10-Q/A

4,

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2012

OR

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From          To

Commission File Number 1-7102

NATIONAL RURAL UTILITIES COOPERATIVE

FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

DISTRICT OF COLUMBIA

(State or other jurisdiction of incorporation or organization)

52-0891669

(I.R.S. Employer Identification Number)

20701 COOPERATIVE WAY, DULLES, VA 20166

(Address of principal executive offices)

(Registrant’s telephone number, including area code, is 703-467-1800)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨                   Accelerated filer ¨                   Non-accelerated filer x                 Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

The Registrant does not issue capital stock because it is a tax-exempt cooperative.

Explanatory Note

The purpose of this Amendment No. 1 on Form 10–Q/A to our quarterly report on Form 10–Q for the quarter ended August 31, 2012, filed with the Securities and Exchange Commission on October 15, 2012 (the “Form 10–Q”), is solely to furnish Exhibit 101 to the Form 10–Q in accordance with Rule 405 of Regulation S–T.

 No other changes have been made to the Form 10–Q. This Amendment No. 1 speaks as of the original filing date of the Form 10–Q, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the original Form 10–Q.

Pursuant to rule 406T of Regulation S–T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

2

Item 6. Exhibits

31.1*	–	Certification of the Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	–	Certification of the Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	–	Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	–	Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.01**	–	Financial statements from the Quarterly Report on Form 10-Q of National Rural Utilities Cooperative Finance Corporation for the quarter ended August 31, 2012, filed on October 15, 2012, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statement of Changes in Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.
* Previously filed in our Quarterly Report on Form 10-Q for the quarter ended August 31, 2012, filed with the Securities and Exchange Commission on October 15, 2012. ** Furnished herewith.

3

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATIONAL RURAL UTILITIES COOPERATIVE

     FINANCE CORPORATION

/s/ STEVEN L. LILLY

Steven L. Lilly

Chief Financial Officer

/s/ ROBERT E. GEIER

Robert E. Geier

Controller

(Principal Accounting Officer)

November 6, 2012

4

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Loans and Commitments (Details 4) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012	Aug. 31, 2011
Credit Quality
Total loans outstanding	$ 19,467,736	$ 18,911,742	$ 18,611,827
CFC
Credit Quality
Total loans outstanding	18,273,385	17,745,897
CFC | Distribution
Credit Quality
Total loans outstanding	14,270,152	14,075,471
CFC | Power supply
Credit Quality
Total loans outstanding	3,924,024	3,596,820
CFC | Statewide and associate
Credit Quality
Total loans outstanding	79,209	73,606
RTFC
Credit Quality
Total loans outstanding	553,011	571,566
NCSC
Credit Quality
Total loans outstanding	641,340	594,279
Pass
Credit Quality
Total loans outstanding	19,424,722	18,870,529
Pass | CFC
Credit Quality
Total loans outstanding	18,237,790	17,711,654
Pass | CFC | Distribution
Credit Quality
Total loans outstanding	14,239,557	14,046,228
Pass | CFC | Power supply
Credit Quality
Total loans outstanding	3,919,024	3,591,820
Pass | CFC | Statewide and associate
Credit Quality
Total loans outstanding	79,209	73,606
Pass | RTFC
Credit Quality
Total loans outstanding	545,592	564,596
Pass | NCSC
Credit Quality
Total loans outstanding	641,340	594,279
Criticized
Credit Quality
Total loans outstanding	43,014	41,213
Criticized | CFC
Credit Quality
Total loans outstanding	35,595	34,243
Criticized | CFC | Distribution
Credit Quality
Total loans outstanding	30,595	29,243
Criticized | CFC | Power supply
Credit Quality
Total loans outstanding	5,000	5,000
Criticized | RTFC
Credit Quality
Total loans outstanding	$ 7,419	$ 6,970

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Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	May 31, 2012
Assets:
Restricted cash	$ 8,171	$ 7,694
Debt service reserve funds	39,803	39,803
Derivative instruments	293,221	296,036
Liabilities:
Short-term debt	5,641,100	4,493,434
Long-term debt	11,791,604	12,151,967
Derivative instruments	662,193	654,125
Subordinated deferrable debt	186,440	86,440
Minimum period from which the option to select fixed rates can be exercised	1 year
Frequency of interest rates reset of variable-rate loans	15 days
Minimum
Liabilities:
Maturity period of short-term debt for which the fair value is estimated based on quoted market rates	90 days
Maximum
Liabilities:
Maturity period of short-term debt for which the carrying value is a reasonable estimate of fair value	90 days
Carrying value
Assets:
Cash and cash equivalents	575,119	191,167
Restricted cash	8,171	7,694
Investments in equity securities	59,039	59,045
Loans to members, net	19,323,152	18,776,286
Debt service reserve funds	39,803	39,803
Derivative instruments	293,221	296,036
Liabilities:
Short-term debt	5,641,100	4,493,434
Long-term debt	11,791,604	12,151,967
Guarantee liability	27,715	28,663
Derivative instruments	662,193	654,125
Subordinated deferrable debt	186,440	186,440
Total members' subordinated certificates	1,765,818	1,722,744
Fair value
Assets:
Cash and cash equivalents	575,119	191,167
Restricted cash	8,171	7,694
Investments in equity securities	59,039	59,045
Loans to members, net	20,778,781	20,405,353
Debt service reserve funds	39,803	39,803
Derivative instruments	293,221	296,036
Liabilities:
Short-term debt	5,679,086	4,498,565
Long-term debt	13,400,035	13,936,540
Guarantee liability	30,583	31,518
Derivative instruments	662,193	654,125
Subordinated deferrable debt	190,660	187,335
Total members' subordinated certificates	$ 1,923,118	$ 1,880,558

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Subordinated Deferrable Debt (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Aug. 31, 2012	May 31, 2012
Subordinated Deferrable Debt
Subordinated deferrable debt	$ 186,440	$ 86,440
NRC 6.10% due 2044
Subordinated Deferrable Debt
Subordinated deferrable debt	88,201	88,201
Interest rate (as a percent)	6.10%	6.10%
NRU 5.95% due 2045
Subordinated Deferrable Debt
Subordinated deferrable debt	$ 98,239	$ 98,239
Interest rate (as a percent)	5.95%	5.95%

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012	May 31, 2011
Statement of operations:
Interest income	$ 240,085	$ 247,250
Interest expense	(176,596)	(202,044)
Net interest income	63,489	45,206
(Provision for) recovery of loan losses	(9,122)	9,130
Net interest income after provision for loan losses	54,367	54,336
Non-interest income:
Fee and other income	4,958	4,723
Derivative losses	(24,592)	(111,571)
Results of operations from foreclosed assets	(4,765)	(9,818)
Total non-interest income	(24,399)	(116,666)
Non-interest expense:
General and administrative expenses	(17,170)	(16,389)
Recovery of guarantee liability	9	60
Loss on early extinguishment of debt		(9,267)
Other	(163)	(397)
Total non-interest expense	(17,324)	(25,993)
Income prior to income taxes	12,644	(88,323)
Income tax benefit	2	1,701
Net income (loss)	12,646	(86,622)
Assets:
Total recorded investment in loans	19,467,736	18,611,827	18,911,742
Deferred origination costs	7,917	6,667	7,870
Less: Allowance for loan losses	(152,501)	(152,100)	(143,326)	(161,177)
Loans to members, net	19,323,152	18,466,394	18,776,286
Other assets	1,554,488	1,690,000
Total assets	20,877,640	20,156,394	19,951,335
CFC
Statement of operations:
Interest income	235,971	241,193
Interest expense	(176,164)	(201,593)
Net interest income	59,807	39,600
(Provision for) recovery of loan losses	(9,122)	9,130
Net interest income after provision for loan losses	50,685	48,730
Non-interest income:
Fee and other income	4,792	5,182
Derivative losses	(23,045)	(104,338)
Results of operations from foreclosed assets	(4,765)	(9,818)
Total non-interest income	(23,018)	(108,974)
Non-interest expense:
General and administrative expenses	(14,872)	(14,184)
Recovery of guarantee liability	9	60
Loss on early extinguishment of debt		(9,267)
Other	(163)	(397)
Total non-interest expense	(15,026)	(23,788)
Income prior to income taxes	12,641	(84,032)
Net income (loss)	12,641	(84,032)
Assets:
Total recorded investment in loans	19,436,054	18,252,160
Deferred origination costs	7,917	6,667
Less: Allowance for loan losses	(152,501)	(152,100)
Loans to members, net	19,291,470	18,106,727
Other assets	1,524,402	1,665,176
Total assets	20,815,872	19,771,903
Other
Statement of operations:
Interest income	14,387	19,347
Interest expense	(10,705)	(13,744)
Net interest income	3,682	5,603
Net interest income after provision for loan losses	3,682	5,603
Non-interest income:
Fee and other income	394	218
Derivative losses	(1,547)	(7,233)
Total non-interest income	(1,153)	(7,015)
Non-interest expense:
General and administrative expenses	(2,526)	(2,395)
Other		(484)
Total non-interest expense	(2,526)	(2,879)
Income prior to income taxes	3	(4,291)
Income tax benefit	2	1,701
Net income (loss)	5	(2,590)
Assets:
Total recorded investment in loans	1,194,351	1,364,187
Loans to members, net	1,194,351	1,364,187
Other assets	155,499	228,817
Total assets	1,349,850	1,593,004
Elimination
Statement of operations:
Interest income	(10,273)	(13,290)
Interest expense	10,273	13,293
Net interest income		3
Net interest income after provision for loan losses		3
Non-interest income:
Fee and other income	(228)	(677)
Total non-interest income	(228)	(677)
Non-interest expense:
General and administrative expenses	228	190
Other		484
Total non-interest expense	228	674
Assets:
Total recorded investment in loans	(1,162,669)	(1,004,520)
Loans to members, net	(1,162,669)	(1,004,520)
Other assets	(125,413)	(203,993)
Total assets	$ (1,288,082)	$ (1,208,513)

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Short-Term Debt and Credit Arrangements (Details 2) (USD $)	3 Months Ended	12 Months Ended
	Aug. 31, 2012	May 31, 2012
Requirement
Minimum average adjusted TIER over the six most recent fiscal quarters	1.025
Minimum adjusted TIER for the most recent fiscal year	1.05
Maximum ratio of adjusted senior debt to total equity	10.00
Actual
Minimum average adjusted TIER over the six most recent fiscal quarters	1.21	1.21
Minimum adjusted TIER for the most recent fiscal year	1.18	1.18
Maximum ratio of adjusted senior debt to total equity	6.20	5.97
Revolving credit agreements
Revolving Credit Agreements
Maximum borrowing capacity	2,845,000,000	2,845,000,000
Maximum borrowing capacity	100,000,000
Total available	2,843,750,000	2,843,750,000
Outstanding letters of credit	1,000,000	1,000,000
Revolving credit agreements | Three-year agreement
Revolving Credit Agreements
Term of credit agreements	3 years
Total available	1,125,000,000	1,125,000,000
Facility fee per year	0.15%
Revolving credit agreements | Four-year agreement
Revolving Credit Agreements
Term of credit agreements	4 years
Total available	883,875,000	883,875,000
Outstanding letters of credit	1,000,000	1,000,000
Facility fee per year	0.10%
Revolving credit agreements | Five-year agreement
Revolving Credit Agreements
Term of credit agreements	5 years
Total available	834,875,000	834,875,000
Facility fee per year	0.10%

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General Information and Accounting Policies (Details 2) (USD $)	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012
Loan Sales
Carrying amount of loans sold	$ 14,000,000	$ 11,000,000
Components of interest income
Interest on investments	938,000	928,000
Fee income	2,028,000	2,406,000
Total interest income	240,085,000	247,250,000
Deferred conversion fees	19,000,000		20,000,000
Long-term fixed-rate loans
Components of interest income
Total interest income	217,940,000	225,346,000
Long-term variable-rate loans
Components of interest income
Total interest income	6,025,000	8,252,000
Line of credit loans
Components of interest income
Total interest income	7,692,000	9,626,000
Restructured loans
Components of interest income
Total interest income	$ 5,462,000	$ 692,000

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Long-Term Debt (Tables)

3 Months Ended

Aug. 31, 2012

Long-Term Debt

Summary of long-term debt outstanding

(dollaramountsinthousands)	August31,2012			May31,2012
Unsecured long-term debt:
Medium-term notes sold through dealers	$	1,684,500		$	1,692,605
Medium-term notes sold to members	132,916			89,261
Subtotal	1,817,416			1,781,866
Unamortized discount	(966		)	(971		)
Total unsecured medium-term notes	1,816,450			1,780,895
Unsecured notes payable	3,712,982			3,457,982
Unamortized discount	(1,051		)	(1,093		)
Total unsecured notes payable	3,711,931			3,456,889
Total unsecured long-term debt	5,528,381			5,237,784
Secured long-term debt:
Collateral trust bonds	5,165,000			6,065,000
Unamortized discount	(11,565		)	(12,398		)
Total secured collateral trust bonds	5,153,435			6,052,602
Secured notes payable	1,109,788			861,581
Total secured long-term debt	6,263,223			6,914,183
Total long-term debt	$	11,791,604		$	12,151,967

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Equity (Details) (USD $)	1 Months Ended	3 Months Ended
	Jul. 31, 2012	Aug. 31, 2012	Aug. 31, 2011
Equity disclosures
Retirement/allocation of net earnings authorized		$ (35,345,000)	$ (46,086,000)
Cooperative educational fund
Equity disclosures
Allocation of net earnings	1,000,000
Patronage capital allocated
Equity disclosures
Allocation of net earnings	71,000,000
Retirement/allocation of net earnings authorized	$ (35,000,000)	$ (35,345,000)	$ (46,086,000)
Retirement of allocated net earnings, authorized percentage	50.00%

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Loans and Commitments (Details 7) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012
Recorded investment in individually-impaired loans and the related specific valuation allowance
With a specific allowance recorded	$ 82,332		$ 81,210
Total impaired loans	495,957		496,902
Related allowance	24,953		25,261
Average recorded investment
Total impaired loans	496,967	500,820
Interest income recognized
Interest impaired loans	5,462	692
Interest income reduction as a result of holding loans on non-accrual status
Interest income reduced	407	5,747
Net loans outstanding	19,467,736	18,611,827	18,911,742
Loans receivable as a percentage of total loan	100.00%		100.00%
Accrual
Interest income reduction as a result of holding loans on non-accrual status
Number of impaired loans	1		1
Non-performing loans
Interest income reduction as a result of holding loans on non-accrual status
Interest income reduced	407	417
Net loans outstanding	42,444		41,213
Loans receivable as a percentage of total loan	0.20%		0.20%
Number of borrowers currently in bankruptcy	2
Number of borrowers currently seeking buyers for their systems	2
Restructured loans
Interest income recognized
Interest impaired loans	5,000	1,000
Interest income reduction as a result of holding loans on non-accrual status
Interest income reduced		5,330
Net loans outstanding	453,513		455,689
Loans receivable as a percentage of total loan	2.30%		2.40%
Restructured loans | Accrual
Interest income reduction as a result of holding loans on non-accrual status
Net loans outstanding	40,000		40,000
Restructured loans | Nonaccrual
Interest income reduction as a result of holding loans on non-accrual status
Net loans outstanding	414,000		416,000
CFC
Interest income reduction as a result of holding loans on non-accrual status
Net loans outstanding	18,273,385		17,745,897
CFC | Distribution
Recorded investment in individually-impaired loans and the related specific valuation allowance
With no specific allowance recorded	413,625		415,692
With a specific allowance recorded	70,483		69,240
Related allowance	23,040		23,009
Average recorded investment
Total impaired loans	485,077	498,139
Interest income recognized
Interest impaired loans	5,462	692
Interest income reduction as a result of holding loans on non-accrual status
Net loans outstanding	14,270,152		14,075,471
CFC | Power supply
Recorded investment in individually-impaired loans and the related specific valuation allowance
With a specific allowance recorded	5,000		5,000
Related allowance	251		251
Average recorded investment
Total impaired loans	5,000
Interest income reduction as a result of holding loans on non-accrual status
Net loans outstanding	3,924,024		3,596,820
RTFC
Recorded investment in individually-impaired loans and the related specific valuation allowance
With a specific allowance recorded	6,849		6,970
Related allowance	1,662		2,001
Average recorded investment
Total impaired loans	6,890	2,681
Interest income reduction as a result of holding loans on non-accrual status
Net loans outstanding	$ 553,011		$ 571,566

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Loans and Commitments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	May 31, 2012
Unadvanced commitments
Notional maturities of committed lines of credit
Total unadvanced commitments	$ 14,547,286	$ 14,129,424
Maximum period of commitments to fully fund agreements which have not yet been advanced	5 years
Unadvanced commitments not subject to material adverse change clauses
Notional maturities of committed lines of credit
2013	16,800
2014	307,183
2015	120,254
2016	223,662
2017	554,365
Thereafter	219,938
Total unadvanced commitments	1,442,202	1,303,000
Maximum period of commitments to fully fund agreements which have not yet been advanced	5 years
Unadvanced commitments subject to material adverse change clauses
Notional maturities of committed lines of credit
Total unadvanced commitments	$ 13,105,000	$ 12,826,000

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Guarantees (Details2) (USD $)	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012
Guarantee Liability
Contingent guarantee liability	$ 6,000,000		$ 6,000,000
Non-contingent guarantee liability	22,000,000		23,000,000
Activity in the guarantee liability account
Beginning balance	28,663,000
Net change in non-contingent liability	(939,000)
Recovery of contingent guarantee liability	(9,000)	(60,000)
Ending balance	$ 27,715,000
Liability as a percentage of total guarantees	2.41%

