Investor Conference Call FY 2019 Fiscal Year Ended May 31, 2019 - - PowerPoint PPT Presentation

August 7, 2019 at 11 a.m. ET

Investor Conference Call – FY 2019 Fiscal Year Ended May 31, 2019

This presentation contains certain statements that are considered forward- looking statements within the Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended. Forward-looking statements, which are based

• n certain assumptions and describe our future plans, strategies and

expectations, are generally identified by our use of words such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions, whether in the negative or affirmative. All statements about future expectations or projections are forward-looking statements. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, actual results and performance may differ materially from our forward-looking statements. Factors that could cause future results to vary from our forward-looking statements about our current expectations are included in our annual and quarterly periodic reports filed with the U.S. Securities and Exchange Commission (SEC). Except as required by law, we undertake no obligation to update or publicly release any revisions to forward- looking statements to reflect events, circumstances or changes in expectations after the date on which the statement is made.

Forward-Looking Statements

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Financial Performance

• J. Andrew Don, Chief Financial Officer

During our discussion, we may review certain non-GAAP adjusted financial

• measures. Please refer to our annual report on Form 10-K for the fiscal year

ended May 31, 2019, as filed with the SEC and posted on the CFC website, for a discussion of why we believe our adjusted measures provide useful information in analyzing CFC’s financial performance and the reconciliation to the most comparable GAAP measures.

Non-GAAP Financial Measures

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$4.2 $4.4 $4.5 $4.4 $4.6 $16.1 $17.7 $18.8 $19.6 $20.2

$0 $5 $10 $15 $20 $25 5/31/15 5/31/16 5/31/17 5/31/18 5/31/19 Loans Outstanding G&T Distribution

($ in billions)

212 221 224 235 238

50 100 150 200 250 5/31/15 5/31/16 5/31/17 5/31/18 5/31/19 # of 100% Borrowers

CFC Market Share

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48% 43% 54% 67% 87% 45% 50% 40% 24% 10% 7% 7% 6% 9% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 5/31/15 5/31/16 5/31/17 5/31/18 5/31/19

% of Loan Advance

Capital Expenditures Refinancing All Other Purpose

$19.1 $21.0 $22.1 $22.7 $22.9

$42.7 $39.0 $39.3 $39.2 $40.0 $27.8 $32.5 $33.9 $34.1 $31.4 21.00% 23.00% 23.00% 23.61% 24.27% 0% 5% 10% 15% 20% 25% $- $10 $20 $30 $40 $50 $60 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18 Total Long-Term Debt CFC RUS Other CFC Market Share

($ in billions)

CFC Loans Outstanding CFC 100% Borrowers CFC LT Loan Advances by Purpose Electric Cooperatives Total LTD by Lender

$25,179 $25,917 $609 $653 $563 $368 $239 $186 $100 FY18 FY19 Loans Investment Other Cash Time Deposits

Total Assets ($ in Mils)

$26,690

$434 MM Increase

Loans to Members ($ in Mils)

$1,497 $1,626

FY18 FY19

Members’ Equity ($ in Mils)

$129 MM Increase

6.18 5.73

FY18 FY19

Adjusted Debt to Equity Ratio

0.45 Decrease

FY19 Financial Results – Balance Sheet

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$19,552 $20,155 $4,397 $4,579 $786 $743 FY18 FY19 Distribution Power Supply NCSC RTFC Statewide and Associate Loan Origination Cost

$25,179 $27,124

$738 MM Increase

$25,917

1.17 1.19

FY18 FY19

Adjusted TIER Adjusted Net Income ($ in Mils)

$151 $169

FY18 FY19 FY18 FY19

Adjusted Net Interest Income ($ in Mils) Adjusted Net Interest Yield

0.83% 0.97%

FY18 FY19

FY19 Financial Results – Income Statement

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$46 MM Increase

$210 MM $256 MM

0.02 Increase $18 MM Increase 14 bps Increase

CFC’s Electric Cooperative Borrowers/Members:

• Provide an essential service to their customers/owners
• Experience limited competition
• Generally serve exclusive territories with majority number of customers being residential
• Demonstrate stable operating and strong financial performance
• Are not rate regulated in the majority of states

