National Rural Utilities Cooperative Finance Corporation (“CFC”) is a member-owned cooperative association incorporated under the laws of the District of Columbia in April 1969. CFC’s principal purpose is to provide its members with financing to supplement the loan programs of the Rural Utilities Service (“RUS”) of the United States Department of Agriculture (“USDA”). CFC makes loans to its rural electric members so they can acquire, construct and operate electric distribution systems, generation and transmission (“power supply”) systems and related facilities. CFC also provides its members with credit enhancements in the form of letters of credit and guarantees of debt obligations. As a cooperative, CFC is owned by and exclusively serves its membership, which consists of not-for-profit entities or subsidiaries or affiliates of not-for-profit entities. CFC is exempt from federal income taxes under Section 501(c)(4) of the Internal Revenue Code. As a member-owned cooperative, CFC’s objective is not to maximize profit, but rather to offer members cost-based financial products and services. CFC funds its activities primarily through a combination of public and private issuances of debt securities, member investments and retained equity. As a Section 501(c)(4) tax-exempt, member-owned cooperative, we cannot issue equity securities.

Our financial statements include the consolidated accounts of CFC, National Cooperative Services Corporation (“NCSC”), Rural Telephone Finance Cooperative (“RTFC”) and subsidiaries created and controlled by CFC to hold foreclosed assets resulting from defaulted loans or bankruptcy. NCSC is a taxable member-owned cooperative that may provide financing to members of CFC, government or quasi-government entities which own electric utility systems that meet the Rural

Electrification Act definition of “rural,” and for-profit and nonprofit entities that are owned, operated or controlled by, or provide significant benefits to certain members of CFC. RTFC is a taxable Subchapter T cooperative association that provides financing for its rural telecommunications members and their affiliates. CFC and its consolidated entities have not held any foreclosed assets since the fiscal year ended May 31, 2017 (“fiscal year 2017”). See “Item 1. Business—Overview” in our 2020 Form 10-K for additional information on the business activities of each of these entities. Unless stated otherwise, references to “we,” “our” or “us” relate to CFC and its consolidated entities. All references to members within this document include members, associates and affiliates of CFC and its consolidated entities, except where indicated otherwise.

We conduct our operations through three business segments, which are based on each of the legal entities included in our consolidated financial statements: CFC, NCSC and RTFC. CFC’s business operations account for the substantial majority of our loans and revenue. Loans to members totaled $27,063$28,327 million as of November 30, 2020,February 28, 2021, of which 96% was attributable to CFC. We generated total revenue, which consists of net interest income and fee and other income, of $212$320 million for the sixnine months ended November 30, 2020,February 28, 2021 (“current year-to-date period”), compared with $171$258 million for the sixnine months ended November 30, 2019February 29, 2020 (“same prior year-to-date period”). Our adjusted total revenue was $155$234 million for the sixnine months ended November 30, 2020,February 28, 2021, compared with $146$219 million for the same prior year-to-date period. We provide information on the financial performance of our business segments in “Note 14—Business Segments.”

Management monitors a variety of key indicators to evaluate our business performance. In addition to financial measures determined in accordance with generally accepted accounting principles in the United States (“GAAP”), management also evaluates performance based on certain non-GAAP measures and metrics, which we refer to as “adjusted” measures. The following MD&A is intended to provide the reader with an understanding of our consolidated results of operations, financial condition and liquidity by discussing the factors influencing changes from period to period and key measures used by management to evaluate performance, including, among others, net interest income, net interest yield, debt-to-equity ratio and the related non-GAAP adjusted measures, loan activity and credit quality metrics. Our MD&A is provided as a supplement to, and should be read in conjunction with the unaudited consolidated financial statements and related notes in this Report, our audited consolidated financial statements and related notes in our 2020 Form 10-K and additional information, contained in our 2020 Form 10-K, including the risk factors identified under “Part I—Item 1A. Risk Factors,” contained in our 2020 Form 10-K, as well as additional information contained elsewhere in this Report.