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Long-Term Debt (Details) (USD $)																							3 Months Ended
	Aug. 31, 2012	May 31, 2012	Aug. 31, 2012 Unsecured long-term debt	May 31, 2012 Unsecured long-term debt	Aug. 31, 2012 Unsecured medium-term notes	May 31, 2012 Unsecured medium-term notes	Aug. 31, 2012 Medium-term notes sold through dealers	May 31, 2012 Medium-term notes sold through dealers	Aug. 31, 2012 Medium-term notes sold to members	May 31, 2012 Medium-term notes sold to members	Aug. 31, 2012 Unsecured notes payable	May 31, 2012 Unsecured notes payable	Aug. 31, 2012 Unsecured notes payable Federal Financing Bank	May 31, 2012 Unsecured notes payable Federal Financing Bank	Aug. 31, 2012 Secured long-term debt	May 31, 2012 Secured long-term debt	Aug. 31, 2012 Collateral trust bonds	May 31, 2012 Collateral trust bonds	Aug. 31, 2012 Secured notes payable	May 31, 2012 Secured notes payable	Aug. 31, 2012 Secured notes payable Federal Agricultural Mortgage Corporation	May 31, 2012 Secured notes payable Federal Agricultural Mortgage Corporation	Aug. 31, 2012 Committed loan facilities Federal Financing Bank
Long-term debt
Long-term debt before unamortized discount					$ 1,817,416,000	$ 1,781,866,000	$ 1,684,500,000	$ 1,692,605,000	$ 132,916,000	$ 89,261,000	$ 3,712,982,000	$ 3,457,982,000	$ 3,674,000,000	$ 3,419,000,000			$ 5,165,000,000	$ 6,065,000,000			$ 1,165,000,000	$ 1,165,000,000
Unamortized discount					(966,000)	(971,000)					(1,051,000)	(1,093,000)					(11,565,000)	(12,398,000)
Total long-term debt	11,791,604,000	12,151,967,000	5,528,381,000	5,237,784,000	1,816,450,000	1,780,895,000					3,711,931,000	3,456,889,000			6,263,223,000	6,914,183,000	5,153,435,000	6,052,602,000	1,109,788,000	861,581,000
Amount borrowed																							255,000,000
Maximum borrowing capacity																					3,900,000,000
Maximum borrowing capacity																							$ 325,000,000

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Foreclosed Assets

3 Months Ended

Aug. 31, 2012

Foreclosed Assets

Foreclosed Assets

(3) Foreclosed Assets

Assets received in satisfaction of loan receivables are initially recorded at fair value when received and are subsequently evaluated periodically for impairment. These assets are classified on the consolidated balance sheets as foreclosed assets. At August31, 2012 all foreclosed assets were held by DRP and CAH, which are wholly-owned subsidiaries of CFC.

The activity for foreclosed assets is summarized below:

	Asofandforthethreemonths endedAugust31,2012
(dollaramountsinthousands)	CAH			DRP			Total
Balance as of May31, 2012	$	201,558		$	21,918		$	223,476
Results of operations:
Operating loss	(4,497		)	(136		)	(4,633		)
Impairment	-			(132		)	(132		)
Cash investments	16,298			-			16,298
Balance as of August31, 2012	$	213,359		$	21,650		$	235,009

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Loans and Commitments (Details 8) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012
Pledging of Loans and Loans on Deposit
Cash	$ 8,171	$ 7,694
Collateral trust bonds 2007 indenture
Pledging of Loans and Loans on Deposit
Debt outstanding	4,850,000	4,850,000
Loans outstanding and pledged as collateral	5,964,173	6,003,499
Collateral trust bonds 1994 indenture
Pledging of Loans and Loans on Deposit
Debt outstanding	1,470,000	1,470,000
Notes payable | Federal Agricultural Mortgage Corporation
Pledging of Loans and Loans on Deposit
Debt outstanding	1,165,100	1,165,100
Notes payable | Federal Financing Bank
Pledging of Loans and Loans on Deposit
Debt outstanding	3,674,000	3,419,000
Clean Renewable Energy Bonds Series 2009A
Pledging of Loans and Loans on Deposit
Debt outstanding	21,545	23,487
Cash	7,724	7,669
Total pledged collateral	32,675	33,309
Mortgage notes | Distribution system mortgage notes | Collateral trust bonds 2007 indenture
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	5,795,177	5,833,475
Mortgage notes | Distribution system mortgage notes | Collateral trust bonds 1994 indenture
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	1,755,907	1,574,823
Mortgage notes | Distribution and power supply system mortgage notes | Federal Agricultural Mortgage Corporation
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	1,357,757	1,379,989
Mortgage notes | Distribution and power supply system mortgage notes | Clean Renewable Energy Bonds Series 2009A
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	24,951	25,640
RUS guaranteed loans qualifying as permitted investments | Collateral trust bonds 2007 indenture
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	168,996	170,024
Mortgage notes receivable on deposit | Distribution and power supply system mortgage notes | Federal Financing Bank
Pledging of Loans and Loans on Deposit
Loans outstanding and pledged as collateral	$ 4,162,032	$ 3,814,311

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Fair Value Measurement (Tables)

3 Months Ended

Aug. 31, 2012

Fair Value Measurement

Schedule of the entity's assets and liabilities that are measured at fair value on a recurring basis

	August31,2012				May31,2012
(dollaramountsinthousands)	Level1		Level2		Level1		Level2
Derivative assets	$	-	$	293,221	$	-	$	296,036
Derivative liabilities	-		662,193		-		654,125
Investments in common stock	1,461		-		1,467		-

Schedule of carrying/fair value of the related individual assets and the total losses

	Level3FairValue				Totallossesforthe threemonthsendedAugust31,
(dollaramountsinthousands)	August31,2012		May31,2012		2012			2011
Non-performing loans, net of specific reserves	$	17,542	$	16,517	$	(206	)	$	(2,053	)

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Guarantees (Tables)

3 Months Ended

Aug. 31, 2012

Guarantees

Summary of total guarantees by type of guarantee and member class

(dollaramountsinthousands)	August31,2012		May31,2012
Total by type:
Long-term tax-exempt bonds	$	571,445	$	573,110
Indemnifications of tax benefit transfers	2,565		49,771
Letters of credit	456,012		504,920
Other guarantees	118,969		121,529
Total	$	1,148,991	$	1,249,330
Total by member class:
CFC:
Distribution	$	315,374	$	340,385
Power supply	798,723		854,444
Statewide and associate	6,964		7,202
CFC total	1,121,061		1,202,031
RTFC	1,026		1,026
NCSC	26,904		46,273
Total	$	1,148,991	$	1,249,330

Summary of activity in the guarantee liability account

(dollaramountsinthousands)	Asofandforthe threemonthsended August31,2012
Beginning balance as of May31, 2012	$	28,663
Net change in non-contingent liability	(939		)
Recovery of contingent guarantee liability	(9		)
Ending balance as of August31, 2012	$	27,715
Liability as a percentage of total guarantees	2.41		%

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Subsequent Events (Details) (Subsequent events, USD $) In Millions, unless otherwise specified	0 Months Ended				1 Months Ended	0 Months Ended		0 Months Ended
	Sep. 13, 2012	Oct. 10, 2012 Exchange of debt	Sep. 13, 2012 Restructured loans	Sep. 13, 2012 Capital expenditures loan	Sep. 30, 2012 Committed loan facilities Guaranteed Underwriter Commitment	Oct. 10, 2012 8 percent medium-term notes, Series C, due 2032 Exchange of debt	Sep. 30, 2012 8 percent medium-term notes, Series C, due 2032 Exchange of debt	Oct. 10, 2012 4.023% collateral trust bonds due 2032 Exchange of debt
Subsequent Events
Additional amount available under loan facilities					$ 424
Maturity repayment period					20 years
Period for availability of additional funding					3 years
Payment received from borrower	457		414	19
Prepayment fee				13
Interest rate on debt instrument (as a percent)							8.00%	4.023%
Aggregate principal amount accepted for exchange						340
Aggregate principal amount receivable by holders								379
Cash consideration receivable by holders		$ 134

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Foreclosed Assets (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended
	Aug. 31, 2012	May 31, 2012	Aug. 31, 2012 Foreclosed Assets	Aug. 31, 2012 Foreclosed Assets CAH	Aug. 31, 2012 Foreclosed Assets DRP
Activity for foreclosed assets
Beginning balance	$ 235,009	$ 223,476	$ 223,476	$ 201,558	$ 21,918
Results of operations, Operating loss			(4,633)	(4,497)	(136)
Results of operations, Impairment			(132)		(132)
Cash investments			16,298	16,298
Ending balance	$ 235,009	$ 223,476	$ 235,009	$ 213,359	$ 21,650

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Aug. 31, 2012

Fair Value of Financial Instruments

Schedule of carrying and fair values for the entity's financial instruments

	August31,2012				May31,2012
(dollaramountsinthousands)	Carryingvalue		Fairvalue		Carryingvalue		Fairvalue
Assets:
Cash and cash equivalents	$	575,119	$	575,119	$	191,167	$	191,167
Restricted cash	8,171		8,171		7,694		7,694
Investments in equity securities	59,039		59,039		59,045		59,045
Loans to members, net	19,323,152		20,778,781		18,776,286		20,405,353
Debt service reserve funds	39,803		39,803		39,803		39,803
Derivative instruments	293,221		293,221		296,036		296,036
Liabilities:
Short-term debt	5,641,100		5,679,086		4,493,434		4,498,565
Long-term debt	11,791,604		13,400,035		12,151,967		13,936,540
Guarantee liability	27,715		30,583		28,663		31,518
Derivative instruments	662,193		662,193		654,125		654,125
Subordinated deferrable debt	186,440		190,660		186,440		187,335
Members' subordinated certificates	1,765,818		1,923,118		1,722,744		1,880,558
Off-balance sheet instruments:
Commitments	-		-		-		-

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Segment Information (Tables)

3 Months Ended

Aug. 31, 2012

Segment Information

Schedule of segment presentation for the condensed consolidated statements of operations and condensed consolidated balance sheets

	ForthethreemonthsendedAugust31,2012
(dollaramountsinthousands)	CFC			Other			Elimination			Consolidated
Statement of operations:
Interest income	$	235,971		$	14,387		$	(10,273	)	$	240,085
Interest expense	(176,164		)	(10,705		)	10,273			(176,596		)
Net interest income	59,807			3,682			-			63,489
Provision for loan losses	(9,122		)	-			-			(9,122		)
Net interest income after provision for loan losses	50,685			3,682			-			54,367
Non-interest income:
Fee and other income	4,792			394			(228		)	4,958
Derivative losses	(23,045		)	(1,547		)	-			(24,592		)
Results of operations from foreclosed assets	(4,765		)	-			-			(4,765		)
Total non-interest income	(23,018		)	(1,153		)	(228		)	(24,399		)
Non-interest expense:
General and administrative expenses	(14,872		)	(2,526		)	228			(17,170		)
Recovery of guarantee liability	9			-			-			9
Loss on early extinguishment of debt	-			-			-			-
Other	(163		)	-			-			(163		)
Total non-interest expense	(15,026		)	(2,526		)	228			(17,324		)
Income prior to income taxes	12,641			3			-			12,644
Income tax benefit	-			2			-			2
Net income	$	12,641		$	5		$	-		$	12,646
Assets:
Total loans outstanding	$	19,436,054		$	1,194,351		$	(1,162,669	)	$	19,467,736
Deferred origination costs	7,917			-			-			7,917
Less: Allowance for loan losses	(152,501		)	-			-			(152,501		)
Loans to members, net	19,291,470			1,194,351			(1,162,669		)	19,323,152
Other assets	1,524,402			155,499			(125,413		)	1,554,488
Total assets	$	20,815,872		$	1,349,850		$	(1,288,082	)	$	20,877,640

	ForthethreemonthsendedAugust31,2011
(dollaramountsinthousands)	CFC			Other			Elimination			Consolidated
Statement of operations:
Interest income	$	241,193		$	19,347		$	(13,290	)	$	247,250
Interest expense	(201,593		)	(13,744		)	13,293			(202,044		)
Net interest income	39,600			5,603			3			45,206
Recovery of loan losses	9,130			-			-			9,130
Net interest income after recovery of loan losses	48,730			5,603			3			54,336
Non-interest income:
Fee and other income	5,182			218			(677		)	4,723
Derivative losses	(104,338		)	(7,233		)	-			(111,571		)
Results of operations from foreclosed assets	(9,818		)	-			-			(9,818		)
Total non-interest income	(108,974		)	(7,015		)	(677		)	(116,666		)
Non-interest expense:
General and administrative expenses	(14,184		)	(2,395		)	190			(16,389		)
Recovery of guarantee liability	60			-			-			60
Loss on early extinguishment of debt	(9,267		)	-			-			(9,267		)
Other	(397		)	(484		)	484			(397		)
Total non-interest expense	(23,788		)	(2,879		)	674			(25,993		)
Loss prior to income taxes	(84,032		)	(4,291		)	-			(88,323		)
Income tax benefit	-			1,701			-			1,701
Net loss	$	(84,032	)	$	(2,590	)	$	-		$	(86,622	)
Assets:
Total loans outstanding	$	18,252,160		$	1,364,187		$	(1,004,520	)	$	18,611,827
Deferred origination costs	6,667			-			-			6,667
Less: Allowance for loan losses	(152,100		)	-			-			(152,100		)
Loans to members, net	18,106,727			1,364,187			(1,004,520		)	18,466,394
Other assets	1,665,176			228,817			(203,993		)	1,690,000
Total assets	$	19,771,903		$	1,593,004		$	(1,208,513	)	$	20,156,394

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Loans and Commitments

3 Months Ended

Aug. 31, 2012

Loans and Commitments

Loans and Commitments

(2) Loans and Commitments

Loans outstanding to members and unadvanced commitments by loan type and by member class are summarized as follows:

	August31,2012					May31,2012
(dollaramountsinthousands)	Loansoutstanding			Unadvancedcommitments(1)		Loans outstanding			Unadvanced commitments(1)
Total by loan type (2):
Long-term fixed-rate loans	$	17,216,940		$	-	$	16,742,914		$	-
Long-term variable-rate loans	749,199			5,497,952		764,815			5,437,881
Loans guaranteed by RUS (3)	217,895			-		219,084			-
Line of credit loans	1,283,702			9,049,334		1,184,929			8,691,543
Total loans outstanding	19,467,736			14,547,286		18,911,742			14,129,424
Deferred origination costs	7,917			-		7,870			-
Less: Allowance for loan losses	(152,501		)	-		(143,326		)	-
Net loans outstanding	$	19,323,152		$	14,547,286	$	18,776,286		$	14,129,424
Total by member class (2):
CFC:
Distribution	$	14,270,152		$	9,206,328	$	14,075,471		$	9,191,227
Power supply	3,924,024			3,721,366		3,596,820			3,714,241
Statewide and associate	79,209			118,145		73,606			123,189
CFC total	18,273,385			13,045,839		17,745,897			13,028,657
RTFC	553,011			327,372		571,566			341,792
NCSC	641,340			1,174,075		594,279			758,975
Total loans outstanding	$	19,467,736		$	14,547,286	$	18,911,742		$	14,129,424

(1)The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2)Includes non-performing and restructured loans.

(3)"RUS" is the Rural Utilities Service.

Non-performing and restructured loans outstanding and unadvanced commitments to members included in the table above are summarized as follows by loan type and by company:

	August31,2012				May31,2012
	Loans		Unadvanced		Loans		Unadvanced
(dollaramountsinthousands)	outstanding		commitments(1)		outstanding		commitments(1)
Non-performing and restructured loans:
Non-performing loans:
CFC:
Long-term variable-rate loans	$	8,194	$	-	$	8,194	$	-
Line of credit loans (2)	27,401		2,538		26,049		-
RTFC:
Long-term fixed-rate loans	6,849		-		6,970		-
Total non-performing loans	$	42,444	$	2,538	$	41,213	$	-
Restructured loans:
CFC:
Long-term fixed-rate loans	$	453,513	$	-	$	455,689	$	-
Long-term variable-rate loans (3)	-		45,918		-		45,918
Line of credit loans (3)	-		5,000		-		5,000
Total restructured loans	$	453,513	$	50,918	$	455,689	$	50,918

(1)The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2)The unadvanced commitment is available under a debtor-in-possession facility for which the principal and interest has priority over all other claims.

(3)The unadvanced commitment is part of the terms outlined in the related restructure agreement. Loans advanced under these commitments would be classified as performing. Principal and interest due under these performing loans would be in addition to scheduled payments due under the restructured loan agreement.

Unadvanced Loan Commitments

A total of $1,442 million and $1,303 million of unadvanced commitments at August31, 2012 and May31, 2012, respectively, represented unadvanced commitments related to committed lines of credit loans that are not subject to a material adverse change clause at the time of each loan advance. As such, we will be required to advance amounts on these committed facilities as long as the borrower is in compliance with the terms and conditions of the facility.

