NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/NRUC
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/ Fair Value Disclosure
NOTE 14—FAIR VALUE MEASUREMENT | ||
Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The levels, in priority order based on the extent to which observable inputs are available to measure fair value, are Level 1, Level 2 and Level 3. The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. We describe the valuation technique for each level in “Note 1—Summary of Significant Accounting Policies.”
The following table presents the carrying value and estimated fair value of all of our financial instruments, including those carried at amortized cost, as of May 31, 2025 and 2024. The table also displays the classification level within the fair value hierarchy based on the degree of observability of the inputs used in the valuation technique for estimating fair value.
Table 14.1: Fair Value of Financial Instruments
| May 31, 2025 | Fair Value Measurement Level | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 134,712 | $ | 134,712 | $ | 134,712 | $ | — | $ | — | ||||||||||||||||||||||
| Restricted cash | 8,410 | 8,410 | 8,410 | — | — | |||||||||||||||||||||||||||
| Equity securities, at fair value | 11,252 | 11,252 | 11,252 | — | — | |||||||||||||||||||||||||||
| Debt securities trading, at fair value | 113,663 | 113,663 | — | 113,663 | — | |||||||||||||||||||||||||||
| Deferred compensation investments | 8,019 | 8,019 | 8,019 | — | — | |||||||||||||||||||||||||||
| Loans to members, net | 37,039,363 | 34,113,178 | — | — | 34,113,178 | |||||||||||||||||||||||||||
| Accrued interest receivable | 270,222 | 270,222 | — | 270,222 | — | |||||||||||||||||||||||||||
| Derivative assets | 555,855 | 555,855 | — | 555,855 | — | |||||||||||||||||||||||||||
| Total financial assets | $ | 38,141,496 | $ | 35,215,311 | $ | 162,393 | $ | 939,740 | $ | 34,113,178 | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Short-term borrowings | $ | 5,091,416 | $ | 5,094,451 | $ | — | $ | 5,094,451 | $ | — | ||||||||||||||||||||||
| Long-term debt | 27,163,701 | 26,415,950 | — | 16,737,855 | 9,678,095 | |||||||||||||||||||||||||||
| Accrued interest payable | 294,917 | 294,917 | — | 294,917 | — | |||||||||||||||||||||||||||
| Guarantee liability | 14,396 | 15,321 | — | — | 15,321 | |||||||||||||||||||||||||||
| Derivative liabilities | 51,368 | 51,368 | — | 51,368 | — | |||||||||||||||||||||||||||
| Subordinated deferrable debt | 1,329,485 | 1,341,974 | 238,620 | 1,103,354 | — | |||||||||||||||||||||||||||
| Members’ subordinated certificates | 1,184,714 | 1,184,714 | — | — | 1,184,714 | |||||||||||||||||||||||||||
| Total financial liabilities | $ | 35,129,997 | $ | 34,398,695 | $ | 238,620 | $ | 23,281,945 | $ | 10,878,130 | ||||||||||||||||||||||
| May 31, 2024 | Fair Value Measurement Level | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 280,124 | $ | 280,124 | $ | 280,124 | $ | — | $ | — | ||||||||||||||||||||||
| Restricted cash | 8,217 | 8,217 | 8,217 | — | — | |||||||||||||||||||||||||||
| Equity securities, at fair value | 36,886 | 36,886 | 36,886 | — | — | |||||||||||||||||||||||||||
| Debt securities trading, at fair value | 281,351 | 281,351 | — | 281,351 | — | |||||||||||||||||||||||||||
| Deferred compensation investments | 7,763 | 7,763 | 7,763 | — | — | |||||||||||||||||||||||||||
| Loans to members, net | 34,493,559 | 30,884,906 | — | — | 30,884,906 | |||||||||||||||||||||||||||
| Accrued interest receivable | 190,247 | 190,247 | — | 190,247 | — | |||||||||||||||||||||||||||
| Derivative assets | 691,249 | 691,249 | — | 691,249 | — | |||||||||||||||||||||||||||
| Total financial assets | $ | 35,989,396 | $ | 32,380,743 | $ | 332,990 | $ | 1,162,847 | $ | 30,884,906 | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Short-term borrowings | $ | 4,332,690 | $ | 4,333,635 | $ | — | $ | 3,833,635 | $ | 500,000 | ||||||||||||||||||||||
| Long-term debt | 25,901,165 | 24,470,693 | — | 15,529,041 | 8,941,652 | |||||||||||||||||||||||||||
| Accrued interest payable | 263,372 | 263,372 | — | 263,372 | — | |||||||||||||||||||||||||||
| Guarantee liability | 15,896 | 16,477 | — | — | 16,477 | |||||||||||||||||||||||||||
| Derivative liabilities | 80,988 | 80,988 | — | 80,988 | — | |||||||||||||||||||||||||||
| Subordinated deferrable debt | 1,286,861 | 1,295,729 | 244,636 | 1,051,093 | — | |||||||||||||||||||||||||||
| Members’ subordinated certificates | 1,197,651 | 1,197,651 | — | — | 1,197,651 | |||||||||||||||||||||||||||
| Total financial liabilities | $ | 33,078,623 | $ | 31,658,545 | $ | 244,636 | $ | 20,758,129 | $ | 10,655,780 | ||||||||||||||||||||||
Loans to Members, Net
Because of the interest rate repricing options we provide to borrowers on loan advances and other characteristics of our loans, there is no ready market from which to obtain fair value quotes or observable inputs for similar loans. As a result, we are unable to use the exit price to estimate the fair value of loans to members. We therefore estimate fair value for fixed-rate loans by discounting the expected future cash flows based on the current rate at which we would make a similar new loan for the same remaining maturity to a borrower. The assumed maturity date used in estimating the fair value of loans with a fixed rate for a selected rate term is the next repricing date because at the repricing date, the loan will reprice at the current market rate. 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.