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

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

We reported net income of $161$379 million and a TIER of 1.923.19 for the three months ended November 30, 2020February 28, 2021 (“current quarter”). In comparison, we reported a net incomeloss of $242$277 million, and awhich resulted in no TIER of 2.16coverage for the three months ended November 30, 2019February 29, 2020 (“same prior-year quarter”). We reported net income of $305$684 million and a TIER of 1.862.30 for the sixnine months ended November 30, 2020,February 28, 2021, compared with a net loss of $82$359 million and a TIER of 0.800.42 for the same prior year-to-date period. The significant variance between our reported results for the current-year periods and the same prior-year periods was attributable to mark-to-market changes in the fair value of our derivative instruments. Our debt-to-equity ratio decreased to 30.6022.19 as of November 30, 2020,February 28, 2021, from 42.40 as of May 31, 2020, primarily due to an increase in equity from our reported net income of $305$684 million, which was partially offset by a decrease in equity from the retirement of patronage capital of $60 million authorized by the CFC Board of Directors in July 2020 and paid to members in September 2020.

Other factors affecting the variance between our reported results for the six months ended November 30, 2020current year-to-date period and the same prior year-to-date period include the unfavorable impact of an increase in the provision for credit losses of $34 million to $35 million resulting from the current quarter allowance addition of $33 million, the absence of a gain of $8 million recorded in connection with the sale of land in the same prior year-to-date period and a decrease in fee income of $5 million due to a reduction in prepayment fees, and an unfavorable shift in the provision for credit losses of $3 million to an expense fromwhich together more than offset a benefit amount recorded in the same prior year-to-date period, partially offset by a decreasereduction in other general and administrative expenses of $5$8 million largely due to reduced travel and in-person meeting costsmeetings and the cancellation of certain events because of the COVID-19 pandemic.

Adjusted net income totaled $49$19 million and adjusted TIER was 1.241.09 for the current quarter, compared with adjusted net income of $44$47 million and adjusted TIER of 1.201.21 for the same prior-year quarter. Adjusted net income totaled $107$126 million and adjusted TIER was 1.261.20 for the sixnine months ended November 30, 2020,February 28, 2021, compared with adjusted net income of $105$151 million and adjusted TIER of 1.23 for the same prior year-to-date period. Our adjusted debt-to-equity ratio increased above our targeted threshold of 6.00-to-1 to 5.906.21 as of November 30, 2020,February 28, 2021, from 5.85 as of May 31, 2020,2020. The increase was primarily attributable to a reductionan increase in adjusted equityliabilities due to additional borrowings to fund the maturity and redemption of subordinated certificates and the authorized patronage capital retirement amount, partially offset by adjusted net income for the current quarter. Our adjusted debt-to-equity ratio of 5.90 as of November 30, 2020, remained belowgrowth in our targeted threshold of 6.00-to-1.loan portfolio.

We experienced an increasea decrease in adjusted net income of $5$28 million in the current quarter from the same prior-year quarter, largelyprimarily attributable to anthe increase in adjusted net interest incomethe provision of $7credit losses of $31 million, or 11%, to $72$33 million for the current quarter. The increase in adjustedquarter due to the allowance addition resulting from the significant adverse financial impact of the February 2021 polar vortex on two CFC Texas-based electric power supply borrowers. Adjusted net interest income wasincreased $6 million, or 8%, to $75 million for the current quarter, driven by an increase in the adjusted net interest yield of 96 basis points, or 9%6%, to 1.05%1.08% and an increase in average interest-earning assets of $575$818 million, or 2%3%. The increase in our adjusted net interest yield reflected

the favorable impact of a reduction in our adjusted average cost of borrowings of 3429 basis points to 3.16%3.10%, which was partially offset by a decrease in the average yield on interest-earning assets of 2521 basis points to 4.01%3.99%. As noted above, the lower interest rate environment had a favorable impact on our adjusted average cost of borrowings and contributed to the decrease in the average yield on interest-earnings assets.

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

Loans to members totaled $27,063$28,327 million as of November 30, 2020,February 28, 2021, an increase of $361$1,625 million, or 1%6%, from May 31, 2020. The increase was driven primarily by an increase in long-term loans of $492 million, partially offset by a decrease in line of credit loans of $132 million. We experienced increases in CFC distribution loans, NCSC loans and RTFC loans of $453 million, $7 million and $46 million, respectively, and decreases in CFC power supply loans and CFC statewide and associate loans of $135 million and $11 million, respectively. Subsequent to the quarter end, during the month of December 31, 2020, our outstanding loans to members increased by an additional $476 million, driven by increases in long-term and line of credit loans of $274$941 million and $202$684 million, respectively. We experienced increases in CFC distribution loans, CFC power supply loans, NCSC loans and RTFC loans of $1,108 million, $456 million, $24 million and $46 million, respectively, and a decrease in CFC statewide and associate loans of $9 million.