The following table summarizes the available balance under committed lines of credit at August31, 2012, and the related maturities by fiscal year and thereafter as follows:

	Available		Notionalmaturitiesofcommittedlinesofcredit
(dollar amounts in thousands)	balance		2013		2014		2015		2016		2017		Thereafter
Committed lines of credit	$	1,442,202	$	16,800	$	307,183	$	120,254	$	223,662	$	554,365	$	219,938

The remaining unadvanced commitments totaling $13,105 million and $12,826 million at August31, 2012 and May31, 2012, respectively, were generally subject to material adverse change clauses. Prior to making an advance on these facilities, we confirm that there has been no material adverse change in the business or condition, financial or otherwise, of the borrower since the time the loan was approved and confirm that the borrower is currently in compliance with loan terms and conditions. In some cases, the borrower's access to the full amount of the facility is further constrained by the imposition of borrower-specific restrictions, or by additional conditions that must be met prior to advancing funds.

Unadvanced commitments related to line of credit loans are typically for periods not to exceed five years and are generally revolving facilities used for working capital and backup liquidity purposes. Historically, we have experienced a very low utilization rate on line of credit loan facilities, whether or not there is a material adverse change clause. Since we generally do not charge a fee on the unadvanced portion of the majority of our loan facilities, our borrowers will typically request long-term facilities to cover maintenance and capital expenditure work plans for periods of up to five years and draw down on the facility over that time. In addition, borrowers will typically request an amount in excess of their immediate estimated loan requirements to avoid the expense related to seeking additional loan funding for unexpected items.

The above items all contribute to our expectation that the majority of the unadvanced commitments will expire without being fully drawn upon and that the total unadvanced amount does not necessarily represent future cash funding requirements.

Payment Status of Loans

The tables below show an analysis of the age of the recorded investment in loans outstanding by member class:

	August31,2012
(dollaramountsinthousands)	30-89days pastdue			90daysormore pastdue (1)			Total pastdue			Current			Totalfinancing receivables			Non-accrual loans
CFC:
Distribution	$	3,332		$	27,263		$	30,595		$	14,239,557		$	14,270,152		$	30,595
Power supply	-			5,000			5,000			3,919,024			3,924,024			5,000
Statewide and associate	-			-			-			79,209			79,209			-
CFC total	3,332			32,263			35,595			18,237,790			18,273,385			35,595
RTFC	-			4,306			4,306			548,705			553,011			6,849
NCSC	-			-			-			641,340			641,340			-
Total loans outstanding	$	3,332		$	36,569		$	39,901		$	19,427,835		$	19,467,736		$	42,444
As a % of total loans	0.01		%	0.19		%	0.20		%	99.80		%	100.00		%	0.22		%

(1)All loans 90 days or more past due are on non-accrual status.

	May31, 2012
(dollaramountsinthousands)	30-89days pastdue			90daysormore pastdue(1)			Total pastdue			Current			Totalfinancing receivables			Non-accrual loans
CFC:
Distribution	$	-		$	29,243		$	29,243		$	14,046,228		$	14,075,471		$	29,243
Power supply	-			5,000			5,000			3,591,820			3,596,820			5,000
Statewide and associate	-			-			-			73,606			73,606			-
CFC total	-			34,243			34,243			17,711,654			17,745,897			34,243
RTFC	-			4,306			4,306			567,260			571,566			6,970
NCSC	-			-			-			594,279			594,279			-
Total loans outstanding	$	-		$	38,549		$	38,549		$	18,873,193		$	18,911,742		$	41,213
As a % of total loans	-		%	0.20		%	0.20		%	99.80		%	100.00		%	0.22		%

(1)All loans 90 days or more past due are on non-accrual status.

Credit Quality

We monitor the credit quality and performance statistics of our financing receivables in an ongoing manner to provide a balance between the credit needs of our members and the requirements for sound credit quality of the loan portfolio. We evaluate the credit quality of our loans using an internal risk rating system that employs similar criteria for all member classes.

Our internal risk rating system is based on a determination of a borrower's risk of default utilizing both quantitative and qualitative measurements.

We have grouped our risk ratings into the categories of pass and criticized based on the criteria below.

(i) Pass: Borrowers that are not experiencing difficulty and/or not showing a potential or well-defined credit weakness.

(ii)Criticized: Includes borrowers categorized as special mention, substandard and doubtful as described below:

· Special mention: Borrowers that may be characterized by a potential credit weakness or deteriorating financial condition that is not sufficiently serious to warrant a classification of substandard or doubtful.

· Substandard: Borrowers that display a well-defined credit weakness that may jeopardize the full collection of principal and interest.

· Doubtful: Borrowers that have a well-defined weakness and the full collection of principal and interest is questionable or improbable.

Each risk rating is reassessed annually based on the receipt of the borrower's audited financial statements; however, interim downgrades and upgrades may take place at any time as significant events or trends occur.

The following table presents our loan portfolio by risk rating category and member class based on available data as of:

	August31,2012						May31,2012
(dollaramountsinthousands)	Pass		Criticized		Total		Pass		Criticized		Total
CFC:
Distribution	$	14,239,557	$	30,595	$	14,270,152	$	14,046,228	$	29,243	$	14,075,471
Power supply	3,919,024		5,000		3,924,024		3,591,820		5,000		3,596,820
Statewide and associate	79,209		-		79,209		73,606		-		73,606
CFC total	18,237,790		35,595		18,273,385		17,711,654		34,243		17,745,897
RTFC	545,592		7,419		553,011		564,596		6,970		571,566
NCSC	641,340		-		641,340		594,279		-		594,279
Total loans outstanding	$	19,424,722	$	43,014	$	19,467,736	$	18,870,529	$	41,213	$	18,911,742

Loan Security

Except when providing line of credit loans, we typically lend to our members on a senior secured basis. Long-term loans are typically secured on a parity with other secured lenders (primarily RUS), if any, by all assets and revenue of the borrower with exceptions typical in utility mortgages. Line of credit loans are generally unsecured. In addition to the lien and security interest we receive under the mortgage, our member borrowers are also required to achieve certain financial ratios as required by loan covenants.

The following table summarizes our secured and unsecured loans outstanding by loan type and by company:

(dollar amounts in thousands)	August31, 2012								May31, 2012
Totalbyloantype:	Secured		%		Unsecured		%		Secured		%		Unsecured		%
Long-term fixed-rate loans	$	16,621,368	97	%	$	595,572	3	%	$	16,168,857	97	%	$	574,057	3	%
Long-term variable-rate loans	642,915		86		106,284		14		661,115		86		103,700		14
Loans guaranteed by RUS	217,895		100		-		-		219,084		100		-		-
Line of credit loans	203,431		16		1,080,271		84		205,143		17		979,786		83
Total loans outstanding	$	17,685,609	91		$	1,782,127	9		$	17,254,199	91		$	1,657,543	9
Total by company:
CFC	$	16,751,168	92	%	$	1,522,217	8	%	$	16,317,195	92	%	$	1,428,702	8	%
RTFC	530,855		96		22,156		4		549,085		96		22,481		4
NCSC	403,586		63		237,754		37		387,919		65		206,360		35
Total loans outstanding	$	17,685,609	91		$	1,782,127	9		$	17,254,199	91		$	1,657,543	9

Loan Loss Allowance

We maintain an allowance for loan losses at a level estimated by management to provide for probable losses inherent in the loan portfolio. Under a guarantee agreement, CFC reimburses RTFC and NCSC for loan losses, therefore, RTFC and NCSC do not maintain separate loan loss allowances.

The activity in the loan loss allowance summarized in the tables below reflects a disaggregation by company of the allowance for loan losses held at CFC based on borrower type:

	As of and for the three months ended August31, 2012
(dollaramountsinthousands)	CFC		RTFC		NCSC			Total
Balance as of May31, 2012	$	126,941	$	8,562	$	7,823		$	143,326
Provision for (recovery of) loan losses	9,787		315		(980		)	9,122
Recoveries of loans previously charged-off	53		-		-			53
Balance as of August31, 2012	$	136,781	$	8,877	$	6,843		$	152,501

	As of and for the three months ended August31, 2011
(dollar amounts in thousands)	CFC			RTFC		NCSC			Total
Balance as of May31, 2011	$	143,706		$	8,389	$	9,082		$	161,177
(Recovery of) provision for loan losses	(9,302		)	260		(88		)	(9,130		)
Recoveries of loans previously charged-off	53			-		-			53
Balance as of August31, 2011	$	134,457		$	8,649	$	8,994		$	152,100

Our allowance for loan losses includes a specific valuation allowance related to individually-evaluated impaired loans, as well as a general reserve for other probable incurred losses for loans that are collectively evaluated. The tables below present the loan loss allowance and the recorded investment in outstanding loans by impairment methodology and by company:

	August31,2012
(dollaramountsinthousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	113,490	$	7,215	$	6,843	$	127,548
Individually evaluated	23,291		1,662		-		24,953
Total ending balance of the allowance	$	136,781	$	8,877	$	6,843	$	152,501
Recorded investment in loans:
Collectively evaluated	$	17,784,277	$	546,162	$	641,340	$	18,971,779
Individually evaluated	489,108		6,849		-		495,957
Total recorded investment in loans	$	18,273,385	$	553,011	$	641,340	$	19,467,736
Loans to members, net (1)	$	18,136,604	$	544,134	$	634,497	$	19,315,235

	May31,2012
(dollaramountsinthousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	103,681	$	6,561	$	7,823	$	118,065
Individually evaluated	23,260		2,001		-		25,261
Total ending balance of the allowance	$	126,941	$	8,562	$	7,823	$	143,326
Recorded investment in loans:
Collectively evaluated	$	17,255,965	$	564,596	$	594,279	$	18,414,840
Individually evaluated	489,932		6,970		-		496,902
Total recorded investment in loans	$	17,745,897	$	571,566	$	594,279	$	18,911,742
Loans to members, net (1)	$	17,618,956	$	563,004	$	586,456	$	18,768,416

(1)Excludes deferred origination costs of $8 million at August31, 2012 and May31, 2012.

Impaired Loans

Our recorded investment in individually-impaired loans and the related specific valuation allowance is summarized below by member class:

	August31,2012				May31,2012
(dollaramountsinthousands)	Recorded investment		Related allowance		Recorded investment		Related allowance
With no specific allowance recorded:
CFC/Distribution	$	413,625	$	-	$	415,692	$	-
With a specific allowance recorded:
CFC/Distribution	70,483		23,040		69,240		23,009
CFC/Power Supply	5,000		251		5,000		251
RTFC	6,849		1,662		6,970		2,001
Total	82,332		24,953		81,210		25,261
Total impaired loans	$	495,957	$	24,953	$	496,902	$	25,261

The recorded investment for impaired loans was equal to the total unpaid principal balance for impaired loans as of August31, 2012 and May31, 2012. The table below represents the average recorded investment in impaired loans and the interest income recognized by member class:

	ForthethreemonthsendedAugust31,
	2012		2011		2012		2011
(inthousands)	Averagerecordedinvestment				Interestincomerecognized
CFC/Distribution	$	485,077	$	498,139	$	5,462	$	692
CFC/Power Supply	5,000		-		-		-
RTFC	6,890		2,681		-		-
Total impaired loans	$	496,967	$	500,820	$	5,462	$	692

Non-performing and Restructured Loans

Interest income was reduced as a result of holding loans on non-accrual status as follows:

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Non-performing loans	$	407	$	417
Restructured loans	-		5,330
Total	$	407	$	5,747

At August31, 2012 and May31, 2012, non-performing loans included $42 million, or 0.2 percent, of loans outstanding and $41 million or 0.2 percent, of loans outstanding, respectively. Two borrowers in this group are currently in bankruptcy. In one of the bankruptcy cases, the borrower has until November16, 2012 to file a plan of reorganization. The other bankruptcy case does not yet have a scheduled date for the borrower to file a plan of reorganization. There are two other borrowers that are currently seeking buyers for their systems, as it is not anticipated that they will have sufficient cash flow to repay their loans without the proceeds from the sale of the business. It is currently anticipated that even with the sale of the business, there will not be sufficient funds to repay the full amount owed.

At August31, 2012 and May31, 2012, we had restructured loans totaling $454 million, or 2.3 percent, of loans outstanding and $456 million, or 2.4 percent, of loans outstanding, respectively, all of which were performing according to their restructured terms. Approximately $5 million of interest income was accrued on restructured loans during the three months ended August31, 2012 compared with $1 million of interest income in the prior-year period. One of the restructured loans totaling $40 million at August31, 2012 and May31, 2012, has been on accrual status since the time of restructuring. The other restructured loan totaling $414 million and $416 million at August31, 2012 and May31, 2012, respectively, was on non-accrual status through September30, 2011, with all amounts collected being applied against the principal balance. On October1, 2011, the principal balance of the loan was reduced below the level of a buyout option and as such we placed the loan on accrual status at that time at a rate based on the effective rate returned by the future scheduled cash flows. This loan was paid-off early by the borrower on September13, 2012 (see Note 13, Subsequent Events).

We believe our allowance for loan loss is adequate to cover the losses inherent in our loan portfolio at August31, 2012.

Pledging of Loans and Loans on Deposit

We are required to pledge eligible mortgage notes in an amount at least equal to the outstanding balance of our secured debt.

The following table summarizes our loans outstanding as collateral pledged to secure our collateral trust bonds, Clean Renewable Energy Bonds and notes payable to the Federal Agricultural Mortgage Corporation and the amount of the corresponding debt outstanding (see Note 4, Short-Term Debt and Credit Arrangements and Note 5, Long-Term Debt).

(dollaramountsinthousands)	August31,2012		May31,2012
Collateral trust bonds:
2007 indenture
Distribution system mortgage notes	$	5,795,177	$	5,833,475
RUS guaranteed loans qualifying as permitted investments	168,996		170,024
Total pledged collateral	$	5,964,173	$	6,003,499
Collateral trust bonds outstanding	4,850,000		4,850,000
1994 indenture
Distribution system mortgage notes	$	1,755,907	$	1,574,823
Collateral trust bonds outstanding	1,470,000		1,470,000
Federal Agricultural Mortgage Corporation:
Distribution and power supply system mortgage notes	$	1,357,757	$	1,379,989
Notes payable outstanding	1,165,100		1,165,100
Clean Renewable Energy Bonds Series2009A:
Distribution and power supply system mortgage notes	$	24,951	$	25,640
Cash	7,724		7,669
Total pledged collateral	$	32,675	$	33,309
Notes payable outstanding	21,545		23,487

We are required to maintain collateral on deposit in an amount at least equal to the balance of debt outstanding to the Federal Financing Bank of the United States Treasury issued under the Guaranteed Underwriter program of the U.S. Department of Agriculture (see Note 5, Long-Term Debt).

The following table shows the collateral on deposit and the amount of the corresponding debt outstanding:

(dollaramountsinthousands)	August31,2012		May31,2012
Federal Financing Bank
Distribution and power supply system mortgage notes on deposit	$	4,162,032	$	3,814,311
Notes payable outstanding	3,674,000		3,419,000

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General Information and Accounting Policies (Details) (USD $)	3 Months Ended
	Aug. 31, 2012 item	May 31, 2012	Aug. 31, 2011
General Information and Accounting Policies
Number of groups of subsidiaries wholly-owned by the entity, holding foreclosed assets	2
Variable interest entities
Loans outstanding to members	$ 19,323,152,000	$ 18,776,286,000	$ 18,466,394,000
Consolidated variable interest entities | RTFC
Variable interest entities
Guarantee amount	1,000,000
Total assets including loans outstanding to members	679,000,000
Loans outstanding to members	540,000,000
Maximum amount committed to extend loan	4,000,000,000
Consolidated variable interest entities | NCSC
Variable interest entities
Guarantee amount	77,000,000
Maximum potential exposure	86,000,000
Total assets including loans outstanding to members	671,000,000
Loans outstanding to members	622,000,000
Maximum amount committed to extend loan	2,000,000,000
Commitment outstanding	699,000,000
Credit enhancement	$ 77,000,000

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Loans and Commitments (Details 5) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012	Aug. 31, 2011
Loan Security
Total loans outstanding	$ 19,467,736	$ 18,911,742	$ 18,611,827
Loans receivable as a percentage of total loan	100.00%	100.00%
CFC
Loan Security
Total loans outstanding	18,273,385	17,745,897
RTFC
Loan Security
Total loans outstanding	553,011	571,566
NCSC
Loan Security
Total loans outstanding	641,340	594,279
Secured
Loan Security
Total loans outstanding	17,685,609	17,254,199
Loans receivable as a percentage of total loan	91.00%	91.00%
Secured | CFC
Loan Security
Total loans outstanding	16,751,168	16,317,195
Loans receivable as a percentage of total loan	92.00%	92.00%
Secured | RTFC
Loan Security
Total loans outstanding	530,855	549,085
Loans receivable as a percentage of total loan	96.00%	96.00%
Secured | NCSC
Loan Security
Total loans outstanding	403,586	387,919
Loans receivable as a percentage of total loan	63.00%	65.00%
Unsecured
Loan Security
Total loans outstanding	1,782,127	1,657,543
Loans receivable as a percentage of total loan	9.00%	9.00%
Unsecured | CFC
Loan Security
Total loans outstanding	1,522,217	1,428,702
Loans receivable as a percentage of total loan	8.00%	8.00%
Unsecured | RTFC
Loan Security
Total loans outstanding	22,156	22,481
Loans receivable as a percentage of total loan	4.00%	4.00%
Unsecured | NCSC
Loan Security
Total loans outstanding	237,754	206,360
Loans receivable as a percentage of total loan	37.00%	35.00%
Long-term fixed-rate loans
Loan Security
Total loans outstanding	17,216,940	16,742,914
Long-term fixed-rate loans | Secured
Loan Security
Total loans outstanding	16,621,368	16,168,857
Loans receivable as a percentage of total loan	97.00%	97.00%
Long-term fixed-rate loans | Unsecured
Loan Security
Total loans outstanding	595,572	574,057
Loans receivable as a percentage of total loan	3.00%	3.00%
Long-term variable-rate loans
Loan Security
Total loans outstanding	749,199	764,815
Long-term variable-rate loans | Secured
Loan Security
Total loans outstanding	642,915	661,115
Loans receivable as a percentage of total loan	86.00%	86.00%
Long-term variable-rate loans | Unsecured
Loan Security
Total loans outstanding	106,284	103,700
Loans receivable as a percentage of total loan	14.00%	14.00%
Loans guaranteed by RUS
Loan Security
Total loans outstanding	217,895	219,084
Loans guaranteed by RUS | Secured
Loan Security
Total loans outstanding	217,895	219,084
Loans receivable as a percentage of total loan	100.00%	100.00%
Line of credit loans
Loan Security
Total loans outstanding	1,283,702	1,184,929
Line of credit loans | Secured
Loan Security
Total loans outstanding	203,431	205,143
Loans receivable as a percentage of total loan	16.00%	17.00%
Line of credit loans | Unsecured
Loan Security
Total loans outstanding	$ 1,080,271	$ 979,786
Loans receivable as a percentage of total loan	84.00%	83.00%

