past due	0	[1]	0	[1]
Total past due	0		2,841
Current	15,019,692		14,938,351
Total financing receivables	15,019,692		14,941,192
Non-accrual loans	7,584		7,584
CFC | Power supply
Payment Status of Loans
30-89 days past due	0		0
90 days or more past due	5,000	[1]	5,000	[1]
Total past due	5,000		5,000
Current	4,089,415		4,002,669
Total financing receivables	4,094,415		4,007,669
Non-accrual loans	5,000		5,000
CFC | Statewide and associate
Payment Status of Loans
30-89 days past due	0		0
90 days or more past due	0	[1]	0	[1]
Total past due	0		0
Current	65,207		70,956
Total financing receivables	65,207	[2]	70,956	[2]
Non-accrual loans	$ 0		$ 0

[1] All loans 90 days or more past due are on non-accrual status.

[2] Includes non-performing and restructured loans.

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General Information and Accounting Policies (Policies)

6 Months Ended

Nov. 30, 2013

General Information and Accounting Policies

Basis of Presentation

(a) Basis of Presentation

The accompanying financial statements include the consolidated accounts of National Rural Utilities Cooperative Finance Corporation (“CFC”), Rural Telephone Finance Cooperative (“RTFC”), National Cooperative Services Corporation (“NCSC”) and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions, after elimination of intercompany accounts and transactions.

Unless stated otherwise, references to “we,” “our” or “us” represent the consolidation of CFC, RTFC, NCSC and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions. Foreclosed assets are held by two subsidiaries controlled by CFC. Denton Realty Partners, LP (“DRP”) holds a land development loan and a related limited partnership interest. CAH holds our investment in cable and telecommunications operating entities in the United States Virgin Islands (“USVI”), British Virgin Islands and St. Maarten.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. The accounting estimates that require our most significant and subjective judgments include the allowance for loan losses and the determination of the fair value of our derivatives and certain aspects of our foreclosed assets. While we use our best estimates and judgments based on the known facts at the date of the financial statements, actual results could differ from these estimates as future events occur.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2013.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of our results of operations and financial position for the interim periods presented.

Variable Interest Entities

(b) Variable Interest Entities

We are required to consolidate the financial results of RTFC and NCSC because CFC is the primary beneficiary of variable interests in RTFC and NCSC due to its exposure to absorbing the majority of their expected losses and because CFC manages the lending activities of RTFC and NCSC. Under separate guarantee agreements, RTFC and NCSC pay CFC a fee to indemnify against loan losses. CFC is the sole lender to and manages the business operations of RTFC through a management agreement in effect until December 1, 2016, which is automatically renewed for one-year terms thereafter unless terminated by either party. CFC is the primary source of funding to and manages the lending activities of NCSC through a management agreement that is automatically renewable on an annual basis unless terminated by either party. NCSC funds its lending programs through loans from CFC or debt guaranteed by CFC. In connection with these guarantees, NCSC must pay a guarantee fee and purchase from CFC interest-bearing subordinated term certificates in proportion to the related guarantee.

RTFC and NCSC creditors have no recourse against CFC in the event of a default by RTFC and NCSC, unless there is a guarantee agreement under which CFC has guaranteed NCSC or RTFC debt obligations to a third party. At November 30, 2013, CFC had guaranteed $82 million of NCSC debt, derivative instruments and guarantees with third parties, and CFC’s maximum potential exposure for these instruments totaled $89 million. The maturities for NCSC obligations guaranteed by CFC run through 2031. Guarantees of NCSC debt and derivative instruments are not included in Note 10, Guarantees, as the debt and derivatives are reported on the condensed consolidated balance sheet. At November 30, 2013, CFC guaranteed $2 million of RTFC guarantees with third parties. The maturities for RTFC obligations guaranteed by CFC run through 2015 and are renewed on an annual basis. All CFC loans to RTFC and NCSC are secured by all assets and revenue of RTFC and NCSC. At November 30, 2013, RTFC had total assets of $583 million including loans outstanding to members of $467 million, and NCSC had total assets of $757 million including loans outstanding of $732 million. At November 30, 2013, CFC had committed to lend RTFC up to $4,000 million, of which $447 million was outstanding. At November 30, 2013, CFC had committed to provide up to $3,000 million of credit to NCSC, of which $799 million was outstanding, representing $717 million of outstanding loans and $82 million of credit enhancements.