Long-term loan advances totaled $1,271$2,050 million during the sixnine months ended November 30, 2020,February 28, 2021, of which approximately 85%84% was provided to members for capital expenditures and 5%9% was provided for the refinancing of loans made by other lenders. In comparison, long-term loan advances totaled $1,387$1,950 million during the same prior year-to-date period, of which approximately 69%77% was provided to members for capital expenditures and 25%18% was provided for the refinancing of loans made by other lenders. CFC had long-term fixed-rate loans totaling $204$281 million that were scheduled to reprice during the sixnine months ended November 30, 2020.February 28, 2021. Of this total, $198$268 million repriced to a new long-term fixed rate, $5$9 million repriced to a long-term variable rate and $1$4 million was repaid in full. In comparison, CFC had long-term fixed-rate loans totaling $234$350 million that were scheduled to reprice during the same prior year-to-date period, of which $224$330 million repriced to a new long-term fixed rate, $7$10 million repriced to a long-term variable rate $3and $10 million was repaid in full.

We believe the overall credit qualityIn mid-February 2021, Texas and several neighboring states experienced a series of our loan portfolio remained highsevere winter storms and record-low temperatures as of November 30, 2020, as evidenced by our continued strong credit performance metrics. We had no delinquent loans as of either November 30, 2020 or May 31, 2020, and we have not experienced any loan defaults or charge-offs since fiscal year 2017. During the fourth quartera result of the fiscal year ended May 31, 2020polar vortex. The freezing conditions affected power demand, supply and market prices in Texas, triggering unprecedented increases in electrical power load demand in combination with significant reductions in power supply across Texas, including a loss of almost half of the electric generation within the Electric Reliability Council of Texas (“fiscal year 2020”ERCOT”) service area. ERCOT raised wholesale electric power prices per megawatt hour to the maximum allowable amount of $9,000, to spur greater power generation by providing a financial incentive for power generators in the state to remain online. According to ERCOT data, pre-storm wholesale power prices were less than $50 per megawatt hour. ERCOT also initiated controlled rolling power outages, which impacted millions of residential and commercial customers, to protect and maintain the stability of the Texas electric grid.

Nonperforming loans increased $72 million to $240 million, or 0.85% of total loans outstanding, as of February 28, 2021, from $168 million, or 0.63% of total loans outstanding, as of May 31, 2020, primarily due to our classification of the loans outstanding of $82 million to Brazos as nonperforming as a result of its bankruptcy filing. In addition to Brazos, we classified loans outstanding to two affiliated RTFC telecommunications borrowers totaling $10 million as nonperforming as of February 28, 2021. Although we experienced an increase in nonperforming and criticized loans due to the downgrade of the two CFC Texas-based electric power supply borrowers during the current quarter, we believe the overall credit quality of our loan portfolio remained strong as of February 28, 2021, as the adverse impact on the credit quality of our loan portfolio from the February 2021 polar vortex is primarily limited to these two Texas-based electric power supply borrowers. Prior to Brazos’ bankruptcy filing, we had not experienced any defaults or charge-offs in our electric utility and telecommunications loan portfolios since fiscal year 2013 and 2017, respectively. In addition, we had no delinquent loans as of either February 28, 2021 or May 31, 2020. However, as a result of its bankruptcy filing, we expect that Brazos will be unable to make future scheduled loan payments without approval of the bankruptcy court.

