Business Segments

12 Months Ended

May 31, 2024

Segment Reporting [Abstract]

BUSINESS SEGMENTS

NOTE 16—BUSINESS SEGMENTS

Our activities were previously conducted through three operating segments, which were based on each of the legal entities included in our consolidated financial statements: CFC, NCSC and RTFC. We reported segment information for CFC separately; however, we aggregated segment information for NCSC and RTFC into one reportable segment because neither entity met the quantitative materiality threshold for separate reporting under the accounting guidance governing segment reporting. As discussed above under “Note 1—Summary of Significant Accounting Policies,” on December 1, 2023, RTFC completed the sale of its business to NCSC. After the RTFC sale transaction, our operating segments currently consist of CFC and NCSC, which are based on each of the legal entities included in our consolidated financial statements. As we aggregated segment information for NCSC and RTFC into one reportable segment in prior periods, the RTFC sale transaction did not cause a change in the composition of our reportable segments.

Basis of Presentation

We present the results of our business segments on the basis in which management internally evaluates operating performance to establish short- and long-term performance goals, develop budgets and forecasts, identify potential trends, allocate resources and make compensation decisions.

Business Segment Reporting Methodology

The results of our business segments are intended to present the separate results for each of the legal entities included in our consolidated financial statements. As discussed in “Note 15—Variable Interest Entities,” all of NCSC’s funding is either provided by CFC or guaranteed by CFC, the terms and conditions of which are stipulated in a loan and security agreement and a guarantee agreement between CFC and NCSC. Pursuant to the guarantee agreement, CFC unconditionally guarantees full indemnification to NCSC for any credit losses. In addition, CFC manages the business operations of NCSC under a management agreement that automatically renews on an annual basis unless the agreement is terminated by either party.

We report loans and interest and fees earned on loans based on the legal entity that holds the loans. CFC borrows from various sources to fund the operations of CFC and NCSC, the cost of which is reflected in CFC’s interest expense. NCSC borrows from CFC to fund loans to its members, the cost of which is reported as interest expense by NCSC. CFC charges NCSC a management fee, which CFC reports as a component of fee and other income. NCSC reports the management fee charged by CFC as a component of non-interest expense. CFC and NCSC use derivatives, primarily interest rate swaps, to manage interest rate risk. Because we generally do not elect to apply hedge accounting to our interest rate swaps, changes in the fair value of our interest rate swaps are recorded in earnings in our consolidated total results of operations. However, management excludes the impact of derivative forward value gains and losses and includes the net periodic derivative cash settlement interest income or expense amounts as a component of interest expense in reporting our segment results of operations, which represents the only difference between the accounting and reporting for our business segment results of operations and our consolidated total results of operations.

Segment Results and Reconciliation

The following tables display segment results of operations for the years ended May 31, 2024, 2023 and 2022, assets attributable to each segment as of May 31, 2024 and 2023 and a reconciliation of total segment amounts to our consolidated total amounts.

Table 16.1: Business Segment Information

	Year Ended May 31, 2024
(Dollars in thousands)	CFC		NCSC		Segments Total		Reclasses and Adjustments(1)		Intersegment Eliminations(2)		Consolidated
Results of operations:
Interest income	$	1,584,071	$	82,104	$	1,666,175	$	—	$	(72,824)	$	1,593,351
Interest expense	(1,339,003)		(72,909)		(1,411,912)		—		72,824		(1,339,088)
Derivative cash settlements interest income	127,017		149		127,166		(127,166)		—		—
Interest expense	(1,211,986)		(72,760)		(1,284,746)		(127,166)		72,824		(1,339,088)
Net interest income	372,085		9,344		381,429		(127,166)		—		254,263
Benefit (provision) for credit losses	5,516		(2,330)		3,186		—		2,330		5,516
Net interest income after benefit (provision) for credit losses	377,601		7,014		384,615		(127,166)		2,330		259,779
Non-interest income:
Fee and other income	27,857		7,448		35,305		—		(12,513)		22,792
Derivative gains:
Derivative cash settlements interest income	—		—		—		127,166		—		127,166
Derivative forward value gains	—		—		—		264,871		—		264,871
Derivative gains	—		—		—		392,037		—		392,037
Investment securities gains	10,772		—		10,772		—		—		10,772
Total non-interest income	38,629		7,448		46,077		392,037		(12,513)		425,601
Non-interest expense:
General and administrative expenses	(123,336)		(11,286)		(134,622)		—		8,251		(126,371)
Losses on early extinguishment of debt	(1,025)		—		(1,025)		—		—		(1,025)
Other non-interest expense	(2,112)		(1,984)		(4,096)		—		1,932		(2,164)
Total non-interest expense	(126,473)		(13,270)		(139,743)		—		10,183		(129,560)
Income before income taxes	289,757		1,192		290,949		264,871		—		555,820
Income tax provision	—		(1,504)		(1,504)		—		—		(1,504)
Net income (loss)	$	289,757	$	(312)	$	289,445	$	264,871	$	—	$	554,316
	May 31, 2024
	CFC		NCSC		Segments Total		Reclasses and Adjustments(1)		Intersegment Eliminations(2)		Consolidated Total
Assets:
Total loans outstanding	$	34,516,488	$	1,544,477	$	36,060,965	$	—	$	(1,532,781)	$	34,528,184
Deferred loan origination costs	14,101		—		14,101		—		—		14,101
Loans to members	34,530,589		1,544,477		36,075,066		—		(1,532,781)		34,542,285
Less: Allowance for credit losses	(48,726)		(6,000)		(54,726)		—		6,000		(48,726)
Loans to members, net	34,481,863		1,538,477		36,020,340		—		(1,526,781)		34,493,559
Other assets	1,671,555		28,389		1,699,944		—		(15,689)		1,684,255
Total assets	$	36,153,418	$	1,566,866	$	37,720,284	$	—	$	(1,542,470)	$	36,177,814