Loan Sales

(c) Loan Sales

We account for the sale of loans resulting from direct loan sales to third parties and securitization transactions by removing the financial assets from our condensed consolidated balance sheets when control has been surrendered. We retain the servicing performance obligations on these loans and recognize related servicing fees on an accrual basis over the period for which servicing activity is provided. Deferred transaction costs and unamortized deferred loan origination costs related to the loans sold are included in the calculation of the gain or loss on the sale. We do not hold any continuing interest in the loans sold to date other than servicing performance obligations. We have no obligation to repurchase loans from the purchaser, except in the case of breaches of representations and warranties.

During the six months ended November 30, 2013 and 2012, we sold CFC loans with outstanding balances totaling $37 million and $98 million, respectively, at par for cash. We recorded a loss on sale of loans, representing the unamortized deferred loan origination costs and transaction costs for the loans sold, which was immaterial during the six months ended November 30, 2013 and 2012.

Interest Income

(d) Interest Income

Interest income on loans is recognized using the effective interest method. The following table presents the components of interest income:

	For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Interest on long-term fixed-rate loans	$	221,952	$	218,247	$	446,535	$	436,187
Interest on long-term variable-rate loans		4,826		4,893		9,654		10,918
Interest on line of credit loans		7,505		7,413		15,077		15,105
Interest on restructured loans		-		7,625		136		13,087
Interest on investments		1,817		1,576		3,753		2,514
Fee income (1)		3,154		1,876		5,170		3,904
Total interest income	$	239,254	$	241,630	$	480,325	$	481,715

(1) Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Deferred income on the condensed consolidated balance sheets primarily includes deferred conversion fees totaling $69 million and $21 million at November 30, 2013 and May 31, 2013, respectively.

Interest Expense

(e) Interest Expense

The following table presents the components of interest expense:

	For the three months ended November 30,				For the six months ended November 30,
(dollar amounts in thousands)	2013		2012		2013		2012
Interest expense on debt (1):
Short-term debt	$	1,607	$	1,697	$	3,039	$	3,316
Medium-term notes		20,980		24,833		42,551		52,716
Collateral trust bonds		74,858		82,271		151,656		163,710
Subordinated deferrable debt		4,750		2,807		9,500		5,613
Subordinated certificates		20,494		20,528		41,120		40,882
Long-term notes payable		38,759		37,915		76,698		76,311
Debt issuance costs (2)		1,782		1,905		3,647		3,842
Fee expense (3)		2,115		2,345		4,719		4,507
Total interest expense	$	165,345	$	174,301	$	332,930	$	350,897

(1) Represents interest expense and the amortization of discounts on debt.

(2) Includes amortization of all deferred charges related to the issuance of debt, principally underwriters’ fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3) Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements.

We exclude indirect costs, if any, related to funding activities from interest expense.

Derivative Financial Instruments

(f) Derivative Financial Instruments

We are an end user of financial derivative instruments and not a swap dealer. We use derivatives such as interest rate swaps and treasury rate locks to mitigate interest rate risk. Consistent with the accounting standards for derivative financial instruments, we record derivative instruments (including certain derivative instruments embedded in other contracts) on the condensed consolidated balance sheets as either an asset or liability measured at fair value. In recording the fair value of derivative assets and liabilities, we do not net our positions under contracts with individual counterparties. Accrued cash settlements on our derivatives are recorded as accrued interest and other receivables and accrued interest payable line items of the condensed consolidated balance sheet. Changes in the fair value of derivative instruments along with realized gains and losses from cash settlements are recognized in the derivative gains (losses) line item of the condensed consolidated statement of operations unless specific hedge accounting criteria are met.

We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. If applicable hedge accounting criteria are satisfied, the change in fair value of derivative instruments is recorded to other comprehensive income, and net cash settlements are recorded in interest expense. The gain or loss on derivatives used as a cash flow hedge of a forecasted debt transaction is recorded as a component of other comprehensive income (loss) and amortized as interest expense using the effective interest method over the term of the hedged debt. Any ineffectiveness in the hedging relationship is recognized in the derivative gains (losses) line of the statement of operations.