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Fair Value Measurement (Details) (USD $) In Thousands, unless otherwise specified							3 Months Ended
	Aug. 31, 2012	May 31, 2012	Aug. 31, 2012 Recurring basis Level 1	May 31, 2012 Recurring basis Level 1	Aug. 31, 2012 Recurring basis Level 2	May 31, 2012 Recurring basis Level 2	Aug. 31, 2012 Non-recurring basis	Aug. 31, 2011 Non-recurring basis	Aug. 31, 2012 Non-recurring basis Level 3	May 31, 2012 Non-recurring basis Level 3
Fair value of assets and liabilities
Derivative assets	$ 293,221	$ 296,036			$ 293,221	$ 296,036
Derivative liabilities	662,193	654,125			662,193	654,125
Investments in common stock			1,461	1,467
Non-performing loans, net of specific reserves									17,542	16,517
Total losses							$ (206)	$ (2,053)

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012
ASSETS
Cash and cash equivalents	$ 575,119	$ 191,167
Restricted cash	8,171	7,694
Investments in equity securities	59,039	59,045
Loans to members	19,475,653	18,919,612
Less: Allowance for loan losses	(152,501)	(143,326)
Loans to members, net	19,323,152	18,776,286
Accrued interest and other receivables	171,223	185,827
Fixed assets, net	102,841	102,770
Debt service reserve funds	39,803	39,803
Debt issuance costs, net	42,386	43,515
Foreclosed assets, net	235,009	223,476
Derivative assets	293,221	296,036
Other assets	27,676	25,716
Total assets	20,877,640	19,951,335
LIABILITIES AND EQUITY
Short-term debt	5,641,100	4,493,434
Accrued interest payable	227,804	161,817
Long-term debt	11,791,604	12,151,967
Patronage capital retirement payable	35,345
Deferred income	24,601	26,131
Other liabilities	75,191	63,922
Derivative liabilities	662,193	654,125
Commitments and contingencies
CFC equity:
Retained equity	451,006	473,964
Accumulated other comprehensive income	8,947	9,199
Total CFC equity	459,953	483,163
Noncontrolling interest	7,591	7,592
Total equity	467,544	490,755
Total liabilities and equity	20,877,640	19,951,335
Subordinated deferrable debt
LIABILITIES AND EQUITY
Subordinated debt	186,440	186,440
Membership subordinated certificates
LIABILITIES AND EQUITY
Subordinated debt	646,279	646,279
Loan and guarantee subordinated certificates
LIABILITIES AND EQUITY
Subordinated debt	721,189	678,115
Member capital securities
LIABILITIES AND EQUITY
Subordinated debt	398,350	398,350
Subordinated certificates
LIABILITIES AND EQUITY
Subordinated debt	$ 1,765,818	$ 1,722,744

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Short-Term Debt and Credit Arrangements (Details) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012
Short-Term Debt
Short-term debt	$ 3,376,865	$ 3,246,564
Total long-term debt maturing within one year	2,264,235	1,246,870
Total short-term debt	5,641,100	4,493,434
Commercial paper
Short-Term Debt
Short-term debt	2,559,235	2,473,158
Commercial paper sold through dealers, net of discounts
Short-Term Debt
Short-term debt	1,274,891	1,404,901
Commercial paper sold directly to members, at par
Short-Term Debt
Short-term debt	1,249,575	997,778
Commercial paper sold directly to non-members, at par
Short-Term Debt
Short-term debt	34,769	70,479
Daily liquidity fund notes sold directly to members
Short-Term Debt
Short-term debt	522,630	478,406
Bank bid notes
Short-Term Debt
Short-term debt	295,000	295,000
Medium-term notes sold through dealers
Short-Term Debt
Total long-term debt maturing within one year	588,214	232,830
Medium-term notes sold to members
Short-Term Debt
Total long-term debt maturing within one year	423,832	409,961
Secured collateral trust bonds
Short-Term Debt
Total long-term debt maturing within one year	1,154,733	254,962
Member subordinated certificates
Short-Term Debt
Total long-term debt maturing within one year	15,195	16,710
Secured notes payable
Short-Term Debt
Total long-term debt maturing within one year	76,857	327,006
Unsecured notes payable
Short-Term Debt
Total long-term debt maturing within one year	$ 5,404	$ 5,401

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 12,646	$ (86,622)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Amortization of deferred income	(3,925)	(3,204)
Amortization of debt issuance costs and deferred charges	1,978	3,139
Depreciation	1,310	725
Provision for (recovery of) loan losses	9,122	(9,130)
Recovery of guarantee liability	(9)	(60)
Results of operations of foreclosed assets	4,765	9,818
Derivative forward value	10,729	111,739
Changes in operating assets and liabilities:
Accrued interest and other receivables	14,047	(5,218)
Accrued interest payable	65,987	92,974
Other	17,162	17,139
Net cash provided by operating activities	133,812	131,300
CASH FLOWS FROM INVESTING ACTIVITIES
Advances made on loans	(2,096,528)	(1,685,983)
Principal collected on loans	1,526,701	2,386,760
Net investment in fixed assets	(1,381)	(5,253)
Proceeds from foreclosed assets	18,986	7,004
Investments in foreclosed assets	(35,284)	(12,036)
Net proceeds from sale of loans	13,589	11,339
Change in restricted cash	(477)	(478)
Net cash (used in) provided by investing activities	(574,394)	701,353
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) issuances of short-term debt, net	130,301	(257,784)
Issuance costs for revolving bank lines of credit	(703)
Proceeds from issuance of long-term debt	973,425	106,191
Payments for retirement of long-term debt	(320,772)	(369,925)
Proceeds from issuance of members' subordinated certificates	46,304	15,833
Payments for retirement of members' subordinated certificates	(4,021)	(52,911)
Net cash provided by (used in) financing activities	824,534	(558,596)
NET INCREASE IN CASH AND CASH EQUIVALENTS	383,952	274,057
BEGINNING CASH AND CASH EQUIVALENTS	191,167	293,615
ENDING CASH AND CASH EQUIVALENTS	575,119	567,672
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	108,631	105,931
Cash paid for income taxes	81
Non-cash financing and investing activities:
Increase to patronage capital retirement payable	35,345	46,086
Net decrease in debt service reserve funds/debt service reserve certificates		$ (490)

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General Information and Accounting Policies (Details 4) (USD $)	3 Months Ended
	Aug. 31, 2011	Aug. 31, 2012
Loss on early extinguishment of debt
Loss on early extinguishment of debt	$ 9,267,000
7.25% Series C medium-term notes
Loss on early extinguishment of debt
Amount redeemed	250,000,000
Aggregate principal amount	1,500,000,000
Stated interest rate (as a percent)		7.25%
Loss on early extinguishment of debt	$ 9,000,000

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Loans and Commitments (Tables)

3 Months Ended

Aug. 31, 2012

Loans and Commitments

Summary of loans outstanding to members and unadvanced commitments by loan type and by member class

	August31,2012					May31,2012
(dollaramountsinthousands)	Loansoutstanding			Unadvancedcommitments(1)		Loans outstanding			Unadvanced commitments(1)
Total by loan type (2):
Long-term fixed-rate loans	$	17,216,940		$	-	$	16,742,914		$	-
Long-term variable-rate loans	749,199			5,497,952		764,815			5,437,881
Loans guaranteed by RUS (3)	217,895			-		219,084			-
Line of credit loans	1,283,702			9,049,334		1,184,929			8,691,543
Total loans outstanding	19,467,736			14,547,286		18,911,742			14,129,424
Deferred origination costs	7,917			-		7,870			-
Less: Allowance for loan losses	(152,501		)	-		(143,326		)	-
Net loans outstanding	$	19,323,152		$	14,547,286	$	18,776,286		$	14,129,424
Total by member class (2):
CFC:
Distribution	$	14,270,152		$	9,206,328	$	14,075,471		$	9,191,227
Power supply	3,924,024			3,721,366		3,596,820			3,714,241
Statewide and associate	79,209			118,145		73,606			123,189
CFC total	18,273,385			13,045,839		17,745,897			13,028,657
RTFC	553,011			327,372		571,566			341,792
NCSC	641,340			1,174,075		594,279			758,975
Total loans outstanding	$	19,467,736		$	14,547,286	$	18,911,742		$	14,129,424

(1)The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2)Includes non-performing and restructured loans.

(3)"RUS" is the Rural Utilities Service.

Summary of non-performing and restructured loans outstanding and unadvanced commitments to members by loan type and by company

	August31,2012				May31,2012
	Loans		Unadvanced		Loans		Unadvanced
(dollaramountsinthousands)	outstanding		commitments(1)		outstanding		commitments(1)
Non-performing and restructured loans:
Non-performing loans:
CFC:
Long-term variable-rate loans	$	8,194	$	-	$	8,194	$	-
Line of credit loans (2)	27,401		2,538		26,049		-
RTFC:
Long-term fixed-rate loans	6,849		-		6,970		-
Total non-performing loans	$	42,444	$	2,538	$	41,213	$	-
Restructured loans:
CFC:
Long-term fixed-rate loans	$	453,513	$	-	$	455,689	$	-
Long-term variable-rate loans (3)	-		45,918		-		45,918
Line of credit loans (3)	-		5,000		-		5,000
Total restructured loans	$	453,513	$	50,918	$	455,689	$	50,918

(1)The interest rate on unadvanced commitments is not set until drawn, therefore, the long-term unadvanced loan commitments have been classified in this table as variable-rate unadvanced commitments. However, at the time of the advance, the borrower may select a fixed or a variable rate on the new loan.

(2)The unadvanced commitment is available under a debtor-in-possession facility for which the principal and interest has priority over all other claims.

(3)The unadvanced commitment is part of the terms outlined in the related restructure agreement. Loans advanced under these commitments would be classified as performing. Principal and interest due under these performing loans would be in addition to scheduled payments due under the restructured loan agreement.

Summary of available balance under committed lines of credit and the related maturities by fiscal year

	Available		Notionalmaturitiesofcommittedlinesofcredit
(dollar amounts in thousands)	balance		2013		2014		2015		2016		2017		Thereafter
Committed lines of credit	$	1,442,202	$	16,800	$	307,183	$	120,254	$	223,662	$	554,365	$	219,938

Schedule of analysis of the age of the recorded investment in loans outstanding by member class

	August31,2012
(dollaramountsinthousands)	30-89days pastdue			90daysormore pastdue (1)			Total pastdue			Current			Totalfinancing receivables			Non-accrual loans
CFC:
Distribution	$	3,332		$	27,263		$	30,595		$	14,239,557		$	14,270,152		$	30,595
Power supply	-			5,000			5,000			3,919,024			3,924,024			5,000
Statewide and associate	-			-			-			79,209			79,209			-
CFC total	3,332			32,263			35,595			18,237,790			18,273,385			35,595
RTFC	-			4,306			4,306			548,705			553,011			6,849
NCSC	-			-			-			641,340			641,340			-
Total loans outstanding	$	3,332		$	36,569		$	39,901		$	19,427,835		$	19,467,736		$	42,444
As a % of total loans	0.01		%	0.19		%	0.20		%	99.80		%	100.00		%	0.22		%

(1)All loans 90 days or more past due are on non-accrual status.

	May31, 2012
(dollaramountsinthousands)	30-89days pastdue			90daysormore pastdue(1)			Total pastdue			Current			Totalfinancing receivables			Non-accrual loans
CFC:
Distribution	$	-		$	29,243		$	29,243		$	14,046,228		$	14,075,471		$	29,243
Power supply	-			5,000			5,000			3,591,820			3,596,820			5,000
Statewide and associate	-			-			-			73,606			73,606			-
CFC total	-			34,243			34,243			17,711,654			17,745,897			34,243
RTFC	-			4,306			4,306			567,260			571,566			6,970
NCSC	-			-			-			594,279			594,279			-
Total loans outstanding	$	-		$	38,549		$	38,549		$	18,873,193		$	18,911,742		$	41,213
As a % of total loans	-		%	0.20		%	0.20		%	99.80		%	100.00		%	0.22		%

(1)All loans 90 days or more past due are on non-accrual status.

Schedule of loan portfolio by risk rating category and member class based on available data

	August31,2012						May31,2012
(dollaramountsinthousands)	Pass		Criticized		Total		Pass		Criticized		Total
CFC:
Distribution	$	14,239,557	$	30,595	$	14,270,152	$	14,046,228	$	29,243	$	14,075,471
Power supply	3,919,024		5,000		3,924,024		3,591,820		5,000		3,596,820
Statewide and associate	79,209		-		79,209		73,606		-		73,606
CFC total	18,237,790		35,595		18,273,385		17,711,654		34,243		17,745,897
RTFC	545,592		7,419		553,011		564,596		6,970		571,566
NCSC	641,340		-		641,340		594,279		-		594,279
Total loans outstanding	$	19,424,722	$	43,014	$	19,467,736	$	18,870,529	$	41,213	$	18,911,742

Summary of secured and unsecured loans outstanding by loan type and by company

(dollar amounts in thousands)	August31, 2012								May31, 2012
Totalbyloantype:	Secured		%		Unsecured		%		Secured		%		Unsecured		%
Long-term fixed-rate loans	$	16,621,368	97	%	$	595,572	3	%	$	16,168,857	97	%	$	574,057	3	%
Long-term variable-rate loans	642,915		86		106,284		14		661,115		86		103,700		14
Loans guaranteed by RUS	217,895		100		-		-		219,084		100		-		-
Line of credit loans	203,431		16		1,080,271		84		205,143		17		979,786		83
Total loans outstanding	$	17,685,609	91		$	1,782,127	9		$	17,254,199	91		$	1,657,543	9
Total by company:
CFC	$	16,751,168	92	%	$	1,522,217	8	%	$	16,317,195	92	%	$	1,428,702	8	%
RTFC	530,855		96		22,156		4		549,085		96		22,481		4
NCSC	403,586		63		237,754		37		387,919		65		206,360		35
Total loans outstanding	$	17,685,609	91		$	1,782,127	9		$	17,254,199	91		$	1,657,543	9

Summary of the activity in the loan loss allowance reflecting disaggregation by company of the allowance for loan losses held at CFC based on borrower type

	As of and for the three months ended August31, 2012
(dollaramountsinthousands)	CFC		RTFC		NCSC			Total
Balance as of May31, 2012	$	126,941	$	8,562	$	7,823		$	143,326
Provision for (recovery of) loan losses	9,787		315		(980		)	9,122
Recoveries of loans previously charged-off	53		-		-			53
Balance as of August31, 2012	$	136,781	$	8,877	$	6,843		$	152,501

	As of and for the three months ended August31, 2011
(dollar amounts in thousands)	CFC			RTFC		NCSC			Total
Balance as of May31, 2011	$	143,706		$	8,389	$	9,082		$	161,177
(Recovery of) provision for loan losses	(9,302		)	260		(88		)	(9,130		)
Recoveries of loans previously charged-off	53			-		-			53
Balance as of August31, 2011	$	134,457		$	8,649	$	8,994		$	152,100

Schedule of loan loss allowance and the recorded investment in outstanding loans by impairment methodology and by company

	August31,2012
(dollaramountsinthousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	113,490	$	7,215	$	6,843	$	127,548
Individually evaluated	23,291		1,662		-		24,953
Total ending balance of the allowance	$	136,781	$	8,877	$	6,843	$	152,501
Recorded investment in loans:
Collectively evaluated	$	17,784,277	$	546,162	$	641,340	$	18,971,779
Individually evaluated	489,108		6,849		-		495,957
Total recorded investment in loans	$	18,273,385	$	553,011	$	641,340	$	19,467,736
Loans to members, net (1)	$	18,136,604	$	544,134	$	634,497	$	19,315,235

	May31,2012
(dollaramountsinthousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	103,681	$	6,561	$	7,823	$	118,065
Individually evaluated	23,260		2,001		-		25,261
Total ending balance of the allowance	$	126,941	$	8,562	$	7,823	$	143,326
Recorded investment in loans:
Collectively evaluated	$	17,255,965	$	564,596	$	594,279	$	18,414,840
Individually evaluated	489,932		6,970		-		496,902
Total recorded investment in loans	$	17,745,897	$	571,566	$	594,279	$	18,911,742
Loans to members, net (1)	$	17,618,956	$	563,004	$	586,456	$	18,768,416

(1)Excludes deferred origination costs of $8 million at August31, 2012 and May31, 2012.