On June 1, 2020, adoption ofwe adopted the current expected credit loss (“CECL”) accounting standard, which replaces the incurred loss methodology for estimating credit losses with an expected loss methodology. The incurred loss model delayed the recognition of credit losses until it was probable that a loss had occurred, while the CECL model requires the immediate recognition of expected credit losses over the contractual term for financial instruments that fall within the scope of CECL at the date of origination or purchase of the financial instrument. The CECL model, which is applicable to the measurement of credit losses on financial assets measured at amortized cost and certain off-balance sheet credit exposures, affects our estimates of the allowance for credit losses for our loan portfolio and the reserve for our off-balance sheet credit exposures related to unadvanced loan commitments and financial guarantees. The adoption of CECL resulted in an increase in our allowance for credit losses for our loan portfolio of $4 million and a corresponding decrease to retained earnings of $4 million, recorded through a cumulative-effect adjustment. The impact on the reserve for credit losses for our off-balance sheet credit exposures related to unadvanced loan commitments and financial guarantees was not material. While CECL had no impact on our earnings at adoption on June 1, 2020, subsequent estimates of lifetime expected credit losses for newly recognized loans, unadvanced loan commitments and financial guarantees, as well as changes during the period in our estimate of lifetime expected credit losses for existing financial instruments subject to CECL, are now recognized in earnings.

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

We issue debt primarily to fund growth in our loan portfolio. As such, our outstanding debt volume generally increases and decreases in response to member loan demand. Total debt outstanding was $26,017$27,207 million as of November 30, 2020,February 28, 2021, an increase of $17$1,207 million from May 31, 2020. In the fourth quarter of fiscal year 2020, we increased our cash position to $671 million, as a precaution in case there were disruptions in the capital markets due to Covid-19 that would impact our ability to fund operations in fiscal year 2021. During the first six months of fiscal year 2021 there have not been disruptions in our ability to access the capital markets or in our issuance of debt to our members. As a result we have been able to use the $671 million of cash that was on hand as of May 31, 2020borrowings to fund the majority of our operations through November 30, 2020, at which date our cash balance had been reducedincrease in loans to $167 million.members. Debt activity during this period consisted of net increases in medium-term notes of $1,257 million and outstanding dealer commercial paper of $715 million and member commercial paper, select notes and daily liquidity fund notes of $104$655 million, which together totaled $819$1,912 million. This increase was partially offset by net decreases in collateral trust bonds of $351 million, Federal Agricultural Mortgage Corporation (“Farmer Mac”)Mac notes payable of $161 million, medium-term notes of $151$384 million, borrowings under the United States Department of Agriculture (“USDA”) Guaranteed Underwriter Program (“Guaranteed Underwriter Program”) of $71$231 million, and members’ subordinated certificates of $68$83 million and the combined outstanding amounts of member commercial paper, select notes and daily liquidity fund notes of $4 million, which together totaled $802$702 million. Outstanding dealer commercial paper which totaled $715of $655 million as of November 30, 2020,February 28, 2021 was below our targeted maximum threshold of $1,250 million.

On October 8, 2020, we issued $400 million aggregate principal amount of 1.35% sustainability collateral trust bonds due March 15, 2031. On November 19, 2020, we closed on a $375 million committed loan facility (“Series R”) from the Federal Financing Bank under the Guaranteed Underwriter Program. Pursuant to this facility, we may borrow any time before July 15, 2025. Each advance is subject to quarterly amortization and a final maturity not longer than 30 years from the date of the advance. On February 8, 2021, we issued $350 million of aggregate principal amount of 1.65% collateral trust bonds due June 15, 2031. In February 2021, we issued dealer medium-term notes totaling $1,425 million.

As of November 30, 2020,February 28, 2021, our sources of liquidity readily available for access totaled $7,317$7,566 million, consisting of (i) $167$170 million in cash and cash equivalents; (ii) investments in debt securities with a fair value of $552$575 million, subject to changes in market value; (iii) up to $2,722 million available for access under committed bank revolving line of credit agreements; (iv) up to $1,275 million available under committed loan facilities under the Guaranteed Underwriter Program; and (v) up to $2,601$2,824 million available under a revolving note purchase agreement with Farmer Mac, subject to market conditions.

We provide additional information on our primary sources and uses of liquidity and our liquidity profile below in the section “Liquidity Risk.”