Cash activity associated with interest rate swaps is classified as an operating activity in the condensed consolidated statements of cash flows.

Reclassifications

(g) Reclassifications

Reclassifications of prior period amounts have been made to conform to the current reporting format and the presentation in our Form 10-Q for the six months ended November 30, 2013. Specifically, time deposits with financial institutions have been reclassified from the investments line item and presented as a separate line item on the condensed consolidated balance sheet as of May 31, 2013.

Immaterial Correction of Errors

(h) Immaterial Correction of Errors

During the third quarter of fiscal year 2013, we identified two errors in the condensed consolidated statement of cash flows related to (1) the classification of advances and sale proceeds of loans sold and (2) the presentation of short-term debt with an original maturity of greater than 90 days. We corrected our previously reported condensed consolidated statement of cash flows for the six months ended November 30, 2012 herein to reflect the impact of the immaterial errors. The errors and the corrections have no effect on the change in cash, our total cash balance, liquidity, condensed consolidated balance sheet, condensed consolidated statement of operations, key ratios or covenant compliance for any period. We concluded that the errors were not material to any of the previously reported quarterly or annual periods.

The effect of recording the correction of the immaterial errors in the condensed consolidated statement of cash flows for the six months ended November 30, 2012, is presented below:

	For the six months ended November 30, 2012
(dollar amounts in thousands)	As Filed		Adjustment		Corrected
Advances made on loans	$	(2,584,296)	$	98,147	$	(2,486,149)
Net proceeds from sale of loans		98,147		(98,147)		-
Proceeds from issuances of short-term debt, net		215,087		(124,234)		90,853
Proceeds from issuances of short term debt with original maturity greater than 90 days		-		322,406		322,406
Repayments of short term debt with original maturity greater than 90 days		-		(198,172)		(198,172)

New Accounting Pronouncements

(i) New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update, Disclosures about Offsetting Assets and Liabilities, which requires enhanced disclosures about certain financial assets and liabilities that are subject to enforceable master netting agreements or similar agreements, or that have otherwise been offset on the balance sheet under certain specific conditions that permit net presentation. In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies that the scope of the above guidance is limited to derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions. The guidance was effective for the Company beginning in the first quarter of fiscal year 2014. See Note 8, Derivative Financial Instruments, for additional disclosures about offsetting assets and liabilities.

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income, which requires enhanced disclosures of the amounts reclassified out of Accumulated Other Comprehensive Income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of Accumulated Other Comprehensive Income by the respective line items of net income, but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. The guidance was effective for the Company beginning in the first quarter of fiscal year 2014 and did not have a material effect on the condensed consolidated financial statements, as the amounts reclassified out of other comprehensive income are immaterial for all periods presented.

Fair Value Measurement

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We account for derivative instruments in the condensed consolidated balance sheets as either an asset or liability measured at fair value. There is not an active secondary market for the types of interest rate swaps we use. Our process to estimate the fair value of our derivative instruments involves multiple steps including consideration of indicative quotes from counterparties and use of a discounted cash flow model. We obtain indicative quotes from the interest rate swap counterparties to estimate fair value on a quarterly basis. The indicative quotes are based on the expected future cash flow and the estimated yield curve.

We perform analysis to validate the indicative quotes obtained from our swap counterparties and investigate any significant differences. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. We only enter into swap agreements with counterparties that are participating in our revolving lines of credit at the time the exchange agreements are executed. All of our swap agreements are subject to master netting agreements.

Our valuation technique for interest rate swaps is based on discounted cash flows and we utilize observable inputs, which reflect market data. To calculate fair value, we determine the forward curve. The forward curve allows us to determine the projected floating rate cash flows and the discount factors needed to calculate the net present value of each interest payment. The significant observable inputs for our derivatives include Spot LIBOR rates, Eurodollar futures contracts, and market swap rates.