Summary of recorded investment in individually-impaired loans and the related specific valuation allowance by member class

	August31,2012				May31,2012
(dollaramountsinthousands)	Recorded investment		Related allowance		Recorded investment		Related allowance
With no specific allowance recorded:
CFC/Distribution	$	413,625	$	-	$	415,692	$	-
With a specific allowance recorded:
CFC/Distribution	70,483		23,040		69,240		23,009
CFC/Power Supply	5,000		251		5,000		251
RTFC	6,849		1,662		6,970		2,001
Total	82,332		24,953		81,210		25,261
Total impaired loans	$	495,957	$	24,953	$	496,902	$	25,261

Schedule of average recorded investment in impaired loans and the interest income recognized by member class

	ForthethreemonthsendedAugust31,
	2012		2011		2012		2011
(inthousands)	Averagerecordedinvestment				Interestincomerecognized
CFC/Distribution	$	485,077	$	498,139	$	5,462	$	692
CFC/Power Supply	5,000		-		-		-
RTFC	6,890		2,681		-		-
Total impaired loans	$	496,967	$	500,820	$	5,462	$	692

Schedule of interest income reduced as a result of holding loans on non-accrual status

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Non-performing loans	$	407	$	417
Restructured loans	-		5,330
Total	$	407	$	5,747

Summary of loans outstanding as collateral pledged to secure the entity's collateral trust bonds, Clean Renewable Energy Bonds and notes payable to the Federal Agricultural Mortgage Corporation and the amount of the corresponding debt outstanding

(dollaramountsinthousands)	August31,2012		May31,2012
Collateral trust bonds:
2007 indenture
Distribution system mortgage notes	$	5,795,177	$	5,833,475
RUS guaranteed loans qualifying as permitted investments	168,996		170,024
Total pledged collateral	$	5,964,173	$	6,003,499
Collateral trust bonds outstanding	4,850,000		4,850,000
1994 indenture
Distribution system mortgage notes	$	1,755,907	$	1,574,823
Collateral trust bonds outstanding	1,470,000		1,470,000
Federal Agricultural Mortgage Corporation:
Distribution and power supply system mortgage notes	$	1,357,757	$	1,379,989
Notes payable outstanding	1,165,100		1,165,100
Clean Renewable Energy Bonds Series2009A:
Distribution and power supply system mortgage notes	$	24,951	$	25,640
Cash	7,724		7,669
Total pledged collateral	$	32,675	$	33,309
Notes payable outstanding	21,545		23,487

Schedule of collateral on deposit and the amount of the corresponding debt outstanding

(dollaramountsinthousands)	August31,2012		May31,2012
Federal Financing Bank
Distribution and power supply system mortgage notes on deposit	$	4,162,032	$	3,814,311
Notes payable outstanding	3,674,000		3,419,000

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Loans and Commitments (Details) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012	Aug. 31, 2011	May 31, 2011
Loans outstanding
Total recorded investment in loans	$ 19,467,736	$ 18,911,742	$ 18,611,827
Deferred origination costs	7,917	7,870	6,667
Less: Allowance for loan losses	(152,501)	(143,326)	(152,100)	(161,177)
Net loans outstanding	19,323,152	18,776,286	18,466,394
Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	14,547,286	14,129,424
Non-performing loans
Loans outstanding
Total recorded investment in loans	42,444	41,213
Non-performing loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	2,538
Restructured loans
Loans outstanding
Total recorded investment in loans	453,513	455,689
Restructured loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	50,918	50,918
CFC
Loans outstanding
Total recorded investment in loans	18,273,385	17,745,897
Less: Allowance for loan losses	(136,781)	(126,941)	(134,457)	(143,706)
CFC | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	13,045,839	13,028,657
CFC | Distribution
Loans outstanding
Total recorded investment in loans	14,270,152	14,075,471
CFC | Distribution | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	9,206,328	9,191,227
CFC | Power supply
Loans outstanding
Total recorded investment in loans	3,924,024	3,596,820
CFC | Power supply | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	3,721,366	3,714,241
CFC | Statewide and associate
Loans outstanding
Total recorded investment in loans	79,209	73,606
CFC | Statewide and associate | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	118,145	123,189
RTFC
Loans outstanding
Total recorded investment in loans	553,011	571,566
Less: Allowance for loan losses	(8,877)	(8,562)	(8,649)	(8,389)
RTFC | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	327,372	341,792
NCSC
Loans outstanding
Total recorded investment in loans	641,340	594,279
Less: Allowance for loan losses	(6,843)	(7,823)	(8,994)	(9,082)
NCSC | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	1,174,075	758,975
Long-term fixed-rate loans
Loans outstanding
Total recorded investment in loans	17,216,940	16,742,914
Long-term fixed-rate loans | CFC | Restructured loans
Loans outstanding
Total recorded investment in loans	453,513	455,689
Long-term fixed-rate loans | RTFC | Non-performing loans
Loans outstanding
Total recorded investment in loans	6,849	6,970
Long-term variable-rate loans
Loans outstanding
Total recorded investment in loans	749,199	764,815
Long-term variable-rate loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	5,497,952	5,437,881
Long-term variable-rate loans | CFC | Non-performing loans
Loans outstanding
Total recorded investment in loans	8,194	8,194
Long-term variable-rate loans | CFC | Restructured loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	45,918	45,918
Loans guaranteed by RUS
Loans outstanding
Total recorded investment in loans	217,895	219,084
Line of credit loans
Loans outstanding
Total recorded investment in loans	1,283,702	1,184,929
Line of credit loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	9,049,334	8,691,543
Line of credit loans | CFC | Non-performing loans
Loans outstanding
Total recorded investment in loans	27,401	26,049
Line of credit loans | CFC | Non-performing loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	2,538
Line of credit loans | CFC | Restructured loans | Unadvanced commitments
Unadvanced commitments
Total Unadvanced commitments	$ 5,000	$ 5,000

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Short-Term Debt and Credit Arrangements (Tables)

3 Months Ended

Aug. 31, 2012

Short-Term Debt and Credit Arrangements

Summary of short-term debt outstanding

(dollaramountsinthousands)	August31,2012		May31,2012
Short-term debt:
Commercial paper sold through dealers, net of discounts	$	1,274,891	$	1,404,901
Commercial paper sold directly to members, at par	1,249,575		997,778
Commercial paper sold directly to non-members, at par	34,769		70,479
Total commercial paper	2,559,235		2,473,158
Daily liquidity fund notes sold directly to members	522,630		478,406
Bank bid notes	295,000		295,000
Subtotal short-term debt	3,376,865		3,246,564
Long-term debt maturing within one year:
Medium-term notes sold through dealers	588,214		232,830
Medium-term notes sold to members	423,832		409,961
Secured collateral trust bonds	1,154,733		254,962
Member subordinated certificates	15,195		16,710
Secured notes payable	76,857		327,006
Unsecured notes payable	5,404		5,401
Total long-term debt maturing within one year	2,264,235		1,246,870
Total short-term debt	$	5,641,100	$	4,493,434

Schedule of total available and outstanding letters of credit under the revolving credit agreements

	Totalavailable				Lettersofcreditoutstanding
(dollaramountsinthousands)	August31, 2012		May31, 2012		August31, 2012		May31, 2012		Originalmaturity	Facilityfeeper year(1)
Three-year agreement	$	1,125,000	$	1,125,000	$	-	$	-	March21, 2014	15 basis points
Four-year agreement	883,875		883,875		1,000		1,000		October21, 2015	10 basis points
Five-year agreement	834,875		834,875		-		-		October21, 2016	10 basis points
Total	$	2,843,750	$	2,843,750	$	1,000	$	1,000

(1)Facility fee determined by CFC's senior unsecured credit ratings based on the pricing schedules put in place at the inception of the related agreement.

Schedule of required and actual financial ratios under the revolving credit agreements

		Actual
	Requirement	August31,2012	May31,2012
Minimum average adjusted TIER over the six most recent fiscal quarters (1)	1.025	1.21	1.21
Minimum adjusted TIER for the most recent fiscal year (1)(2)	1.05	1.18	1.18
Maximum ratio of adjusted senior debt to total equity (1)	10.00	6.20	5.97

(1)In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody's Investors Service and Standard& Poor's Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

(2)We must meet this requirement to retire patronage capital.

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General Information and Accounting Policies

3 Months Ended

Aug. 31, 2012

General Information and Accounting Policies

General Information and Accounting Policies

(1) General Information and Accounting Policies

(a) Basis of Presentation

The accompanying financial statements include the consolidated accounts of National Rural Utilities Cooperative Finance Corporation ("CFC"), Rural Telephone Finance Cooperative ("RTFC"), National Cooperative Services Corporation ("NCSC") and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions, after elimination of intercompany accounts and transactions.

Unless stated otherwise, references to "we," "our" or "us" represent the consolidation of CFC, RTFC, NCSC and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions. Foreclosed assets are held by two groups of subsidiaries wholly-owned by CFC. Our Denton Realty Partners entities ("DRP") hold assets, including a land development loan, limited partnership interests in certain real estate developments and developed lots and land and raw land in Texas. Caribbean Asset Holdings LLC ("CAH") holds our investment in cable and telecommunications operating entities in the United States Virgin Islands ("USVI"), British Virgin Islands and St. Maarten.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. The accounting estimates that require our most significant and subjective judgments include the allowance for loan losses and the determination of the fair value of our derivatives and certain aspects of our foreclosed assets. While we use our best estimates and judgments based on the known facts at the date of the financial statements, actual results could differ from these estimates as future events occur.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form10-K for the fiscal year ended May31, 2012.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of our results of operations and financial position for the interim periods presented.

(b) Variable Interest Entities

We are required to consolidate the financial results of RTFC and NCSC because CFC is the primary beneficiary of variable interests in RTFC and NCSC due to its exposure to absorbing the majority of their expected losses and because CFC manages the business activities of RTFC and NCSC. Under separate guarantee agreements, RTFC and NCSC pay CFC a fee to indemnify against loan losses. CFC manages the business activities of RTFC and NCSC through separate management agreements. Additionally, CFC is the sole lender to RTFC and the primary source of funding to NCSC. NCSC funds its lending programs through loans from CFC and debt guaranteed by CFC.

RTFC and NCSC creditors have no recourse against CFC in the event of a default by RTFC and NCSC, unless there is a guarantee agreement under which CFC has guaranteed NCSC or RTFC debt obligations to a third party. At August31, 2012, CFC had guaranteed $77 million of NCSC debt, derivative instruments and guarantees with third parties, and CFC's maximum potential exposure for these instruments totaled $86 million. The maturities for NCSC obligations guaranteed by CFC run through 2031. Guarantees of NCSC debt and derivative instruments are not included in Note 9, Guarantees, as the debt and derivatives are reported on the consolidated balance sheet. At August31, 2012, CFC guaranteed $1 million of RTFC guarantees with third parties. The maturities for RTFC obligations guaranteed by CFC run through 2013. All CFC loans to RTFC and NCSC are secured by all assets and revenue of RTFC and NCSC. At August31, 2012, RTFC had total assets of $679 million and NCSC had total assets of $671 million. At August31, 2012, CFC had committed to lend RTFC up to $4,000 million, of which $540 million was outstanding. At August31, 2012, CFC had committed to provide up to $2,000 million of credit to NCSC, of which $699 million was outstanding, representing $622 million of outstanding loans and $77 million of credit enhancements.

(c) Loan Sales

We account for the sale of loans resulting from direct loan sales to third parties and securitization transactions by removing the financial assets from our consolidated balance sheets when control has been surrendered. We recognize related servicing fees on an accrual basis over the period for which servicing activity is provided. Deferred transaction costs and unamortized deferred loan origination costs related to the loans sold are included in the calculation of the gain or loss on the sale. We do not hold any continuing interest in the loans sold to date other than servicing performance obligations. We have no obligation to repurchase loans from the purchaser, except in the case of breaches of representations and warranties. We retain the servicing performance obligations on these loans. We have not recorded a servicing asset or liability.

During the three months ended August31, 2012 and 2011, we sold CFC loans with outstanding balances totaling $14 million and $11 million, respectively, at par for cash. We recorded a loss on sale of loans, representing the unamortized deferred loan origination costs and transaction costs for the loans sold, which was immaterial during the three months ended August31, 2012 and 2011.

(d) Interest Income

Interest income on loans is recognized using the effective interest method. The following table presents the components of interest income:

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Interest on long-term fixed-rate loans	$	217,940	$	225,346
Interest on long-term variable-rate loans	6,025		8,252
Interest on line of credit loans	7,692		9,626
Interest on restructured loans	5,462		692
Interest on investments	938		928
Fee income (1)	2,028		2,406
Total interest income	$	240,085	$	247,250

(1)Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Deferred income on the consolidated balance sheets primarily includes deferred conversion fees totaling $19 million and $20 million at August31, 2012 and May31, 2012, respectively.

(e) Interest Expense

The following table presents the components of interest expense:

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Interest expense on debt (1):
Commercial paper and bank bid notes	$	1,619	$	1,769
Medium-term notes	27,883		53,841
Collateral trust bonds	81,439		77,272
Subordinated deferrable debt	2,806		2,806
Subordinated certificates	20,354		18,301
Long-term notes payable	38,396		39,827
Debt issuance costs (2)	1,937		5,125
Fee expense (3)	2,162		3,103
Total interest expense	$	176,596	$	202,044

(1)Represents interest expense and the amortization of discounts on debt.

(2)Includes amortization of all deferred charges related to the issuance of debt, principally underwriters' fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3)Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

We exclude indirect costs, if any, related to funding activities from interest expense.

(f) Derivative Financial Instruments

We are an end user of financial derivative instruments. We use derivatives such as interest rate swaps and treasury locks to mitigate interest rate risk. Consistent with the accounting standards for derivative financial instruments, we record derivative instruments on the consolidated balance sheets as either an asset or liability measured at fair value. In recording the fair value of derivative assets and liabilities, we do not net our positions under contracts with individual counterparties. Changes in the fair value of derivative instruments along with realized gains and losses from cash settlements are recognized in the derivative gains (losses) line item of the consolidated statement of operations unless specific hedge accounting criteria are met.

We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. If applicable hedge accounting criteria are satisfied, the change in fair value of derivative instruments is recorded to other comprehensive income, and net cash settlements are recorded in interest expense. The gain or loss on derivatives used as a cash flow hedge of a forecasted debt transaction is recorded as a component of other comprehensive income (loss) and amortized through interest expense using the effective interest method over the term of the hedged debt. Any ineffectiveness in the hedging relationship is recognized in the derivative gains (losses) line of the statement of operations.

A transition adjustment was recorded as an other comprehensive loss on June1, 2001, the date we implemented the accounting standards for derivative financial instruments. This amount will be amortized into earnings through April2029 in the derivative gains (losses) line of the statement of operations.

Cash activity associated with interest rate swaps is classified as an operating activity in the consolidated statements of cash flows.

(g) Early Extinguishment of Debt

We redeem outstanding debt early from time to time to manage liquidity and interest rate risk. When we redeem outstanding debt early, we recognize a gain or loss related to the difference between the amount paid to redeem the debt and the net book value of the extinguished debt as a component of non-interest expense in the gain (loss) on early extinguishment of debt line item.

In August2011, we redeemed $250 million of our $1,500 million, 7.25 percent SeriesC medium-term notes with an original maturity of March1, 2012 at a premium. Both the premium and unamortized issuance costs totaling $9 million were recorded as a loss on extinguishment of debt during the quarter ended August31, 2011.

(h) Reclassifications

Reclassifications of prior period amounts have been made to conform to the current reporting format and the presentation in our Form10-Q for the quarter ended August31, 2012. Specifically, the fair value adjustments on DRP foreclosed assets have been reclassified into results of operations of foreclosed assets in the condensed consolidated statement of operations for the quarter ended August31, 2011. The corresponding non-cash adjustments were reclassified to the results of operations of foreclosed assets on the condensed consolidated statement of cash flows for the quarter ended August31, 2011.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
Interest income	$ 240,085	$ 247,250
Interest expense	(176,596)	(202,044)
Net interest income	63,489	45,206
(Provision for) recovery of loan losses	(9,122)	9,130
Net interest income after (provision for) recovery of loan losses	54,367	54,336
Non-interest income:
Fee and other income	4,958	4,723
Derivative losses	(24,592)	(111,571)
Results of operations of foreclosed assets	(4,765)	(9,818)
Total non-interest income	(24,399)	(116,666)
Non-interest expense:
Salaries and employee benefits	(10,405)	(10,399)
Other general and administrative expenses	(6,765)	(5,990)
Recovery of guarantee liability	9	60
Loss on early extinguishment of debt		(9,267)
Other	(163)	(397)
Total non-interest expense	(17,324)	(25,993)
Income (loss) prior to income taxes	12,644	(88,323)
Income tax benefit	2	1,701
Net income (loss)	12,646	(86,622)
Less: Net (income) loss attributable to the noncontrolling interest	(5)	2,590
Net income (loss) attributable to CFC	$ 12,641	$ (84,032)

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Fair Value of Financial Instruments

3 Months Ended

Aug. 31, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

(11) Fair Value of Financial Instruments

Carrying and fair values for our financial instruments are presented as follows:

	August31,2012				May31,2012
(dollaramountsinthousands)	Carryingvalue		Fairvalue		Carryingvalue		Fairvalue
Assets:
Cash and cash equivalents	$	575,119	$	575,119	$	191,167	$	191,167
Restricted cash	8,171		8,171		7,694		7,694
Investments in equity securities	59,039		59,039		59,045		59,045
Loans to members, net	19,323,152		20,778,781		18,776,286		20,405,353
Debt service reserve funds	39,803		39,803		39,803		39,803
Derivative instruments	293,221		293,221		296,036		296,036
Liabilities:
Short-term debt	5,641,100		5,679,086		4,493,434		4,498,565
Long-term debt	11,791,604		13,400,035		12,151,967		13,936,540
Guarantee liability	27,715		30,583		28,663		31,518
Derivative instruments	662,193		662,193		654,125		654,125
Subordinated deferrable debt	186,440		190,660		186,440		187,335
Members' subordinated certificates	1,765,818		1,923,118		1,722,744		1,880,558
Off-balance sheet instruments:
Commitments	-		-		-		-

See Note 10, Fair Value Measurement, for more details on assets and liabilities measured at fair value on a recurring or non-recurring basis on our consolidated balance sheets. We consider relevant and observable prices in the principal market in our valuations where possible. Fair value estimates were developed at the reporting date and may not necessarily be indicative of amounts that could ultimately be realized in a market transaction at a future date.