Loan Portfolio Overview

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v 78%

Secured Unsecured

FY19 FY19 FY19 FY18 FY18 FY18 92% 8% 78% 18% 3% 1% 18% 3%1%

Distribution Power Supply

89% 7% 4% 6% 4% 90%

LT Fixed LT Variable

93% 7%

NCSC RTFC Line of Credit

Consolidated Loans Outstanding by State & Territory at May 31, 2019

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(Sorted by Loan Balance) Top 10 States - FY18-19 Loan Growth State/Territory Loan Balance ($ in 000s) Loan Balance % Number of Borrowers State/Territory Loan Balance ($ in 000s) Loan Balance % Number of Borrowers State/Territory FY18-FY19 Loan Growth ($ in 000s) % of FY19 Total Loan Growth Texas $ 3,965,742 15.31% 70 Virginia $ 309,328 1.19% 18 Florida $ 186,707 25.29% Missouri $ 1,442,886 5.57% 47 Utah $ 303,692 1.17% 6 Texas $ 162,818 22.06% Georgia $ 1,431,915 5.53% 47 Wyoming $ 299,237 1.16% 11 Iowa $ 78,490 10.63% Colorado $ 1,413,774 5.46% 24 Nevada $ 251,433 0.97% 8 Missouri $ 76,023 10.30% Kansas $ 1,179,837 4.55% 31 Louisiana $ 249,307 0.96% 10 Ohio $ 65,700 8.90% Florida $ 1,116,999 4.31% 17 Michigan $ 227,543 0.88% 12 North Carolina $ 61,113 8.28% Alaska $ 958,062 3.70% 17 Montana $ 206,570 0.80% 25 Arkansas $ 54,976 7.45% Illinois $ 914,560 3.53% 28 Arizona $ 205,972 0.80% 11 Colorado $ 51,523 6.98% North Dakota $ 845,537 3.26% 17 South Dakota $ 201,672 0.78% 32 Wyoming $ 50,469 6.84% North Carolina $ 818,724 3.16% 28 Tennessee $ 147,198 0.57% 19 South Carolina $ 35,888 4.86% South Carolina $ 805,012 3.11% 24 Idaho $ 126,866 0.49% 12 All Other States $ (85,537)

• 11.59%

Indiana $ 745,255 2.88% 39 Hawaii $ 119,330 0.46% 2 Total Loan Growth $ 738,171 100.00% Oklahoma $ 737,850 2.85% 27 Delaware $ 113,166 0.44% 3 Kentucky $ 737,275 2.85% 24 New Hampshire $ 85,659 0.33% 1 Minnesota $ 691,638 2.67% 53 New Mexico $ 61,976 0.24% 16 Loans Outstanding to 20 Largest Borrowers Arkansas $ 623,074 2.40% 20 Massachusetts $ 60,000 0.23% 1 Amount % of Total Ohio $ 593,164 2.29% 28 Vermont $ 51,533 0.20% 6 Loans Outstanding $5.62 billion 22% Iowa $ 581,683 2.24% 38 California $ 36,413 0.14% 4 Alabama $ 576,307 2.22% 27 New York $ 33,547 0.13% 7 (Less Loans covered under Farmer Mac Agreement) ($360 million) (1%) Pennsylvania $ 507,571 1.96% 17 Nebraska $ 31,289 0.12% 13 Wisconsin $ 487,551 1.88% 23 New Jersey $ 18,295 0.07% 1 Maryland $ 445,519 1.72% 2 West Virginia $ 12,300 0.05% 2 Net Loans Outstanding Exposure $5.26 billion 21% Mississippi $ 424,558 1.64% 19 Maine $ 8,843 0.03% 3 Oregon $ 358,447 1.38% 20 Rhode Island $ 6,141 0.02% 1 Washington $ 335,411 1.30% 10 Total $ 25,905,664 100.00% 921 = Top 10 State - FY18-19 Loan Growth

• During CFC’s 50-year history, there have only been 16 defaults, which resulted

in six losses in the electric utility portfolio; net write-offs for the electric portfolio totaled $86 million

• CFC did not have any delinquent or nonperforming loans since June 1, 2016
• CFC had no charge-offs or loan defaults during FY19 and FY18

0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 FY15 FY16 FY17 FY18 FY19 Nonperforming Loans - Non-electric loans only 0.00% 0.01% 0.00% 0.00% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 FY15 FY16 FY17 FY18 FY19 Net Charge-Offs - Non-electric loans only 0.00%

($ in Thousands) ($ in Thousands)

Nonperforming Loans Plus Delinquencies/Total Loans Outstanding Net Charge-Offs/Average Loans Outstanding

Credit Performance

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$7,639 $7,384 $3,003 $2,942 $742 $986 $1,065 $945 FY18 FY19

Collateral Trust Bonds Non-member Medium-term Notes Subordinated Deferrable Debt Non-member Commercial Paper

$12,449 MM $12,257 MM $192 MM

Member Investment ($ in Mils)

$4,856 $5,411 $2,891 $3,055 FY18 FY19

Guaranteed Underwriter Program (GUP) Farmer Mac Note Payable Other

$8,488 MM $7,777 MM $711 MM

GUP, Farmer Mac & Other ($ in Mils) Capital Markets Funding ($ in Mils)