Fair values for our interest rate swaps are classified as a Level 2 valuation. We record the change in the fair value of our derivatives for each reporting period in the derivative gains (losses) line, included in non-interest income in the condensed consolidated statements of operations, as currently none of our derivatives qualify for hedge accounting. 

  

Our investments in equity securities include investments in the Federal Agricultural Mortgage Corporation Class A common stock and Series A preferred stock and are recorded in the condensed consolidated balance sheet at fair value. We calculate fair value of the investments based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. Fair values for these securities are classified as a Level 1 valuation. For the three and six months ended November 30, 2013 we recorded an unrealized loss of $1 million and $5 million, respectively, compared to an unrealized gain of $1 million for the prior-year periods in accumulated other comprehensive income on the condensed consolidated balance sheet.

Deferred compensation investments are recorded in the condensed consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the quoted price on the stock exchange where the funds are traded. That stock exchange is an active market based on the volume of shares transacted. The amounts are invested in highly liquid indices and mutual funds and are classified within Level 1 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. Any adjustments to fair value usually result from application of lower-of-cost or fair value accounting or write-downs of individual assets. At November 30, 2013 and May 31, 2013, we measured certain collateral-dependent non-performing loans at fair value. We utilize the collateral fair value underlying the loan in estimating the specific loan loss allowance. To estimate the fair value of the collateral, we may use third party valuation specialists, internal estimates or a combination of both. The valuation technique used to determine fair value of the non-performing loans provided by both our internal staff and third party specialists includes market multiples (i.e., comparable companies). The significant unobservable inputs used in the determination of fair value include EBITDA multiples ranging from 3.5x to 5.0x. The material inputs used in estimating fair value by both internal staff and third party specialists are Level 3 within the fair value hierarchy. In these instances, the valuation is considered to be a non-recurring item. The significant unobservable inputs for Level 3 assets that are valued using fair values obtained from third party specialists are reviewed by our Credit Risk Management group to assess the reasonableness of the assumptions used and the accuracy of the work performed. In cases where we rely on third party inputs, we use the final unadjusted third party valuation analysis as support for any financial statement adjustments and disclosures to the financial statements. The valuation techniques and significant unobservable inputs for assets classified as Level 3 in the fair value hierarchy, which are measured using an internal model, are independently reviewed by other internal staff.

Assets measured at fair value on a non-recurring basis at November 30, 2013 and May 31, 2013, were classified as Level 3 within the fair value hierarchy. Any increase or decrease to significant unobservable inputs used in the determination of fair value will not have a material impact on the fair value measurement of those assets or to the results of operations of the Company. For the three and six months ended November 30, 2013 and 2012, respectively, there were no losses on our non-performing loans.

Fair Value of Financial Instruments

See Note 11, Fair Value Measurement, for more details on assets and liabilities measured at fair value on a recurring or non-recurring basis on our condensed consolidated balance sheets. 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. There were no transfers between levels of the fair value hierarchy during the six months ended November 30, 2013 and the year ended May 31, 2013.

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 and preferred stock investments that have no stated maturity. Below is a summary of significant methodologies used in estimating fair value amounts at November 30, 2013 and May 31, 2013.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and certificates of deposit with original maturities of less than 90 days. Cash and cash equivalents are valued at the carrying value, which approximates fair value. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, cash and cash equivalents classified within Level 1 of the fair value hierarchy totaled $301 million and $177 million, respectively.

Restricted Cash

Restricted cash consists of cash and cash equivalents for which use is contractually restricted. Restricted cash is valued at the carrying value, which approximates fair value. Restricted cash is classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, restricted cash classified within Level 1 of the fair value hierarchy totaled $9 million and $8 million, respectively.

Investments

Our investments include investments in the Federal Agricultural Mortgage Corporation Class A common stock and Series A preferred stock. The Class A common stock and Series A preferred stock are classified as available-for-sale securities and recorded in the condensed consolidated balance sheets at fair value. We calculate fair value based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. The common stock and preferred stock are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, investments classified within Level 1 of the fair value hierarchy totaled $26 million and $32 million, respectively.

Time Deposits

Time deposits with financial institutions in interest bearing accounts have maturities of less than one year as of the reporting date and are valued at the carrying value, which approximates fair value. The deposits are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, time deposits classified within Level 2 of the fair value hierarchy totaled $800 million and $700 million, respectively.