With the exception of redeeming debt under early redemption provisions, terminating derivative instruments under early termination provisions and allowing borrowers to prepay their loans, we held and intend to hold all financial instruments to maturity excluding common stock investments that have no stated maturity. Below is a summary of significant methodologies used in estimating fair value amounts at August31, 2012 and May31, 2012.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and certificates of deposit with original maturities of less than 90 days. Cash and cash equivalents are valued at the carrying value, which approximates fair value. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy.

Restricted Cash

Restricted cash consists of cash and cash equivalents for which use is contractually restricted. Restricted cash is valued at the carrying value, which approximates fair value. Restricted cash is classified within Level 1 of the fair value hierarchy.

Investments in Equity Securities

Our investments in equity securities included investments in the Federal Agricultural Mortgage Corporation SeriesA common stock and SeriesC preferred stock. The SeriesA common stock is classified as available-for-sale securities and recorded in the consolidated balance sheets at fair value. We calculate fair value based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. The common stock is classified within Level 1 of the fair value hierarchy.

Our investments in equity securities also included investments in Federal Agricultural Mortgage Corporation SeriesC non-voting, cumulative preferred stock purchased based on a percentage of debt issued under note purchase agreements. The note purchase agreements have since been amended so that we may be required to purchase additional SeriesC preferred stock based on the terms and circumstances at the time of each advance. The fair value for the SeriesC preferred stock is estimated at cost, which approximates fair value as the preferred stock securities do not meet the definition of marketable securities and the stock is callable at par. These securities carry with it a netting provision against our debt held by Federal Agricultural Mortgage Corporation in case of non-payment, therefore transferability of these securities is unlikely. The preferred stock is classified within Level 3 of the fair value hierarchy.

Loans to Members, Net

As part of receiving a loan from us, our members have additional requirements and rights that are not typical of other financial institutions, such as the ability to receive a patronage capital allocation, the general requirement to purchase subordinated certificates or member capital securities to meet their capital contribution requirements as a condition of obtaining additional credit from us, the option to select fixed rates from one year to maturity with the fixed rate resetting or repricing at the end of each selected rate term, the ability to convert from a fixed rate to another fixed rate or the variable rate at any time, and certain interest rate discounts that are specific to the borrower's activity with us. These features make it difficult to obtain market data for similar loans. Therefore, we must use other methods to estimate the fair value.

Fair values for fixed-rate loans are estimated by discounting the future cash flows using the current rates at which we would make similar loans to new borrowers for the same remaining maturities. The maturity date used in the fair value calculation of loans with a fixed rate for a selected rate term is the next repricing date since these borrowers must reprice their loans at various times throughout the life of the loan at the then-current market rate.

Loans with different risk characteristics, specifically non-performing and restructured loans, are valued by 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. See Note 10, Fair Value Measurement, for more details about how we calculate the fair value of certain non-performing loans.

Variable-rate loans are valued at cost, which approximates fair value since we can reset rates every 15 days.

Credit risk for the loan portfolio is estimated based on the associated reserve in our allowance for loan losses.

Loans to members, net are classified within Level 3 of the fair value hierarchy.

Debt Service Reserve Funds

Debt service reserve funds represent cash and/or investments on deposit with the bond trustee for tax-exempt bonds that we guarantee. Carrying value is considered to be equal to fair value. Debt service reserve funds are classified within Level 1 of the fair value hierarchy.

Short-Term Debt

Short-term debt consists of commercial paper, bank bid notes and other debt due within one year. The fair value of short-term debt with maturities greater than 90 days is estimated based on quoted market rates for debt with similar maturities. The fair value of short-term debt with maturities less than or equal to 90 days is carrying value, which is a reasonable estimate of fair value. Short-term debt is classified within Level 2 and Level 3 of the fair value hierarchy.

Long-Term Debt

Long-term debt consists of collateral trust bonds, medium-term notes and long-term notes payable. We issue all collateral trust bonds and some medium-term notes in underwritten public transactions. There is not active secondary trading for all underwritten collateral trust bonds and medium-term notes; therefore, dealer quotes and recent market prices are both used in estimating fair value. There is essentially no secondary market for the medium-term notes issued to our members or in transactions that are not underwritten; therefore, fair value is estimated based on observable benchmark yields and spreads for similar instruments supplied by banks that underwrite our other debt transactions. Collateral trust bonds and medium-term notes are classified within Level 2 of the fair value hierarchy. The long-term notes payable are issued in private placement transactions and there is no secondary trading of such debt. Therefore, the fair value is estimated based on underwriter quotes for similar instruments, if available, or based on cash flows discounted at current rates for similar instruments supplied by underwriters or by the original issuer. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk. Long-term notes payable are classified within Level 3 of the fair value hierarchy.

Guarantees

The fair value of our guarantee liability is based on the fair value of our contingent and non-contingent exposure related to our guarantees. The fair value of our contingent exposure for guarantees is based on management's estimate of our exposure to losses within the guarantee portfolio. The fair value of our non-contingent exposure for guarantees issued is estimated based on the total unamortized balance of guarantee fees paid and guarantee fees to be paid discounted at our current short-term funding rate, which represents management's estimate of the fair value of our obligation to stand ready to perform. Guarantees are classified within Level 3 of the fair value hierarchy.

Subordinated Deferrable Debt

Our subordinated deferrable debt is traded on the New York Stock Exchange; therefore, daily market quotes are available. The fair value for subordinated deferrable debt is based on the closing market quotes from the last day of the reporting period. Subordinated deferrable debt is classified within Level 1 of the fair value hierarchy.

Members' Subordinated Certificates

Members' subordinated certificates include (i)membership subordinated certificates issued to our members as a condition of membership, (ii)loan and guarantee subordinated certificates as a condition of obtaining loan funds or guarantees and (iii)member capital securities issued as voluntary investments by our members. All members' subordinated certificates are non-transferable other than among members with CFC's consent. As there is no ready market from which to obtain fair value quotes for membership, loan and guarantee subordinated certificates, it is impracticable to estimate fair value, and such certificates are, therefore, valued at par. There also is no ready market from which to obtain fair value quotes for member capital securities. Fair value for member capital securities is based on the discounted cash flows using the coupon interest rate on the last business day of the reporting period. Members' subordinated certificates are classified within Level 3 of the fair value hierarchy.

Derivative Instruments

We record derivative instruments in the consolidated balance sheets as either an asset or liability measured at fair value. Because there is not an active secondary market for the types of interest rate swaps we use, we obtain market quotes from the interest rate swap counterparties to adjust all interest rate swaps to fair value on a quarterly basis. The market quotes are based on the expected future cash flow and estimated yield curves. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. Derivative instruments are classified within Level 2 of the fair value hierarchy.

Commitments

The fair value of our commitments is estimated as the carrying value, or zero. Extensions of credit under these commitments, if exercised, would result in loans priced at market rates. Commitments are classified within Level 3 of the fair value hierarchy.

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Document and Entity Information	3 Months Ended
	Aug. 31, 2012
Document and Entity Information
Entity Registrant Name	NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/
Entity Central Index Key	0000070502
Document Type	10-Q
Document Period End Date	Aug. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--05-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding	0
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

XML

Segment Information

3 Months Ended

Aug. 31, 2012

Segment Information

Segment Information

(12) Segment Information

The following tables contain the segment presentation for the condensed consolidated statements of operations for the three months ended August31, 2012 and 2011 and condensed consolidated balance sheets at August31, 2012 and 2011.

	ForthethreemonthsendedAugust31,2012
(dollaramountsinthousands)	CFC			Other			Elimination			Consolidated
Statement of operations:
Interest income	$	235,971		$	14,387		$	(10,273	)	$	240,085
Interest expense	(176,164		)	(10,705		)	10,273			(176,596		)
Net interest income	59,807			3,682			-			63,489
Provision for loan losses	(9,122		)	-			-			(9,122		)
Net interest income after provision for loan losses	50,685			3,682			-			54,367
Non-interest income:
Fee and other income	4,792			394			(228		)	4,958
Derivative losses	(23,045		)	(1,547		)	-			(24,592		)
Results of operations from foreclosed assets	(4,765		)	-			-			(4,765		)
Total non-interest income	(23,018		)	(1,153		)	(228		)	(24,399		)
Non-interest expense:
General and administrative expenses	(14,872		)	(2,526		)	228			(17,170		)
Recovery of guarantee liability	9			-			-			9
Loss on early extinguishment of debt	-			-			-			-
Other	(163		)	-			-			(163		)
Total non-interest expense	(15,026		)	(2,526		)	228			(17,324		)
Income prior to income taxes	12,641			3			-			12,644
Income tax benefit	-			2			-			2
Net income	$	12,641		$	5		$	-		$	12,646
Assets:
Total loans outstanding	$	19,436,054		$	1,194,351		$	(1,162,669	)	$	19,467,736
Deferred origination costs	7,917			-			-			7,917
Less: Allowance for loan losses	(152,501		)	-			-			(152,501		)
Loans to members, net	19,291,470			1,194,351			(1,162,669		)	19,323,152
Other assets	1,524,402			155,499			(125,413		)	1,554,488
Total assets	$	20,815,872		$	1,349,850		$	(1,288,082	)	$	20,877,640

	ForthethreemonthsendedAugust31,2011
(dollaramountsinthousands)	CFC			Other			Elimination			Consolidated
Statement of operations:
Interest income	$	241,193		$	19,347		$	(13,290	)	$	247,250
Interest expense	(201,593		)	(13,744		)	13,293			(202,044		)
Net interest income	39,600			5,603			3			45,206
Recovery of loan losses	9,130			-			-			9,130
Net interest income after recovery of loan losses	48,730			5,603			3			54,336
Non-interest income:
Fee and other income	5,182			218			(677		)	4,723
Derivative losses	(104,338		)	(7,233		)	-			(111,571		)
Results of operations from foreclosed assets	(9,818		)	-			-			(9,818		)
Total non-interest income	(108,974		)	(7,015		)	(677		)	(116,666		)
Non-interest expense:
General and administrative expenses	(14,184		)	(2,395		)	190			(16,389		)
Recovery of guarantee liability	60			-			-			60
Loss on early extinguishment of debt	(9,267		)	-			-			(9,267		)
Other	(397		)	(484		)	484			(397		)
Total non-interest expense	(23,788		)	(2,879		)	674			(25,993		)
Loss prior to income taxes	(84,032		)	(4,291		)	-			(88,323		)
Income tax benefit	-			1,701			-			1,701
Net loss	$	(84,032	)	$	(2,590	)	$	-		$	(86,622	)
Assets:
Total loans outstanding	$	18,252,160		$	1,364,187		$	(1,004,520	)	$	18,611,827
Deferred origination costs	6,667			-			-			6,667
Less: Allowance for loan losses	(152,100		)	-			-			(152,100		)
Loans to members, net	18,106,727			1,364,187			(1,004,520		)	18,466,394
Other assets	1,665,176			228,817			(203,993		)	1,690,000
Total assets	$	19,771,903		$	1,593,004		$	(1,208,513	)	$	20,156,394

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
Net income (loss)	$ 12,646	$ (86,622)
Other comprehensive loss:
Add: Unrealized (losses) gains on securities	(6)	61
Less: Realized gains on derivatives	(252)	(259)
Other comprehensive loss	(258)	(198)
Total comprehensive income (loss)	12,388	(86,820)
Less: Total comprehensive loss attributable to noncontrolling interest	1	2,597
Total comprehensive income (loss) attributable to CFC	$ 12,389	$ (84,223)

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Subordinated Deferrable Debt

3 Months Ended

Aug. 31, 2012

Subordinated Deferrable Debt

Subordinated Deferrable Debt

(6) Subordinated Deferrable Debt

The following table is a summary of subordinated deferrable debt outstanding:

(dollaramountsinthousands)	August31,2012		May31,2012
NRC 6.10% due 2044	$	88,201	$	88,201
NRU 5.95% due 2045	98,239		98,239
Total	$	186,440	$	186,440

All subordinated deferrable debt currently outstanding is callable at par at any time.

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Long-Term Debt

3 Months Ended

Aug. 31, 2012

Long-Term Debt

Long-Term Debt

(5) Long-Term Debt

The following is a summary of long-term debt outstanding:

(dollaramountsinthousands)	August31,2012			May31,2012
Unsecured long-term debt:
Medium-term notes sold through dealers	$	1,684,500		$	1,692,605
Medium-term notes sold to members	132,916			89,261
Subtotal	1,817,416			1,781,866
Unamortized discount	(966		)	(971		)
Total unsecured medium-term notes	1,816,450			1,780,895
Unsecured notes payable	3,712,982			3,457,982
Unamortized discount	(1,051		)	(1,093		)
Total unsecured notes payable	3,711,931			3,456,889
Total unsecured long-term debt	5,528,381			5,237,784
Secured long-term debt:
Collateral trust bonds	5,165,000			6,065,000
Unamortized discount	(11,565		)	(12,398		)
Total secured collateral trust bonds	5,153,435			6,052,602
Secured notes payable	1,109,788			861,581
Total secured long-term debt	6,263,223			6,914,183
Total long-term debt	$	11,791,604		$	12,151,967

At August31, 2012 and May31, 2012, we had unsecured notes payable totaling $3,674 million and $3,419 million, respectively, outstanding under a bond purchase agreement with the Federal Financing Bank and a bond guarantee agreement with RUS issued under the Guaranteed Underwriter program of the U.S. Department of Agriculture, which provides guarantees to the Federal Financing Bank. During the quarter ended August31, 2012, we borrowed $255 million under our committed loan facilities with the Federal Financing Bank. In the aggregate at August31, 2012, we had up to $325 million available under committed loan facilities from the Federal Financing Bank as part of this program.

At August31, 2012 and May31, 2012, secured notes payable include $1,165 million in debt outstanding to the Federal Agricultural Mortgage Corporation under note purchase agreements totaling $3,900 million. All note purchase agreements previously entered into with the Federal Agricultural Mortgage Corporation were consolidated into one agreement in March2011. Under the terms of the March2011 note purchase agreement, we can borrow up to $3,900 million at any time from the date of the agreement through January11, 2016 and thereafter automatically extend the agreement on each anniversary date of the closing for an additional year, unless prior to any such anniversary date, the Federal Agricultural Mortgage Corporation provides CFC with a notice that the draw period will not be extended beyond the then-remaining term. The agreement with the Federal Agricultural Mortgage Corporation is a revolving credit facility that allows us to borrow, repay and re-borrow funds at any time through maturity or from time to time as market conditions permit, provided that the principal amount at any time outstanding under the note purchase agreement is not more than the total available under the agreement.

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Foreclosed Assets (Tables)

3 Months Ended

Aug. 31, 2012

Foreclosed Assets

Summary of activity for foreclosed assets

	Asofandforthethreemonths endedAugust31,2012
(dollaramountsinthousands)	CAH			DRP			Total
Balance as of May31, 2012	$	201,558		$	21,918		$	223,476
Results of operations:
Operating loss	(4,497		)	(136		)	(4,633		)
Impairment	-			(132		)	(132		)
Cash investments	16,298			-			16,298
Balance as of August31, 2012	$	213,359		$	21,650		$	235,009

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Subsequent Events

3 Months Ended

Aug. 31, 2012

Subsequent Events

Subsequent Events

(13) Subsequent Events

In September2012, we received a commitment from RUS to guarantee a loan from the Federal Financing Bank for additional funding of $424 million as part of the Guaranteed Underwriter program. As a result, we will have an additional $424 million available under Federal Financing Bank loan facilities with a 20-year maturity repayment period during the three-year period following the date of closing.

On September13, 2012, we received a payment of $457 million from one of our borrowers, representing the pay-off of a $414 million restructured loan, the prepayment of a $19 million capital expenditures loan and a $13 million prepayment fee on the capital expenditures loan, as well as applicable interest due on the restructured and capital expenditures loans.

