Introduction
National Rural Utilities Cooperative Finance Corporation (NRUC) has been a steadfast partner in supporting the growth and financial stability of rural electric cooperatives across the United States. As a member-owned, nonprofit finance cooperative, NRUC has played a pivotal role in providing essential financing and services to its member cooperatives, enabling them to acquire, construct, and operate electric distribution systems, power supply systems, and related facilities.
History and Development
NRUC's origins can be traced back to April 1969, when it was incorporated in the District of Columbia as a tax-exempt, member-owned cooperative association. The company's primary purpose was to provide financing to its rural electric cooperative members to supplement the loan programs of the Rural Utilities Service (RUS) of the United States Department of Agriculture (USDA). Over the past five decades, NRUC has expanded its operations and services to meet the evolving needs of its members.
In 1981, NRUC established National Cooperative Services Corporation (NCSC) as a taxable cooperative to provide financing to its electric and telecommunications members and associates. NCSC's electric members and associates include NRUC members, entities eligible for NRUC membership, government or quasi-government entities that own electric utility systems meeting 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 NRUC members.
Further expanding its capabilities, NRUC established Cooperative Securities LLC in 2021 as a wholly-owned subsidiary of NCSC. Cooperative Securities is a registered broker-dealer with the U.S. Securities and Exchange Commission (SEC) that provides institutional debt placement services, including advising, arranging, and structuring private debt financing transactions for NCSC's members and related entities.
Resilience and Adaptability
Throughout its history, NRUC has demonstrated resilience in the face of various challenges, including navigating changes in the regulatory environment and adapting to evolving member needs. A significant recent development was the completion of the sale of Rural Telephone Finance Cooperative's (RTFC) business to NCSC in 2023, followed by RTFC's dissolution. This strategic move has allowed NRUC to streamline its operations and focus on serving its core electric cooperative membership.
One of NRUC's key strengths lies in its deep understanding of the rural electric cooperative sector. As a member-owned cooperative, NRUC is intimately familiar with the operational, regulatory, and financial challenges faced by its borrowers. This knowledge has allowed the company to develop innovative financing solutions and risk management strategies that have proven invaluable in supporting the resiliency and growth of its member cooperatives.
Loan Portfolio
NRUC's loan portfolio, which represents the substantial majority of its assets, is primarily composed of long-term, fixed-rate loans to rural electric cooperatives. As of November 30, 2024, NRUC's total loans outstanding stood at $35.60 billion, with CFC distribution, CFC power supply, and CFC statewide and associate member classes accounting for 95% of the total. The company's loan portfolio has historically exhibited strong credit quality, with a nonperforming loan ratio of just 0.14% as of the same date.
The loan portfolio is segregated into segments by borrower member class, based on the utility sector of the borrowers. CFC distribution loans accounted for 79% of the total, CFC power supply loans 16%, and the remaining 5% distributed among NCSC electric, NCSC telecom, and CFC statewide and associate members. The substantial majority of NRUC's loans are long-term, with fixed-rate loans representing 86% of the total loan portfolio and variable-rate loans 3% as of November 30, 2024. The remaining 11% consisted of line of credit loans.
NRUC offers both long-term and line of credit loans to its borrowers. Under the long-term loan facilities, borrowers can select a fixed interest rate or a variable interest rate at the time of each loan advance. The line of credit loans are generally revolving loan facilities with variable interest rates.
Financials
NRUC's financial performance has remained solid, despite the challenges posed by the high-interest rate environment. For the fiscal year ended May 31, 2024, the company's annual financial metrics were not available. However, during the first six months of fiscal year 2025, NRUC's net income stood at $19.52 million.
For the most recent quarter (Q2 FY2025), NRUC reported quarterly revenue of $182.18 million and net income of $145.58 million. Quarterly operating cash flow and free cash flow figures were not available. Year-over-year growth comparisons were not possible due to the lack of comparative data for the prior year quarter.
NRUC's net interest income for the six months ended November 30, 2024 was $127.09 million, with a net interest yield of 0.71%. The company recorded a provision for credit losses of $1.82 million during this period. NRUC's adjusted net interest income, which includes the impact of net periodic derivative cash settlements, was $185.56 million, with an adjusted net interest yield of 1.04%.
Liquidity
The company's liquidity position remains strong, with available liquidity totaling $7.01 billion as of November 30, 2024. NRUC's diverse funding sources, which include member investments, public and private debt issuances, and committed credit facilities, have enabled the company to effectively manage its liquidity and interest rate risk exposure.
As of November 30, 2024, NRUC's debt-to-equity ratio stood at 11.44. The company had cash, cash equivalents, and restricted cash of $355.42 million. Additionally, NRUC has access to committed bank revolving credit facilities totaling $2.80 billion, with the full amount available as of November 30, 2024. The company also has access to $1.20 billion under the Guaranteed Underwriter Program and $2.48 billion under a revolving note purchase agreement with Farmer Mac.
NRUC's current ratio and quick ratio both stood at 0.19 as of November 30, 2024, reflecting the company's ability to meet its short-term obligations.
NRUC's total debt outstanding was $33.69 billion as of November 30, 2024, of which 79% was long-term debt and 13% was short-term borrowings. The long-term debt consisted primarily of medium-term notes, collateral trust bonds, notes payable under the Guaranteed Underwriter Program, and notes payable under the Farmer Mac revolving note purchase agreement. NRUC's short-term borrowings included commercial paper, select notes, and daily liquidity fund notes, with member investments representing 71% of the short-term borrowings.
Support During Challenges
NRUC's commitment to its member cooperatives has been unwavering, even in the face of recent challenges. During the COVID-19 pandemic, the company worked closely with its borrowers to provide additional financial support and flexibility, helping them navigate the economic disruptions and maintain their essential services to rural communities.
Moreover, NRUC has demonstrated its resilience in the wake of the RTFC sale transaction, which was completed on December 1, 2023. The successful integration of RTFC's operations into NCSC, a wholly-owned subsidiary of NRUC, has strengthened the company's ability to serve its telecommunications members and diversify its service offerings.
Business Overview
The National Rural Utilities Cooperative Finance Corporation (NRUC) is a member-owned, nonprofit finance cooperative association that provides financing to its rural electric cooperative members. NRUC's principal purpose is to supplement the loan programs of the Rural Utilities Service (RUS) of the United States Department of Agriculture (USDA). NRUC extends loans to its rural electric members for construction, acquisitions, system and facility repairs and maintenance, enhancements and ongoing operations to support the goal of electric distribution and generation and transmission power supply systems of providing reliable, affordable power to the customers they service. NRUC also provides its members and associates with credit enhancements in the form of letters of credit and guarantees of debt obligations.
As a Section 501(c)(4) tax-exempt, member-owned cooperative, NRUC's objective is not to maximize profit, but rather to offer members cost-based financial products and services. The interest rates on lending products offered to member borrowers reflect NRUC's funding costs plus a spread to cover operating expenses and estimated credit losses, while also generating sufficient earnings to cover interest owed on debt obligations and achieve certain financial target goals.
Future Outlook
Looking ahead, NRUC remains focused on supporting the growth and financial stability of its member cooperatives. The company's latest guidance, provided in its fiscal year 2024 10-K filing, indicates that it expects to continue experiencing steady loan demand from its members, driven by their ongoing capital investment needs and the increasing electrification of rural areas.
Despite the challenges posed by the high-interest rate environment, NRUC's robust financial position, diversified funding sources, and deep industry expertise position the company well to navigate the road ahead. As rural electric cooperatives continue to play a vital role in powering the economic and social development of rural America, NRUC stands ready to provide the financial resources and support necessary to fuel their success.