Deferred Compensation Investments

CFC offers a non-qualified 457(b) deferred compensation plan to highly compensated employees. Such amounts deferred by employees are invested by the company. The deferred compensation investments are recorded in the condensed consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the quoted price on the stock exchange where the funds are traded. That stock exchange is an active market based on the volume of shares transacted. The amounts are invested in highly liquid indices and mutual funds and are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, deferred compensation investments classified within Level 1 of the fair value hierarchy totaled $4 million.

Loans to Members, net

As part of receiving a loan from us, our members have additional requirements and rights that are not typical of other financial institutions, such as the ability to receive a patronage capital allocation, the general requirement to purchase subordinated certificates or member capital securities to meet their capital contribution requirements as a condition of obtaining additional credit from us, the option to select fixed rates from one year to maturity with the fixed rate resetting or repricing at the end of each selected rate term, the ability to convert from a fixed rate to another fixed rate or the variable rate at any time, and certain interest rate discounts that are specific to the borrower’s activity with us. These features make it difficult to obtain market data for similar loans. Therefore, we must use other methods to estimate the fair value.

Fair values for fixed-rate loans are estimated using a discounted cash flow technique by discounting the future expected cash flows using the current rates at which we would make similar loans to new borrowers for the same remaining maturities. The maturity date used in the fair value calculation of loans with a fixed rate for a selected rate term is the next repricing date since these borrowers must reprice their loans at various times throughout the life of the loan at the current market rate.

Loans with different risk characteristics, specifically non-performing and restructured loans, are valued by 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. See Note 11, Fair Value Measurement, for more details about how we calculate the fair value of certain non-performing loans.

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.

Loans to members are classified within Level 3 of the fair value hierarchy and at November 30, 2013 and May 31, 2013, totaled $20,746 million and $21,318 million, respectively.

Debt Service Reserve Funds

Debt service reserve funds represent cash and/or investments on deposit with the bond trustee for tax-exempt bonds that we guarantee. Debt service reserve fund investments are comprised of actively traded tax exempt municipal bonds and commercial paper. Carrying value is considered to be equal to fair value. Debt service reserve funds are classified within Level 1 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, debt service reserve funds classified within Level 1 of the fair value hierarchy totaled $39 million and $40 million, respectively.

Short-Term Debt

Short-term debt consists of commercial paper, select notes, bank bid notes, daily liquidity fund and other long-term debt due within one year. The fair value of short-term debt with maturities less than or equal to 90 days is carrying value, which is a reasonable estimate of fair value. The fair value of short-term debt with maturities greater than 90 days is estimated based on discounted cash flows and quoted market rates for debt with similar maturities. Short-term debt classified within Level 1 of the fair value hierarchy is comprised of dealer commercial paper, bank bid notes, and daily liquidity fund. At November 30, 2013 and May 31, 2013, short-term debt classified within the Level 1 of the fair value hierarchy is based on quoted prices in active markets and totaled $2,633 million and $2,840 million, respectively. Short-term debt classified within Level 2 of the fair value hierarchy is comprised of member commercial paper, non-member commercial paper and select notes. At November 30, 2013 and May 31, 2013, short-term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows using discount rates consistent with current market rates for similar products with similar remaining terms and totaled $1,625 million and $1,210 million, respectively.

Short-term debt classified within Level 2 also includes our collateral trust bonds and medium-term notes maturing within one year. At November 30, 2013 and May 31, 2013, short-term debt classified within the Level 2 of the fair value hierarchy totaled $1,639 million and $2,912 million, respectively. The fair value of short term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows using a pricing model that incorporates available market information such as indicative benchmark yields and credit spread assumptions that are provided by third party pricing services such as our banks that underwrite our other debt transactions.

Short-term debt classified within the Level 3 of the fair value hierarchy includes our notes payable, members’ subordinated certificates and members’ capital securities due within one year and totaled $584 million and $789 million at November 30, 2013 and May 31, 2013, respectively. The fair value of short term debt classified within Level 3 of the fair value hierarchy was determined based on discounted cash flows using benchmark yields and spreads for similar instruments supplied by underwriter quotes for similar instruments, if available. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk.