In September2012, CFC commenced an offer to exchange a portion of its outstanding 8 percent medium-term notes, SeriesC, due 2032 for consideration of collateral trust bonds due 2032 and cash. On October10, 2012, following the expiration of the offering period, CFC announced that it had accepted $340 million aggregate principal amount of medium-term notes for exchange. In the aggregate, holders whose medium-term notes were accepted for exchange will receive $379 million aggregate principal amount of 4.023 percent collateral trust bonds due 2032 and $134 million in cash. Settlement is scheduled to occur on October16, 2012.

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Guarantees

3 Months Ended

Aug. 31, 2012

Guarantees

Guarantees

(9) Guarantees

The following table summarizes total guarantees by type of guarantee and member class:

(dollaramountsinthousands)	August31,2012		May31,2012
Total by type:
Long-term tax-exempt bonds	$	571,445	$	573,110
Indemnifications of tax benefit transfers	2,565		49,771
Letters of credit	456,012		504,920
Other guarantees	118,969		121,529
Total	$	1,148,991	$	1,249,330
Total by member class:
CFC:
Distribution	$	315,374	$	340,385
Power supply	798,723		854,444
Statewide and associate	6,964		7,202
CFC total	1,121,061		1,202,031
RTFC	1,026		1,026
NCSC	26,904		46,273
Total	$	1,148,991	$	1,249,330

The maturities for the long-term tax-exempt bonds and the related guarantees run through calendar year 2042. Amounts in the table represent the outstanding principal amount of the guaranteed bonds. At August31, 2012, our maximum potential exposure for the $74 million of fixed-rate tax-exempt bonds is $126 million, representing principal and interest. Of the amounts shown in the table above for long-term tax-exempt bonds, $497 million and $498 million as of August31, 2012 and May31, 2012, respectively, are adjustable or floating-rate bonds that may be converted to a fixed rate as specified in the applicable indenture for each bond offering. During the variable-rate period (including at the time of conversion to a fixed rate), we have, in return for a fee, unconditionally agreed to purchase bonds tendered or put for redemption if the remarketing agents have not previously sold such bonds to other investors. We are unable to determine the maximum amount of interest that we could be required to pay related to the remaining adjustable and floating-rate bonds. Many of these bonds have a call provision that in the event of a default allow us to trigger the call provision. This would limit our exposure to future interest payments on these bonds. Our maximum potential exposure is secured by a mortgage lien on all of the system's assets and future revenue. If the debt is accelerated because of a determination that the interest thereon is not tax-exempt, the system's obligation to reimburse us for any guarantee payments will be treated as a long-term loan.

The maturities for the indemnifications of tax benefit transfers run through calendar year 2015. The amounts shown represent our maximum potential exposure for guaranteed indemnity payments. A member's obligation to reimburse CFC for any guarantee payments would be treated as a long-term loan to the extent of any cash received by the member at the outset of the transaction. This amount is secured by a mortgage lien on substantially all of the system's assets and future revenue. The remainder would be treated as a line of credit loan secured by a subordinated mortgage on substantially all of the member's property. Due to changes in federal tax law, no further guarantees of this nature are anticipated.

The maturities for letters of credit run through calendar year 2024. The amounts shown in the table above represent our maximum potential exposure, of which $213 million is secured at August31, 2012. When taking into consideration reimbursement obligation agreements that we have in place with other lenders, our maximum potential exposure is $11 million. At August31, 2012, and May31, 2012, the letters of credit include $125 million to provide the standby liquidity for adjustable and floating-rate tax-exempt bonds issued for the benefit of our members. We are unable to determine the maximum amount of interest that we could be required to pay related to these adjustable and floating-rate bonds. Security provisions include a mortgage lien on substantially all of the system's assets, future revenue and the system's investment in our commercial paper.

In addition to the letters of credit listed in the table, under master letter of credit facilities in place at August31, 2012, we may be required to issue up to an additional $824 million in letters of credit to third parties for the benefit of our members. Of this amount, $644 million represents commitments that may be used for the issuance of letters of credit or line of credit loan advances, at the option of the borrower, and are included in unadvanced loan commitments for line of credit loans reported in Note 2, Loans and Commitments. Master letter of credit facilities subject to material adverse change clauses at the time of issuance totaled $495 million at August31, 2012. Prior to issuing a letter of credit, we would confirm that there has been no material adverse change in the business or condition, financial or otherwise, of the borrower since the time the loan was approved and confirm that the borrower is currently in compliance with the letter of credit terms and conditions. The remaining commitment under master letter of credit facilities of $329 million may be used for the issuance of letters of credit as long as the borrower is in compliance with the terms and conditions of the facility.

The maturities for other guarantees run through calendar year 2025. The maximum potential exposure for these guarantees is $120 million, all of which is unsecured.

At August31, 2012 and May31, 2012, we had $362 million and $385 million of guarantees, respectively, representing 31 percent of total guarantees, under which our right of recovery from our members was not secured.

Guarantee Liability

At August31, 2012 and May31, 2012, we recorded a guarantee liability of $28 million and $29 million, respectively, which represents the contingent and non-contingent exposures related to guarantees and liquidity obligations associated with our members' debt. The contingent guarantee liability at August31, 2012 and May31, 2012 was $6 million based on management's estimate of exposure to losses within the guarantee portfolio. The remaining balance of the total guarantee liability of $22 million and $23 million at August31, 2012 and May31, 2012, respectively, relates to our non-contingent obligation to stand ready to perform over the term of our guarantees and liquidity obligations that we have entered into or modified since January1, 2003.

Activity in the guarantee liability account is summarized below:

(dollaramountsinthousands)	Asofandforthe threemonthsended August31,2012
Beginning balance as of May31, 2012	$	28,663
Net change in non-contingent liability	(939		)
Recovery of contingent guarantee liability	(9		)
Ending balance as of August31, 2012	$	27,715
Liability as a percentage of total guarantees	2.41		%

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Derivative Financial Instruments

3 Months Ended

Aug. 31, 2012

Derivative Financial Instruments

Derivative Financial Instruments

(7) Derivative Financial Instruments

We are an end-user of financial derivative instruments. We utilize derivatives such as interest rate swaps and treasury locks for forecasted transactions to mitigate interest rate risk. The following table shows the notional amounts outstanding and the weighted average interest rate paid and received for our interest rate swaps by type:

	August31,2012						May31,2012
(dollaramountsinthousands)	Notional amount		Weighted- average ratepaid		Weighted- average ratereceived		Notional amount		Weighted- average ratepaid		Weighted- average ratereceived
Pay fixed-receive variable	$	5,606,153	3.68	%	0.41	%	$	5,275,553	3.78	%	0.45	%
Pay variable-receive fixed	3,750,440		1.23		4.62		3,720,440		1.29		4.68
Total interest rate swaps	$	9,356,593	2.70		2.10		$	8,995,993	2.75		2.20

The derivative losses line item of the consolidated statement of operations includes cash settlements and derivative forward value for derivative instruments that do not meet hedge accounting criteria. Cash settlements includes periodic amounts paid and received related to our interest rate swaps, as well as amounts accrued from the prior settlement date. Derivative forward value includes changes in the fair value of derivative instruments unless specific hedge accounting criteria are met. If applicable hedge accounting criteria are satisfied, the change to the fair value is recorded to other comprehensive income (loss) and net cash settlements are recorded in interest expense. Gains and losses recorded on the consolidated statements of operations for our interest rate swaps are summarized below:

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012			2011
Derivative cash settlements	$	(13,863	)	$	168
Derivative forward value	(10,729		)	(111,739		)
Derivative losses	$	(24,592	)	$	(111,571	)

Rating Triggers

Some of our interest rate swaps have credit risk-related contingent features referred to as rating triggers. Rating triggers are not separate financial instruments and are not required to be accounted for separately as derivatives. At August31, 2012, the following notional amounts of derivative instruments had rating triggers based on our senior unsecured credit ratings from Moody's Investors Service or Standard& Poor's Corporation falling to a level specified in the applicable agreements and are grouped into the categories below. In calculating the payments and collections required upon termination, we netted the agreements for each counterparty, as allowed by the underlying master agreements. At August31, 2012, our senior unsecured credit ratings from Moody's Investors Service and Standard& Poor's Corporation were A2 and A, respectively. At August31, 2012, both Moody's Investors Service and Standard& Poor's Corporation had our ratings on stable outlook.

(dollaramountsinthousands)	Notional amount		Ourrequired payment			Amountwe wouldcollect		Net total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	3,000	$	(157	)	$	-	$	(157	)
fall below Baa1/BBB+ (1)	7,015,937		(306,294		)	44,238		(262,056		)
Total	$	7,018,937	$	(306,451	)	$	44,238	$	(262,213	)

(1)Stated senior unsecured credit ratings are for Moody's Investors Service and Standard& Poor's Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

In addition to the rating triggers listed above, at August31, 2012 we had a total notional amount of $650 million of derivative instruments with one counterparty that would require the pledging of collateral totaling $16 million (the fair value of such derivative instruments excluding credit risk) if our senior unsecured ratings from Moody's Investors Service were to fall below Baa2 or if the ratings from Standard& Poor's Corporation were to fall below BBB. The aggregate fair value of all interest rate swaps with rating triggers that were in a net liability position at August31, 2012 was $314 million.

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Equity

3 Months Ended

Aug. 31, 2012

Equity

Equity

(8) Equity

In July2012, the CFC Board of Directors authorized the allocation of the fiscal year 2012 net earnings as follows: $1 million to the cooperative educational fund and $71 million to members in the form of patronage. In July2012, the CFC Board of Directors authorized the retirement of allocated net earnings totaling $35 million, representing 50 percent of the fiscal year 2012 allocation. This amount was returned to members in cash in September2012. Future allocations and retirements of net earnings may be made annually as determined by the CFC Board of Directors with due regard for its financial condition. The CFC Board of Directors has the authority to change the current practice for allocating and retiring net earnings at any time, subject to applicable laws and regulations.

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Fair Value Measurement

3 Months Ended

Aug. 31, 2012

Fair Value Measurement

Fair Value Measurement

(10) Fair Value Measurement

Assets and liabilities measured at fair value on either a recurring or non-recurring basis on the consolidated balance sheets at August31, 2012 and May31, 2012 consisted of investments in common stock, derivative instruments, and collateral-dependent non-performing loans.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We account for derivative instruments (including certain derivative instruments embedded in other contracts) in the consolidated balance sheets as either an asset or liability measured at fair value. Since there is not an active secondary market for the types of interest rate swaps we use, we obtain market quotes from the interest rate swap counterparties to adjust all swaps to fair value on a quarterly basis. The market quotes are based on the expected future cash flow and the estimated yield curve.

We perform analysis to validate the market quotes obtained from our swap counterparties. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. We only enter into exchange agreements with counterparties that are participating in our revolving lines of credit at the time the exchange agreements are executed. All of our exchange agreements are subject to master netting agreements.

Our valuation techniques for interest rate swaps are based on observable inputs, which reflect market data. Fair values for our interest rate swaps are classified as a Level 2 valuation. We record the change in the fair value of our derivatives for each reporting period in the derivative gains (losses) line, included in non-interest income in the consolidated statements of operations, as currently none of our derivatives qualify for hedge accounting.

At August31, 2012 and May31, 2012, our investments in equity securities included investments in the Federal Agricultural Mortgage Corporation SeriesA common stock that is recorded in the consolidated balance sheets at fair value. We calculate fair value based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. Fair values for these securities are classified as a Level 1 valuation.

The following table presents our assets and liabilities that are measured at fair value on a recurring basis:

	August31,2012				May31,2012
(dollaramountsinthousands)	Level1		Level2		Level1		Level2
Derivative assets	$	-	$	293,221	$	-	$	296,036
Derivative liabilities	-		662,193		-		654,125
Investments in common stock	1,461		-		1,467		-

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. Any adjustments to fair value usually result from application of lower-of-cost or fair value accounting or write-downs of individual assets. At August31, 2012 and May31, 2012, we measured certain collateral-dependent non-performing loans at fair value. In certain instances when a loan is non-performing, we utilize the collateral fair value underlying the loan in estimating the specific loan loss allowance. To estimate the fair value of the collateral, we may use third party valuation specialists, we may use internal estimates or a combination of both. The approaches used by both our internal staff and third party specialists include the discounted cash flow, market multiple and replacement cost methods. The material inputs used in estimating the fair value of such collateral, by both internal staff and third party specialists, are Level 3 within the fair value hierarchy. In these instances, the valuation is considered to be a non-recurring item. The significant unobservable inputs for Level 3 assets that are valued using fair values obtained from third party specialists are reviewed by our Credit Risk Management group to assess the reasonableness of the assumptions used and the accuracy of the work performed. In cases where we rely on third party inputs, we use the final unadjusted third party valuation analysis as support for any financial statement adjustments and disclosures to the financial statements. The valuation techniques and significant unobservable inputs for assets classified as Level 3 in the fair value hierarchy, which are measured using an internal model, are independently reviewed by other internal staff.

For assets measured at fair value on a non-recurring basis at August31, 2012 and May31, 2012 that are classified as Level 3 within the fair value hierarchy, any increase or decrease to significant unobservable inputs used in the determination of fair value, will not have a material impact on the fair value measurement of those assets or to the results of operations of the Company.

Assets measured at fair value on a non-recurring basis at August31, 2012 and May31, 2012 were classified as Level 3 within the fair value hierarchy. The following table provides the carrying/fair value of the related individual assets at August31, 2012 and May31, 2012 and the total losses for the three months ended August31, 2012 and 2011:

	Level3FairValue				Totallossesforthe threemonthsendedAugust31,
(dollaramountsinthousands)	August31,2012		May31,2012		2012			2011
Non-performing loans, net of specific reserves	$	17,542	$	16,517	$	(206	)	$	(2,053	)

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General Information and Accounting Policies (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011
Interest expense on debt:
Debt issuance costs	$ 1,937	$ 5,125
Fee expense	2,162	3,103
Total interest expense	176,596	202,044
Commercial paper and bank bid notes
Interest expense on debt:
Interest expense on debt	1,619	1,769
Medium-term notes
Interest expense on debt:
Interest expense on debt	27,883	53,841
Collateral trust bonds
Interest expense on debt:
Interest expense on debt	81,439	77,272
Subordinated deferrable debt
Interest expense on debt:
Interest expense on debt	2,806	2,806
Subordinated certificates
Interest expense on debt:
Interest expense on debt	20,354	18,301
Long-term notes payable
Interest expense on debt:
Interest expense on debt	$ 38,396	$ 39,827

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Guarantees (Details) (USD $)	Aug. 31, 2012	May 31, 2012
Guarantees
Total	$ 1,148,991,000	$ 1,249,330,000
Amount of unsecured guarantees	362,000,000	385,000,000
Unsecured guarantees as a percentage of total guarantees	31.00%
CFC
Guarantees
Total	1,121,061,000	1,202,031,000
CFC | Distribution
Guarantees
Total	315,374,000	340,385,000
CFC | Power supply
Guarantees
Total	798,723,000	854,444,000
CFC | Statewide and associate
Guarantees
Total	6,964,000	7,202,000
RTFC
Guarantees
Total	1,026,000	1,026,000
NCSC
Guarantees
Total	26,904,000	46,273,000
Financial guarantees | Long-term tax-exempt bonds
Guarantees
Total	571,445,000	573,110,000
Financial guarantees | Long-term fixed-rate loans
Guarantees
Total	74,000,000
Maximum potential exposure	126,000,000
Financial guarantees | Long-term variable-rate loans
Guarantees
Total	497,000,000	498,000,000
Indemnifications of tax benefit transfers
Guarantees
Total	2,565,000	49,771,000
Letters of credit | Letters of credit
Guarantees
Total	456,012,000	504,920,000
Letters of credit | Letters of credit, secured
Guarantees
Amount of guarantee secured	213,000,000
Letters of credit | Master letter of credit
Guarantees
Maximum additional amount potentially required to be issued	824,000,000
Commitments that may be used for the issuance of letters of credit or line of credit loan advances	644,000,000
Commitment remaining under letter of credit facility	329,000,000
Letters of credit | Master letter of credit subject to material adverse change clauses
Guarantees
Commitments that may be used for the issuance of letters of credit or line of credit loan advances	495,000,000
Reimbursement obligation agreements | Letters of credit
Guarantees
Maximum potential exposure	11,000,000
Letters of credit | Adjustable and floating-rate tax-exempt bonds
Guarantees
Total	125,000,000	125,000,000
Other guarantees
Guarantees
Total	118,969,000	121,529,000
Maximum potential exposure	$ 120,000,000

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General Information and Accounting Policies (Tables)

3 Months Ended

Aug. 31, 2012

General Information and Accounting Policies

Schedule of components of interest income

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Interest on long-term fixed-rate loans	$	217,940	$	225,346
Interest on long-term variable-rate loans	6,025		8,252
Interest on line of credit loans	7,692		9,626
Interest on restructured loans	5,462		692
Interest on investments	938		928
Fee income (1)	2,028		2,406
Total interest income	$	240,085	$	247,250

(1)Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Schedule of components of interest expense

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Interest expense on debt (1):
Commercial paper and bank bid notes	$	1,619	$	1,769
Medium-term notes	27,883		53,841
Collateral trust bonds	81,439		77,272
Subordinated deferrable debt	2,806		2,806
Subordinated certificates	20,354		18,301
Long-term notes payable	38,396		39,827
Debt issuance costs (2)	1,937		5,125
Fee expense (3)	2,162		3,103
Total interest expense	$	176,596	$	202,044

(1)Represents interest expense and the amortization of discounts on debt.