TheOur priorities during the COVID-19 pandemic, which continues to persist, have an ongoing disruptive impact onbeen to protect the health and safety of our employees, while also ensuring that we are able to meet the needs of our electric cooperative borrowers as they operate in a sector in which the service provided to residential and commercial customers is considered essential. We continue to adhere to the COVID-19 workplace safety and health standards established by Virginia, where CFC is headquartered, and the guidance provided by the United States (“U.S.”). The continuing duration and severity of the pandemic and its long-term economic impact remain uncertain. CFC is headquartered in the Commonwealth of Virginia and is following workplace guidelines established by the Commonwealth and the U.S. Center for Disease Control and Prevention. We are currently staffingSince June 2020, we have been operating under a plan in which staff work at our corporate office at no more thanand remotely based on a rotating schedule that limits the office occupancy level to approximately 25% occupancy, with other personnel working remotely, andof normal capacity. In addition, since the onset of the pandemic we have limited travel and in-person meetings. To date, our business resiliency plans and technology systems have effectively supported both remote and on-site operations. Based on current conditions, our expectation is that we will maintain current remote working levels for the foreseeable futureOn March 23, 2021, Virginia’s governor announced an easing of some COVID-19 restrictions beginning April 1, 2021. Our plan, assuming there are no additional changes to current governmental and public health directives.directives, is to move toward more normal operations beginning in May 2021, by bringing our staff back to our corporate office under a gradual transition schedule, with appropriate workplace protocols to mitigate risk and maintain the safety of our employees in compliance with federal, state and local laws and guidance.

Our electric utility cooperative borrowers operate in a sector identified by the U.S. government as one of the 16 critical infrastructure sectors because the nature of the services provided to residential customers and commercial customers in other industrythese sectors are considered essential and vital in supporting and maintaining the overall functioning of the U.S. economy. Historically, the utility sector in which our electric utility borrowers operate has been resilient to economic downturns. While our electric cooperative members continue to be subject to certain state-mandated suspensions on utility shut-offs due to nonpayment, we have not experienced any delinquencies in scheduled loan payments or received requests for payment deferrals or covenant relief from our borrowers due to the pandemic. We are in contact with our member borrowers on a continuous basis, and, to date, we believe that the pandemic has not had a significant negative impact on their overall financial performance.

See “Item 1A. Risk Factors” in our 2020 Form 10-K for a discussion of the potential adverse impact of natural disasters, including weather-related events such as the February 2021 polar vortex, and widespread health emergencies, such as COVID-19, on our business, results of operations, financial condition and liquidity.

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in our consolidated financial statements. Understanding our accounting policies and the extent to which we use management’s judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a discussion of our significant accounting policies under “Note 1—Summary of Significant Accounting Policies” in our 2020 Form 10-K. Pursuant to our June 1, 2020 adoption of the CECL accounting standard, we have provided updates to certain of our significant accounting policies, including the allowance for credit losses, in “Note 1—Summary of Significant Accounting Policies” of this Report.

We have identified certain accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition. Our most critical accounting policies and estimates involve the determination of the allowance for credit losses and fair value. Below we have updated our critical accounting policy for the allowance for credit losses under the CECL model, which involves additional areas involving significant management judgment.

Prior to the adoption of CECL on June 1, 2020, we maintained an allowance based on an estimate of probable incurred losses inherent in our loan portfolio as of each balance sheet date. Under CECL, we are required to maintain an allowance based on a current estimate of credit losses that are expected to occur over the remaining contractual life of the loans in our portfolio. The methods utilized to estimate the allowance for credit losses, key assumptions and quantitative and qualitative information considered by management in determining the appropriate allowance for credit losses is discussed in “Note 1—Summary of Significant Accounting Policies” of this Report. The determination

Some of the key inputs we use in in determining the appropriate allowance for credit losses entails significant judgment on various risk factors, includingare more readily quantifiable, such as our historical loss data and third-party default data, and the assessment ofwhile other inputs require more qualitative judgment, such as our internally assigned borrower risk ratings that are intended to assess a borrower’s capacity to meet its financial obligations.obligations and provide information on the probability of default. Degrees of imprecision exist in each of these inputs due in part to subjective judgments involved and an inherent lag in the data available to quantify current conditions and events that may affect our credit loss estimate.