Debt Funding Sources

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$1,202 $1,112 $780 $1,024 $631 $630 $644 $626 $528 $505 $401 $299 $221 $221 FY18 FY19

Member Commercial Paper Member Select Notes Membership Certificates Member Medium-term Notes Loan and Guarantee Certificates Daily Liquidity Fund Member Capital Securities

$4,407 MM $4,417 MM $10 MM

Total Debt Outstanding ($ in Mils)

Capital Markets, 50% Capital Markets, 49% GUP, 20% GUP, 21% Members, 18% Members, 18% Famer Mac, 12% Famer Mac, 12%

FY18 FY19 $24,633 MM $25,162 MM $529 MM

Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Total CTB $- $- $- $305 $- $400 $- $- $- $- $400 $- $1,105 Dealer MTN $- $- $- $300 $- $- $- $- $- $- $- $- $300 Farmer Mac $86 $3 $3 $12 $3 $3 $112 $3 $3 $12 $3 $3 $246 InterNotes $4 $3 $7 $8 $- $8 $4 $18 $15 $2 $14 $- $83 Member MTN $51 $27 $52 $31 $42 $16 $34 $24 $79 $54 $28 $24 $462 GUP $- $- $23 $- $- $23 $- $- $23 $- $- $24 $93 TOTAL $141 $33 $85 $656 $45 $450 $150 $45 $120 $68 $445 $51 $2,289

$0 $100 $200 $300 $400 $500 $600 $700 $ in Millions Data as of 7/31/2019 Note: Our members traditionally roll over their MTN investments at maturity.

Monthly Debt Maturity/Amortization Schedule

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$300 million CTB Coupon: 2.30%, CUSIP: 637432NB7 $300 million Dealer MTN Coupon: 1.50%, CUSIP: 63743HEN8 $400 million CTB Coupon: 2.00%, CUSIP: 637432NC5 $400 million CTB Coupon: 2.35%, CUSIP: 637432MU6

Total Liquidity $9,277 $300 $1,350 $2,972 $831 Total Maturities4 $5,275

5/31/18 5/31/19

Members $2,894

$0 $8,000 $6,000 $4,000 $2,000 Cash, Time Deposits & Investments 1 GUP Revolving NPA- Farmer Mac 2 Revolving LOC – Banks Revolving LOC – Farmer Mac Scheduled LT Loan Amortization and Other Repayments 3

(1) $565 million of investments are classified as held-to-maturity and it is our intention to hold these securities to maturity (2) Revolving NPA - Farmer Mac is subject to market conditions (3) Scheduled LT loan amortization and other repayments over the next 12 months (4) Short-term debt maturities include long-term debt maturities over the next 12 months

Liquidity Management

• CFC is a well-known seasoned issuer and believes it has adequate access to both long-

term and short-term funding options

$10,000 Liquidity Coverage/Excess Liquidity 1.4x/$2,684 1.8x/$4,002 Liquidity Coverage/Excess Liquidity (excluding short-term member debt) 2.5x/$5,518 3.9x/$6,896

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Dealer CP $945 Non-Member CPLTD $1,436 $2,145 $1,679 Total Liquidity $9,235 $200 $1,225 $3,082 $941 Total Maturities4 $6,551 Members $2,834 Dealer CP $1,064 Non-Member CPLTD $2,653 $2,409 $1,378

Liquidity Position as of 5/31/2019

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Projected Sources of Liquidity Projected Uses of Liquidity ($ in Mils.) LT Debt Issuance Anticipated LT Loan Repayments¹ Other Loan Repayments² Total Projected Sources of Liquidity LT Debt Maturities³ LT Loan Advances Other Loan Advances⁴ Total Projected Uses of Liquidity Other Sources/ (Uses) of Liquidity⁵ Net LT Loan Growth⁶ 8/31/19 $230 $384 $194 $808 $301 $548 $140 $989 $108 $164 11/30/19 690 299 99 $1,088 773 393 5 $1,171 29 $94 2/29/20 890 307 76 $1,273 650 468 $1,118 (183) $161 5/31/20 90 311 9 $410 161 210 $371 (129) ($101) 8/31/20 490 312 $802 499 316 $815 5 $4 11/30/20 740 309 $1,049 491 302 $793 (275) ($7) Totals $3,130 $1,922 $378 $5,430 $2,875 $2,237 $145 $5,257 ($445) $315

(1) Anticipated long-term loan repayments include scheduled long-term loan amortizations, anticipated cash repayments at repricing date and sales. (2) Other loan repayments include anticipated short-term loan repayments. (3) Long-term debt maturities include medium-term notes with an original maturity of one year or less and expected early redemptions of debt. (4) Other loan advances include anticipated short-term loan advances. (5) Includes net increase or decrease to dealer commercial paper, and purchases and maturity of investments. (6) Cumulative LT Loan Advances minus Anticipated Loan Repayments including scheduled loan amortizations, repricings and sales.

