Business context and reporting period
National Rural Utilities Cooperative Finance Corporation (CFC) filed this Form 10-K for the fiscal year ended May 31, 2024—not calendar 2023 Q4. CFC is a tax-exempt, member-owned cooperative lender serving rural electric utilities; consolidated results include taxable cooperative NCSC. RTFC sold its business to NCSC on December 1, 2023, and was subsequently dissolved and deconsolidated.
Key financial metrics
| Metric | FY2024 | FY2023 |
|---|---|---|
| Interest income | $1.593 billion | $1.352 billion |
| Net interest income | $254 million | $315 million |
| Net interest yield | 0.74% | 0.98% |
| Adjusted net interest income (non-GAAP) | $381 million | $349 million |
| Adjusted net interest yield (non-GAAP) | 1.11% | 1.08% |
| Net income | $554 million | $502 million |
| Adjusted net income (non-GAAP) | $289 million | $249 million |
| TIER / adjusted TIER | 1.41 / 1.24 | 1.48 / 1.25 |
| Operating cash flow | $321 million | $338 million |
| Total assets / equity | $36.2 billion / $3.0 billion | $34.0 billion / $2.6 billion |
| Total debt | $32.7 billion | $31.0 billion |
Reported net income includes $392 million of derivative gains, including $265 million of noncash forward-value gains. CFC excludes forward-value gains from adjusted measures; those measures are not GAAP and may not be comparable with similarly titled measures at other organizations.
Loans to members were $34.5 billion, up 6%. The allowance for credit losses was $49 million, or 0.14% of loans, versus $53 million, or 0.16%, a year earlier. One $49 million loan was nonperforming; there were no loan charge-offs in FY2024. Cash, cash equivalents and restricted cash ended the year at $288 million. Net cash used in investing was $1.819 billion and net cash provided by financing was $1.579 billion.
Liquidity totaled $6.695 billion, compared with $7.009 billion of debt scheduled within 12 months, a $314 million shortfall before assumed rollover of member short-term investments. Excluding $3.328 billion of member short-term investments expected to roll over, coverage was 1.82 times, with $3.014 billion of excess liquidity. CFC also expects $1.552 billion of loan principal repayments over the next 12 months. The GAAP debt-to-equity ratio was 11.01; adjusted debt-to-equity was 6.24, above CFC’s approximate 6-to-1 goal.
Material changes versus the prior year
- Net income rose $53 million, while reported net interest income fell $61 million as borrowing costs increased faster than asset yields. Higher derivative gains, investment-security results, fee income and a credit-loss benefit more than offset the decline.
- Adjusted net income increased $40 million, supported by $32 million higher adjusted net interest income and lower credit-loss expense; operating and other expenses rose $19 million.
- Loans grew $2.0 billion and debt grew $1.7 billion, primarily to fund member loan growth. Total equity increased $423 million, reflecting earnings partly offset by $113 million of patronage capital retirements and the RTFC deconsolidation.
- Nonperforming loans declined from $89 million to $49 million. Criticized loans decreased from $323 million to $249 million. The decline in the allowance mainly reflected lower asset-specific reserves, partly offset by higher collective reserves.
Outlook, risks and unusual items
Management projects net long-term loan growth of approximately $1.628 billion over the next 12 months and expects variable-rate line-of-credit balances to remain near current levels. Under its interest-rate assumptions, management expects reported net interest income and yield to increase, but adjusted net interest income, adjusted yield, adjusted net income and adjusted TIER to decrease. Adjusted debt-to-equity is expected to remain above the approximate 6-to-1 target. These are forecasts, not guarantees.
Key risks include the concentration of lending in rural electric utilities (about 98% of loans), borrower and geographic concentration (Texas represented about 17% of loans), interest-rate and refinancing risk, dependence on capital markets and member investment rollovers, and exposure to severe weather, climate-related impacts, changing environmental rules, technology shifts and cybersecurity threats. CFC reported no material cybersecurity incidents to date. It was in compliance with debt covenants at year-end, and Moody’s, S&P and Fitch affirmed ratings with stable outlooks. Legal proceedings in the ordinary course were not expected by management to materially harm the company; no legal reserve was recorded.
Unusual reporting items include the RTFC business transfer and deconsolidation, which produced no gain or loss, and $8 million of prior Treasury-lock gains reclassified from accumulated other comprehensive income to earnings in FY2024 after the forecast transaction did not occur as specified. KPMG issued an unqualified opinion on the financial statements and identified the collective allowance for credit losses as a critical audit matter; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether member short-term investments continue to roll over and CFC maintains access to capital markets, bank lines, Farmer Mac and the USDA Guaranteed Underwriter Program.
- How loan growth, borrower credit quality and the $49 million allowance develop, especially for the nonperforming power-supply loan and hurricane-affected borrower.
- How much reported earnings reflect noncash derivative valuation gains versus recurring adjusted performance, and whether the company’s projected adjusted results materialize.
- Whether debt growth, patronage allocations and retirements keep adjusted leverage above CFC’s target, and whether collateral and covenant headroom remain adequate.
- Progress and credit performance of broadband, renewable-energy and other member infrastructure lending, alongside potential weather, regulatory, technology and cyber risks.