Long-Term Debt

Long-term debt consists of collateral trust bonds, medium-term notes and long-term notes payable. We issue all collateral trust bonds and some medium-term notes in underwritten public transactions. Collateral trust bonds and medium-term notes are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, long-term debt classified within the Level 2 of the fair value hierarchy totaled $8,187 million and $7,410 million, respectively. The fair value of long- term debt classified within Level 2 of the fair value hierarchy was determined based on discounted cash flows. There is no active secondary trading for all underwritten collateral trust bonds and medium-term notes; therefore, dealer quotes and recent market prices are both used in estimating fair value. There is essentially no secondary market for the medium-term notes issued to our members or in transactions that are not underwritten; therefore, fair value is estimated based on observable benchmark yields and spreads for similar instruments supplied by banks that underwrite our other debt transactions.

The long-term notes payable are issued in private placement transactions and there is no secondary trading of such debt. Long-term notes payable are classified within Level 3 of the fair value hierarchy. Long-term debt classified within the Level 3 of the fair value hierarchy totaled $5,257 million and $4,746 million at November 30, 2013 and May 31, 2013, respectively. The fair value was determined based on discounted cash flows using benchmark yields and spreads for similar instruments supplied by underwriter quotes for similar instruments, if available. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk.

Guarantees

The fair value of our guarantee liability is based on the fair value of our contingent and non-contingent exposure related to our guarantees. The fair value of our contingent exposure for guarantees is based on management’s estimate of our exposure to losses within the guarantee portfolio using a discounted cash flow method. The fair value of our non-contingent exposure for guarantees issued is estimated based on the total unamortized balance of guarantee fees paid and guarantee fees to be paid discounted at our current short-term funding rate, which represents management’s estimate of the fair value of our obligation to stand ready to perform. Guarantees are classified within Level 3 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, guarantees classified within Level 3 of the fair value hierarchy totaled $27 million and $28 million, respectively.

Subordinated Deferrable Debt

Subordinated deferrable debt outstanding was issued in an underwritten public transaction. There is not active secondary trading for this subordinated deferrable debt; therefore, dealer quotes and recent market prices are both used in estimating fair value based on a discounted cash flow method. Subordinated deferrable debt is classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, subordinated deferrable debt classified within the Level 2 of the fair value hierarchy totaled $376 million and $404 million, respectively.

Members’ Subordinated Certificates

Members’ subordinated certificates include (i) membership subordinated certificates issued to our members, (ii) loan and guarantee subordinated certificates issued as a condition of obtaining loan funds or guarantees and (iii) member capital securities issued as voluntary investments by our members. Membership, loan and guarantee subordinated certificates are non-transferable other than among members with CFC’s consent. There is no ready market from which to obtain fair value quotes for membership, loan and guarantee subordinated certificates. These certificates are valued at par. There also is no ready market from which to obtain fair value quotes for member capital securities. Fair value for member capital securities is based on the discounted cash flows using the coupon interest rate on the last business day of the reporting period. Members’ subordinated certificates are classified within Level 3 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, members’ subordinated certificates classified within Level 3 of the fair value hierarchy totaled $1,755 million and $1,881 million, respectively.

Derivative Instruments

We record derivative instruments in the condensed consolidated balance sheets as either an asset or liability measured at fair value. Because there is not an active secondary market for the types of interest rate swaps we use, we obtain indicative quotes from the interest rate swap counterparties to estimate fair value on a quarterly basis. The indicative quotes are based on the expected future cash flow and estimated yield curves. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. Derivative instruments are classified within Level 2 of the fair value hierarchy. At November 30, 2013 and May 31, 2013, derivative asset instruments classified within Level 2 of the fair value hierarchy totaled $292 million and $258 million, respectively, and derivative liability instruments classified within Level 2 of the fair value hierarchy totaled $398 million and $475 million, respectively.

Commitments

The fair value of our commitments is estimated as the carrying value, or zero. Extensions of credit under these commitments, if exercised, would result in loans priced at market rates.