	Year Ended May 31, 2023
(Dollars in thousands)	CFC		NCSC		Segments Total		Reclasses and Adjustments(1)		Intersegment Eliminations(2)		Consolidated Total
Results of operations:
Interest income	$	1,343,215	$	61,716	$	1,404,931	$	—	$	(53,202)	$	1,351,729
Interest expense	(1,036,499)		(53,211)		(1,089,710)		—		53,202		(1,036,508)
Derivative cash settlements interest income (expense)	34,021		(444)		33,577		(33,577)		—		—
Interest expense	(1,002,478)		(53,655)		(1,056,133)		(33,577)		53,202		(1,036,508)
Net interest income	340,737		8,061		348,798		(33,577)		—		315,221
Provision for credit losses	(603)		(935)		(1,538)		—		935		(603)
Net interest income after provision for credit losses	340,134		7,126		347,260		(33,577)		935		314,618
Non-interest income:
Fee and other income	24,880		3,922		28,802		—		(10,668)		18,134
Derivative gains:
Derivative cash settlements interest income	—		—		—		33,577		—		33,577
Derivative forward value gains	—		—		—		252,267		—		252,267
Derivative gains	—		—		—		285,844		—		285,844
Investment securities losses	(4,974)		—		(4,974)		—		—		(4,974)
Total non-interest income	19,906		3,922		23,828		285,844		(10,668)		299,004
Non-interest expense:
General and administrative expenses	(107,209)		(10,522)		(117,731)		—		8,100		(109,631)
Losses on early extinguishment of debt	(117)		—		(117)		—		—		(117)
Other non-interest expense	(1,484)		(1,636)		(3,120)		—		1,633		(1,487)
Total non-interest expense	(108,810)		(12,158)		(120,968)		—		9,733		(111,235)
Income (loss) before income taxes	251,230		(1,110)		250,120		252,267		—		502,387
Income tax provision	—		(800)		(800)		—		—		(800)
Net income (loss)	$	251,230	$	(1,910)	$	249,320	$	252,267	$	—	$	501,587
	May 31, 2023
	CFC		NCSC		Segments Total		Reclasses and Adjustments(1)		Intersegment Eliminations(2)		Consolidated Total
Assets:
Total loans outstanding	$	32,503,574	$	1,444,662	$	33,948,236	$	—	$	(1,428,887)	$	32,519,349
Deferred loan origination costs	12,737		—		12,737		—		—		12,737
Loans to members	32,516,311		1,444,662		33,960,973		—		(1,428,887)		32,532,086
Less: Allowance for credit losses	(53,094)		(3,670)		(56,764)		—		3,670		(53,094)
Loans to members, net	32,463,217		1,440,992		33,904,209		—		(1,425,217)		32,478,992
Other assets	1,520,456		77,628		1,598,084		—		(65,016)		1,533,068
Total assets	$	33,983,673	$	1,518,620	$	35,502,293	$	—	$	(1,490,233)	$	34,012,060

	Year Ended May 31, 2022
(Dollars in thousands)	CFC		NCSC		Segments Total		Reclasses and Adjustments(1)		Intersegment Eliminations(2)		Consolidated Total
Results of operations:
Interest income	$	1,133,173	$	43,295	$	1,176,468	$	—	$	(35,225)	$	1,141,243
Interest expense	(705,534)		(35,225)		(740,759)		—		35,225		(705,534)
Derivative cash settlements interest expense	(99,768)		(1,617)		(101,385)		101,385		—		—
Interest expense	(805,302)		(36,842)		(842,144)		101,385		35,225		(705,534)
Net interest income	327,871		6,453		334,324		101,385		—		435,709
Benefit for credit losses	17,972		3,334		21,306		—		(3,334)		17,972
Net interest income after benefit for credit losses	345,843		9,787		355,630		101,385		(3,334)		453,681
Non-interest income:
Fee and other income	22,426		70		22,496		—		(5,303)		17,193
Derivative gains:
Derivative cash settlements interest expense	—		—		—		(101,385)		—		(101,385)
Derivative forward value gains	—		—		—		557,867		—		557,867
Derivative gains	—		—		—		456,482		—		456,482
Investment securities losses	(30,179)		—		(30,179)		—		—		(30,179)
Total non-interest income (expense)	(7,753)		70		(7,683)		456,482		(5,303)		443,496
Non-interest expense:
General and administrative expenses	(93,465)		(8,102)		(101,567)		—		6,381		(95,186)
Losses on early extinguishment of debt	(754)		—		(754)		—		—		(754)
Other non-interest expense	(1,552)		(2,256)		(3,808)		—		2,256		(1,552)
Total non-interest expense	(95,771)		(10,358)		(106,129)		—		8,637		(97,492)
Income (loss) before income taxes	242,319		(501)		241,818		557,867		—		799,685
Income tax provision	—		(1,148)		(1,148)		—		—		(1,148)
Net income (loss)	$	242,319	$	(1,649)	$	240,670	$	557,867	$	—	$	798,537

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(1)Consists of (i) the reclassification of net periodic derivative settlement interest income (expense) amounts, which we report as a component of interest expense for business segment reporting purposes but is included in derivatives gains (losses) in our consolidated total results and (ii) derivative forward value gains and losses, which we exclude from our business segment results but is included in derivatives gains (losses) in our consolidated total results.

(2)Consists of intercompany borrowings payable by NCSC to CFC and the interest related to those borrowings, management fees paid by NCSC to CFC and other intercompany amounts, all of which are eliminated in consolidation.