FY19 (Q1, Q2, Q3, and Q4) Major Financing Activities

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• July 2018 – Issued $300 million 3-year floating-rate notes @ 3ML + 37.5 bps
• April 2019 – Paid off a $350 million 2-year floating-rate note @ 3ML + 20 bps
• October 2018 – Issued a $325 million 10-year CTB @ 3.90% and $300 million 30-year CTB @ 4.40%
• January 2019 – Issued a $450 million 10-year CTB @ 3.70% and $500 million 30-year CTB @ 4.30%
• During FY19, paid off $1.83 billion of CTBs with a weighted average coupon of 6.984%
• July 2018 – Repriced $125 million @ 3.50% with a 15-year final maturity
• November 2018 – Closed a $750 million committed loan facility with a 4.5 year draw period
• November 2018 – Advanced $100 million @ 3.635% with a 20-year final maturity
• January 2019 – Advanced $375 million @ 3.294% with a 20-year final maturity
• February 2019 – Advanced $150 million @ 3.286% with a 20-year final maturity
• July 2018 – Extended the draw period for the $300 million Farmer Mac revolving note purchase

agreement to December 2023

• September 2018 – Entered into a pricing agreement with Farmer Mac to advance $250 million in

November 2018 under the note purchase agreement

• February 2019 – Advanced $200 million @ 3.71% with a 20-year final maturity and $125 million @

3.61% with a 30-year final maturity

• February 2019 – Advanced $100 million which was paid off in March 2019

CTBs GUP Farmer Mac MTNs

• November 2018 – Amended and extended maturities of the credit facilities by one year to November

2021 and November 2023 and reduced the commitment amount by $110 million from $3.085 billion to $2.975 billion

Revolvers

• May 2019 – Issued $250 million 45-year fixed-rate subordinate notes at 5.50%

Sub Notes

Key Takeaways

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Fitch: F1 (Short-Term); A+ (Senior Secured); A (Senior Unsecured); Stable Outlook (Last commented on 5/20/19) Moody’s: P-1 (Short-Term); A1 (Senior Secured); A2 (Senior Unsecured); Stable Outlook (Last commented on 11/30/18) S&P: A-1 (Short-Term); A (Senior Secured); A (Senior Unsecured); Stable Outlook (Last commented on 4/12/19) Management’s long-term incentives are tied to CFC credit ratings

Robust Credit Ratings Pristine Loan Portfolios

Strong Member Support

Healthy Funding & Liquidity Profile

99% of loans are to rural electric systems 92% of loans are on a senior secured basis 0.07% loan loss allowance coverage ratio No loan defaults, no nonperforming loans, no charge-offs & no delinquent loans 18% of funding is from member-owners Historically low reinvestment risk on member investments Total members’ equity at $1.6 billion as of 5/31/2019, a 63% increase from $998 million as

• f 5/31/2013

Diversified funding sources (Cash, investments, bank lines, GUP & Farmer Mac) 1.8 times liquidity coverage ratio over the next 12 months 3.9 times liquidity coverage ratio over the next 12 months, excluding short-term debt maturities related to member investments

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Appendix

18 Interest Expense + Derivative Cash Settlements Expense

Adjusted Interest Expense

[Total Liabilities - (Derivative Liabilities + Debt used to fund loans guaranteed by RUS + Subordinated Deferrable Debt + Subordinated Certificates)] / [Total Equity - (Prior Year Cumulative Derivative Forward Value and Foreign Currency Adjustments + Year to Date Derivative Forward Value, net + Accumulated Other Comprehensive Income) + (Subordinated Deferrable Debt + Subordinated Certificates)]

Adjusted Debt To Equity (Adjusted Liabilities / Adjusted Equity)

Adjusted Net Interest Income / Total Average Interest-Earning Assets

Adjusted Net Interest Yield

Net Income – Derivative Forward Value Gains (Losses)

Adjusted Net Income

GAAP Equity – AOCI – Noncontrolling Interests – Cumulative Derivative Forward Value Losses

Members’ Equity

(Adjusted Interest Expense - Adjusted Net Income) / Adjusted Interest Expense

Adjusted TIER

Net Interest Income – Derivative Cash Settlements Expense

Adjusted Net Interest Income

Derivative forward value gains or losses reflect changes in estimated fair value of the interest rate swaps based on the projected movement in interest rates from the current reporting period through the maturity of the swaps in place at the

• time. They do not represent current period realized cash gains or losses and are

excluded from the calculations of adjusted net income, members’ equity and adjusted equity.

Derivative Forward Value Gains or Losses