The fair value of loans with different risk characteristics, specifically nonperforming and restructured loans, is estimated 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. The fair value of loans held for sale is determined based on the cost, which approximates the fair value, as we sell these loans at par value, concurrently or within a short period of time with the closing of the loan or participation agreement. See below for information on how we estimate the fair value of certain individually evaluated loans.
Transfers Between Levels
We monitor the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy and transfer between Level 1, Level 2 and Level 3 accordingly. Observable market data include but
are not limited to quoted prices and market transactions. Changes in economic conditions or market liquidity generally will drive changes in availability of observable market data. Changes in availability of observable market data, which also may result in changes in the valuation technique used, are generally the cause of transfers between levels. We did not have any transfers into or out of Level 3 of the fair value hierarchy during fiscal years ended May 31, 2025 and 2024.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the carrying value and fair value of financial instruments reported in our consolidated financial statements at fair value on a recurring basis as of May 31, 2025 and 2024, and the classification of the valuation technique within the fair value hierarchy. We did not have any assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs during the years ended May 31, 2025 and 2024.
Table 14.2: Assets and Liabilities Measured at Fair Value on a Recurring Basis
| May 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||
| Equity securities, at fair value | $ | 11,252 | $ | — | $ | 11,252 | $ | 36,886 | $ | — | $ | 36,886 | ||||||||||||||||||||||||||
| Debt securities trading, at fair value | — | 113,663 | 113,663 | — | 281,351 | 281,351 | ||||||||||||||||||||||||||||||||
| Deferred compensation investments | 8,019 | — | 8,019 | 7,763 | — | 7,763 | ||||||||||||||||||||||||||||||||
| Derivative assets | — | 555,855 | 555,855 | — | 691,249 | 691,249 | ||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||
| Derivative liabilities | — | 51,368 | 51,368 | — | 80,988 | 80,988 | ||||||||||||||||||||||||||||||||
Below is a description of the valuation techniques we use to estimate fair value of our financial assets and liabilities recorded at fair value on a recurring basis, the significant inputs used in those techniques, if applicable, and the classification within the fair value hierarchy.
Equity Securities
Our investments in equity securities consist of investments in Farmer Mac Class A common stock and Series C preferred stock. These securities are reported at fair value in our consolidated balance sheets. We determine the fair value based on quoted prices on the stock exchange where the stock is traded. Because quoted market prices are the key input in deriving fair value for these securities, the valuation methodology is classified as Level 1.
Debt Securities Trading
As discussed above in “Note 1—Summary of Significant Accounting Policies” our debt securities consist of investments in corporate debt securities, municipality debt securities, commercial MBS and other ABS and were classified as trading as of May 31, 2025. Management estimates the fair value of our debt securities utilizing the assistance of third-party pricing services. Methodologies employed, controls relied upon and inputs used by third-party pricing vendors are subject to management review when such services are provided. This review may consist of, in part, obtaining and evaluating control reports issued and pricing methodology materials distributed. We review the pricing methodologies provided by the vendors in order to determine if observable market information is being used to determine the fair value versus unobservable inputs. Investment securities traded in secondary markets are typically valued using unadjusted vendor prices. These investment securities, which include those measured using unadjusted vendor prices, are generally classified as Level 2 because the valuation typically involves using quoted market prices for similar securities, pricing models, discounted cash flow analyses
using significant observable market inputs where available or a combination of multiple valuation techniques for which all significant assumptions are observable in the market.
Deferred Compensation Investments
CFC offers a nonqualified 457(b) deferred compensation plan to highly compensated employees and board members. Such amounts deferred by employees are invested by the company. The deferred compensation investments are presented as other assets in the consolidated balance sheets in the other assets category at fair value. We calculate fair value based on the daily published and quoted net asset value. Because quoted market prices are the key input in deriving fair value for this plan, the valuation methodology is classified as Level 1.
Derivative Instruments
Our derivatives primarily consist of OTC interest rate swaps executed under master netting swap agreements that do not have readily available quoted market prices. We derive the fair value of our derivatives using a vendor-provided derivative system, which is based on industry-standard discounted cash flow models. We rely primarily on market-observable inputs for these models, including market interest rates and forward swap yield curves, as well as the contractual terms of the derivative instrument, as of the valuation date. We include a credit risk valuation adjustment in our valuation of derivatives, which takes into consideration the effect of nonperformance credit risk of the counterparty or our own nonperformance risk and depends on whether the derivative instrument is in a gain, or asset, financial position or in a loss, or liability, financial position. We corroborate our derivative valuations by comparing the amounts to counterparty valuations and third-party pricing sources. We analyze and validate pricing variances, if material, among different external pricing sources. Because observable market data serve as the key inputs in valuing our interest rate swaps, the valuation methodology is classified as Level 2.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We may be required, from time to time, to measure certain assets and liabilities at fair value on a nonrecurring basis on our consolidated balance sheets. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, such as in the application of the lower of cost or fair value accounting or when we evaluate assets for impairment. We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of May 31, 2025 or May 31, 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 5, 2025 | Showing above |
| 2024 | Aug 1, 2024 | |
| 2017 | Aug 1, 2017 | |
| 2016 | Aug 25, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.