Our internally assigned borrower risk ratings serve as the primary credit quality indicator for our loan portfolio. We perform an annual comprehensive review of each of our borrowers, following the receipt of the borrower’s annual audited financial statements, to reassess the borrower’s risk rating. In addition, interim risk-rating adjustments may occur as a result of updated information affecting a borrower’s ability to fulfill its obligations or other significant developments and trends. Our Credit Risk Management Group and Corporate Credit Committee review and provide rigorous oversight and governance around our internally assigned risk ratings to ensure that the ratings process is consistent. In addition, we engage third-party credit risk management experts to conduct an independent annual review of our risk rating system to validate the overall integrity of our rating system. This review involves and evaluation of the accuracy and timeliness of individual risk ratings and the overall effectiveness of our risk rating framework relative to the risk profile of our credit exposures. While we have a robust risk rating process, changes in our estimateborrower risk ratings may not always directly coincide with changes in the risk profile of lifetimean individual borrower due to the timing of the rating process and a potential lag in the receipt of information necessary to evaluate the impact of emerging developments and current conditions on the risk ratings of our borrower. Although our allowance for credit losses is sensitive to each key input, shifts in the credit risk ratings of these inputs,our borrowers generally have the most notable input that affectsimpact on our allowance for credit losses.

Our allowance for credit losses was $92 million as of February 28, 2021, consisting of an allowance for loans collectively evaluated of $50 million and an allowance for loans individually evaluated of $42 million. The allowance coverage ratio was 0.32% as of February 28, 2021. A one-level favorable shift in the risk rating for each of our borrowers would have resulted in a decrease in the collective allowance for credit losses of $32 million as of February 28, 2021, and a total allowance coverage ratio of 0.21%. A one-level unfavorable shift in the risk rating for each borrowers would have resulted in an increase in the collective allowance for credit losses of $22 million as of February 28, 2021, and a total allowance coverage ratio of 0.40%. This sensitivity analyses does not represent management’s expectations of changes in the credit risk profile of our borrowers, but is provided to illustrate the hypothetical impact of changes in the primary credit quality

indicator we use in evaluating the overall credit risk profile of our loan portfolio on the allowance for credit losses. We believe the borrower risk ratings currently in use are appropriate and the likelihood of the allowanceoccurrence of the alternative hypothetical scenarios presented is the internal risk ratings assigned to each borrower.remote.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. Management has discussed significant judgments and assumptions in applying our critical accounting policies with the Audit Committee of the CFC Board of Directors. We provide information on the significant judgments and assumptions in measuring fair value under “MD&A—Critical Accounting Policies and Estimates” in our 2020 Form 10-K. See “Item 1A. Risk Factors” in our 2020 Form 10-K for a discussion of the risks associated with management’s judgments and estimates in applying our accounting policies and methods.

See “Note 1—Summary of Significant Accounting Policies” for information on accounting standards adopted during the current fiscal year, as well as recently issued accounting standards not yet required to be adopted and the expected impact of the adoption of these accounting standards. To the extent we believe the adoption of new accounting standards has had or will have a material impact on our consolidated results of operations, financial condition or liquidity, we also discuss the impact in the applicable section(s) of this MD&A.

The section below provides a comparative discussion of our consolidated results of operations between the three months ended November 30,February 28, 2021 and February 29, 2020 and 2019 and between the sixnine months ended November 30, 2020February 28, 2021 and 2019.February 29, 2020. Following this section, we provide a comparative analysis of our consolidated balance sheets as of November 30, 2020February 28, 2021 and May 31, 2020. You should read these sections together with our “Executive Summary—Outlook for the Next 12 Months” where we discuss trends and other factors that we expect will affect our future results of operations.

Net interest income represents the difference between the interest income earned on our interest-earning assets, which includes loans and investment securities, and the interest expense on our interest-bearing liabilities. Our net interest yield represents the difference between the yield on our interest-earning assets and the cost of our interest-bearing liabilities plus the impact of non-interest bearing funding. We expect net interest income and our net interest yield to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities. We do not fund each individual loan with specific debt. Rather, we attempt to minimize costs and maximize efficiency by proportionately funding large aggregated amounts of loans.

Table 2 presents average balances for the three and sixnine months ended November 30,February 28, 2021 and February 29, 2020, and 2019, and for each major category of our interest-earning assets and interest-bearing liabilities, the interest income earned or interest expense incurred, and the average yield or cost. Table 2 also presents non-GAAP adjusted interest expense, adjusted net interest income and adjusted net interest yield, which reflect the inclusion of net accrued periodic derivative cash settlements expense in interest expense. We provide reconciliations of our non-GAAP adjusted measures to the most comparable GAAP measures under “Non-GAAP Financial Measures.”