(2)Includes amortization of all deferred charges related to the issuance of debt, principally underwriters' fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3)Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

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Subordinated Deferrable Debt (Tables)

3 Months Ended

Aug. 31, 2012

Subordinated Deferrable Debt

Summary of subordinated deferrable debt outstanding

(dollaramountsinthousands)	August31,2012		May31,2012
NRC 6.10% due 2044	$	88,201	$	88,201
NRU 5.95% due 2045	98,239		98,239
Total	$	186,440	$	186,440

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Derivative Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012
Derivative Financial Instruments
Derivative forward value	$ (10,729)	$ (111,739)
Derivative losses	(24,592)	(111,571)
Interest rate swaps
Derivative Financial Instruments
Notional amounts outstanding	9,356,593		8,995,993
Weighted-average rate paid (as a percent)	2.70%		2.75%
Weighted-average rate received (as a percent)	2.10%		2.20%
Derivative cash settlements	(13,863)	168
Derivative forward value	(10,729)	(111,739)
Derivative losses	(24,592)	(111,571)
Aggregate fair value of interest rate swaps with rating triggers that were in net liability position	(314,000)
Interest rate swaps | Counterparty Group
Derivative Financial Instruments
Notional amounts outstanding	7,018,937
Entity's required payment	(306,451)
Additional collateral amount	44,238
Aggregate fair value of interest rate swaps with rating triggers that were in net liability position	(262,213)
Interest rate swaps | Counterparty Group | Mutual rating trigger falls to | Baa1
Derivative Financial Instruments
Notional amounts outstanding	3,000
Entity's required payment	(157)
Aggregate fair value of interest rate swaps with rating triggers that were in net liability position	(157)
Interest rate swaps | Counterparty Group | Mutual rating trigger falls below | Baa1
Derivative Financial Instruments
Notional amounts outstanding	7,015,937
Entity's required payment	(306,294)
Additional collateral amount	44,238
Aggregate fair value of interest rate swaps with rating triggers that were in net liability position	(262,056)
Interest rate swaps | Specific Counterparty
Derivative Financial Instruments
Notional amounts outstanding	650,000
Additional collateral amount	16,000
Number of counterparties	1
Pay fixed-receive variable
Derivative Financial Instruments
Notional amounts outstanding	5,606,153		5,275,553
Weighted-average rate paid (as a percent)	3.68%		3.78%
Weighted-average rate received (as a percent)	0.41%		0.45%
Pay variable-receive fixed
Derivative Financial Instruments
Notional amounts outstanding	$ 3,750,440		$ 3,720,440
Weighted-average rate paid (as a percent)	1.23%		1.29%
Weighted-average rate received (as a percent)	4.62%		4.68%

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Loans and Commitments (Details 6) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Aug. 31, 2012	Aug. 31, 2011	May 31, 2012
Activity in the loan loss allowance
Balance at the beginning of the period	$ 143,326	$ 161,177
Provision for (recovery of) loan losses	9,122	(9,130)
Recoveries of loans previously charged-off	53	53
Balance at the end of the period	152,501	152,100
Ending balance of the allowance:
Collectively evaluated	127,548		118,065
Individually evaluated	24,953		25,261
Total ending balance of the allowance	152,501	152,100
Recorded investment in loans:
Collectively evaluated	18,971,779		18,414,840
Individually evaluated	495,957		496,902
Total recorded investment in loans	19,467,736	18,611,827	18,911,742
Loans to members, net	19,315,235		18,768,416
Deferred origination costs	7,917	6,667	7,870
CFC
Activity in the loan loss allowance
Balance at the beginning of the period	126,941	143,706
Provision for (recovery of) loan losses	9,787	(9,302)
Recoveries of loans previously charged-off	53	53
Balance at the end of the period	136,781	134,457
Ending balance of the allowance:
Collectively evaluated	113,490		103,681
Individually evaluated	23,291		23,260
Total ending balance of the allowance	136,781	134,457
Recorded investment in loans:
Collectively evaluated	17,784,277		17,255,965
Individually evaluated	489,108		489,932
Total recorded investment in loans	18,273,385		17,745,897
Loans to members, net	18,136,604		17,618,956
RTFC
Activity in the loan loss allowance
Balance at the beginning of the period	8,562	8,389
Provision for (recovery of) loan losses	315	260
Balance at the end of the period	8,877	8,649
Ending balance of the allowance:
Collectively evaluated	7,215		6,561
Individually evaluated	1,662		2,001
Total ending balance of the allowance	8,877	8,649
Recorded investment in loans:
Collectively evaluated	546,162		564,596
Individually evaluated	6,849		6,970
Total recorded investment in loans	553,011		571,566
Loans to members, net	544,134		563,004
NCSC
Activity in the loan loss allowance
Balance at the beginning of the period	7,823	9,082
Provision for (recovery of) loan losses	(980)	(88)
Balance at the end of the period	6,843	8,994
Ending balance of the allowance:
Collectively evaluated	6,843		7,823
Total ending balance of the allowance	6,843	8,994
Recorded investment in loans:
Collectively evaluated	641,340		594,279
Total recorded investment in loans	641,340		594,279
Loans to members, net	$ 634,497		$ 586,456

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $) In Thousands, unless otherwise specified	Total	Noncontrolling interest	Total CFC equity	Accumulated other comprehensive income	CFC retained equity	Unallocated net income (loss)	Members' capital reserve	Patronage capital allocated	Membership fees and education fund
Balance at May. 31, 2011	$ 687,309	$ 11,786	$ 675,523	$ 9,758	$ 665,765	$ (130,689)	$ 272,126	$ 521,897	$ 2,431
Increase (Decrease) in Stockholders' Equity
Patronage capital retirement	(46,086)		(46,086)		(46,086)			(46,086)
Net income (loss)	(86,622)	(2,590)	(84,032)		(84,032)	(84,032)
Other comprehensive loss	(198)	(7)	(191)	(191)
Other	(297)	(4)	(293)		(293)				(293)
Balance at Aug. 31, 2011	554,106	9,185	544,921	9,567	535,354	(214,721)	272,126	475,811	2,138
Balance at May. 31, 2012	490,755	7,592	483,163	9,199	473,964	(346,941)	272,126	546,366	2,413
Increase (Decrease) in Stockholders' Equity
Patronage capital retirement	(35,345)		(35,345)		(35,345)			(35,345)
Net income (loss)	12,646	5	12,641		12,641	12,641
Other comprehensive loss	(258)	(6)	(252)	(252)
Other	(254)		(254)		(254)				(254)
Balance at Aug. 31, 2012	$ 467,544	$ 7,591	$ 459,953	$ 8,947	$ 451,006	$ (334,300)	$ 272,126	$ 511,021	$ 2,159

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Short-Term Debt and Credit Arrangements

3 Months Ended

Aug. 31, 2012

Short-Term Debt and Credit Arrangements

Short-Term Debt and Credit Arrangements

(4) Short-Term Debt and Credit Arrangements

The following is a summary of short-term debt outstanding:

(dollaramountsinthousands)	August31,2012		May31,2012
Short-term debt:
Commercial paper sold through dealers, net of discounts	$	1,274,891	$	1,404,901
Commercial paper sold directly to members, at par	1,249,575		997,778
Commercial paper sold directly to non-members, at par	34,769		70,479
Total commercial paper	2,559,235		2,473,158
Daily liquidity fund notes sold directly to members	522,630		478,406
Bank bid notes	295,000		295,000
Subtotal short-term debt	3,376,865		3,246,564
Long-term debt maturing within one year:
Medium-term notes sold through dealers	588,214		232,830
Medium-term notes sold to members	423,832		409,961
Secured collateral trust bonds	1,154,733		254,962
Member subordinated certificates	15,195		16,710
Secured notes payable	76,857		327,006
Unsecured notes payable	5,404		5,401
Total long-term debt maturing within one year	2,264,235		1,246,870
Total short-term debt	$	5,641,100	$	4,493,434

Revolving Credit Agreements

At August31, 2012 and May31, 2012, we had $2,845 million of commitments under revolving credit agreements. We may request letters of credit for up to $100 million under each agreement in place at August31, 2012, which then reduces the amount available under the facility. The following table presents the total available and the outstanding letters of credit under our revolving credit agreements:

	Totalavailable				Lettersofcreditoutstanding
(dollaramountsinthousands)	August31, 2012		May31, 2012		August31, 2012		May31, 2012		Originalmaturity	Facilityfeeper year(1)
Three-year agreement	$	1,125,000	$	1,125,000	$	-	$	-	March21, 2014	15 basis points
Four-year agreement	883,875		883,875		1,000		1,000		October21, 2015	10 basis points
Five-year agreement	834,875		834,875		-		-		October21, 2016	10 basis points
Total	$	2,843,750	$	2,843,750	$	1,000	$	1,000

(1)Facility fee determined by CFC's senior unsecured credit ratings based on the pricing schedules put in place at the inception of the related agreement.

The following represents our required and actual financial ratios under the revolving credit agreements:

		Actual
	Requirement	August31,2012	May31,2012
Minimum average adjusted TIER over the six most recent fiscal quarters (1)	1.025	1.21	1.21
Minimum adjusted TIER for the most recent fiscal year (1)(2)	1.05	1.18	1.18
Maximum ratio of adjusted senior debt to total equity (1)	10.00	6.20	5.97

(1)In addition to the adjustments made to the leverage ratio set forth in the Non-GAAP Financial Measures section, senior debt excludes guarantees to member systems that have certain investment-grade ratings from Moody's Investors Service and Standard& Poor's Corporation. The TIER and debt-to-equity calculations include the adjustments set forth in the Non-GAAP Financial Measures section and exclude the results of operations for CAH.

(2)We must meet this requirement to retire patronage capital.

At August31, 2012 and May31, 2012, we were in compliance with all covenants and conditions under our revolving credit agreements and there were no borrowings outstanding under these agreements.

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Derivative Financial Instruments (Tables)

3 Months Ended

Aug. 31, 2012

Derivative Financial Instruments

Schedule of notional amounts outstanding and the weighted average interest rate paid and received for the entity's interest rate swaps

	August31,2012						May31,2012
(dollaramountsinthousands)	Notional amount		Weighted- average ratepaid		Weighted- average ratereceived		Notional amount		Weighted- average ratepaid		Weighted- average ratereceived
Pay fixed-receive variable	$	5,606,153	3.68	%	0.41	%	$	5,275,553	3.78	%	0.45	%
Pay variable-receive fixed	3,750,440		1.23		4.62		3,720,440		1.29		4.68
Total interest rate swaps	$	9,356,593	2.70		2.10		$	8,995,993	2.75		2.20

Summary of gains and losses recorded on the consolidated statements of operations for the entity's interest rate swaps

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012			2011
Derivative cash settlements	$	(13,863	)	$	168
Derivative forward value	(10,729		)	(111,739		)
Derivative losses	$	(24,592	)	$	(111,571	)

Schedule of notional amounts of derivative instruments having rating triggers

(dollaramountsinthousands)	Notional amount		Ourrequired payment			Amountwe wouldcollect		Net total
Mutual rating trigger if ratings:
fall to Baa1/BBB+ (1)	$	3,000	$	(157	)	$	-	$	(157	)
fall below Baa1/BBB+ (1)	7,015,937		(306,294		)	44,238		(262,056		)
Total	$	7,018,937	$	(306,451	)	$	44,238	$	(262,213	)

(1)Stated senior unsecured credit ratings are for Moody's Investors Service and Standard& Poor's Corporation, respectively. Under these rating triggers, if the credit rating for either counterparty falls to the level specified in the agreement, the other counterparty may, but is not obligated to, terminate the agreement. If either counterparty terminates the agreement, a net payment may be due from one counterparty to the other based on the fair value, excluding credit risk, of the underlying derivative instrument.

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Loans and Commitments (Details 3) (USD $) In Thousands, unless otherwise specified	Aug. 31, 2012	May 31, 2012	Aug. 31, 2011
Payment Status of Loans
30-89 days past due	$ 3,332
90 days or more past due	36,569	38,549
Total past due	39,901	38,549
Current	19,427,835	18,873,193
Total recorded investment in loans	19,467,736	18,911,742	18,611,827
Non-accrual loans	42,444	41,213
As a % of total loans
30-89 days past due	0.01%
90 days or more past due	0.19%	0.20%
Total past due	0.20%	0.20%
Current	99.80%	99.80%
Total financing receivables	100.00%	100.00%
Non-accrual loans	0.22%	0.22%
CFC
Payment Status of Loans
30-89 days past due	3,332
90 days or more past due	32,263	34,243
Total past due	35,595	34,243
Current	18,237,790	17,711,654
Total recorded investment in loans	18,273,385	17,745,897
Non-accrual loans	35,595	34,243
CFC | Distribution
Payment Status of Loans
30-89 days past due	3,332
90 days or more past due	27,263	29,243
Total past due	30,595	29,243
Current	14,239,557	14,046,228
Total recorded investment in loans	14,270,152	14,075,471
Non-accrual loans	30,595	29,243
CFC | Power supply
Payment Status of Loans
90 days or more past due	5,000	5,000
Total past due	5,000	5,000
Current	3,919,024	3,591,820
Total recorded investment in loans	3,924,024	3,596,820
Non-accrual loans	5,000	5,000
CFC | Statewide and associate
Payment Status of Loans
Current	79,209	73,606
Total recorded investment in loans	79,209	73,606
RTFC
Payment Status of Loans
90 days or more past due	4,306	4,306
Total past due	4,306	4,306
Current	548,705	567,260
Total recorded investment in loans	553,011	571,566
Non-accrual loans	6,849	6,970
NCSC
Payment Status of Loans
Current	641,340	594,279
Total recorded investment in loans	$ 641,340	$ 594,279

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General Information and Accounting Policies (Policies)

3 Months Ended

Aug. 31, 2012

General Information and Accounting Policies

Basis of Presentation

(a) Basis of Presentation

The accompanying financial statements include the consolidated accounts of National Rural Utilities Cooperative Finance Corporation ("CFC"), Rural Telephone Finance Cooperative ("RTFC"), National Cooperative Services Corporation ("NCSC") and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions, after elimination of intercompany accounts and transactions.

Unless stated otherwise, references to "we," "our" or "us" represent the consolidation of CFC, RTFC, NCSC and certain entities created and controlled by CFC to hold foreclosed assets and accommodate loan securitization transactions. Foreclosed assets are held by two groups of subsidiaries wholly-owned by CFC. Our Denton Realty Partners entities ("DRP") hold assets, including a land development loan, limited partnership interests in certain real estate developments and developed lots and land and raw land in Texas. Caribbean Asset Holdings LLC ("CAH") holds our investment in cable and telecommunications operating entities in the United States Virgin Islands ("USVI"), British Virgin Islands and St. Maarten.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. The accounting estimates that require our most significant and subjective judgments include the allowance for loan losses and the determination of the fair value of our derivatives and certain aspects of our foreclosed assets. While we use our best estimates and judgments based on the known facts at the date of the financial statements, actual results could differ from these estimates as future events occur.

These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form10-K for the fiscal year ended May31, 2012.

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (which consist only of normal recurring accruals) necessary for a fair presentation of our results of operations and financial position for the interim periods presented.

Variable Interest Entities

(b) Variable Interest Entities

We are required to consolidate the financial results of RTFC and NCSC because CFC is the primary beneficiary of variable interests in RTFC and NCSC due to its exposure to absorbing the majority of their expected losses and because CFC manages the business activities of RTFC and NCSC. Under separate guarantee agreements, RTFC and NCSC pay CFC a fee to indemnify against loan losses. CFC manages the business activities of RTFC and NCSC through separate management agreements. Additionally, CFC is the sole lender to RTFC and the primary source of funding to NCSC. NCSC funds its lending programs through loans from CFC and debt guaranteed by CFC.

RTFC and NCSC creditors have no recourse against CFC in the event of a default by RTFC and NCSC, unless there is a guarantee agreement under which CFC has guaranteed NCSC or RTFC debt obligations to a third party. At August31, 2012, CFC had guaranteed $77 million of NCSC debt, derivative instruments and guarantees with third parties, and CFC's maximum potential exposure for these instruments totaled $86 million. The maturities for NCSC obligations guaranteed by CFC run through 2031. Guarantees of NCSC debt and derivative instruments are not included in Note 9, Guarantees, as the debt and derivatives are reported on the consolidated balance sheet. At August31, 2012, CFC guaranteed $1 million of RTFC guarantees with third parties. The maturities for RTFC obligations guaranteed by CFC run through 2013. All CFC loans to RTFC and NCSC are secured by all assets and revenue of RTFC and NCSC. At August31, 2012, RTFC had total assets of $679 million and NCSC had total assets of $671 million. At August31, 2012, CFC had committed to lend RTFC up to $4,000 million, of which $540 million was outstanding. At August31, 2012, CFC had committed to provide up to $2,000 million of credit to NCSC, of which $699 million was outstanding, representing $622 million of outstanding loans and $77 million of credit enhancements.

Loan Sales

(c) Loan Sales

We account for the sale of loans resulting from direct loan sales to third parties and securitization transactions by removing the financial assets from our consolidated balance sheets when control has been surrendered. We recognize related servicing fees on an accrual basis over the period for which servicing activity is provided. Deferred transaction costs and unamortized deferred loan origination costs related to the loans sold are included in the calculation of the gain or loss on the sale. We do not hold any continuing interest in the loans sold to date other than servicing performance obligations. We have no obligation to repurchase loans from the purchaser, except in the case of breaches of representations and warranties. We retain the servicing performance obligations on these loans. We have not recorded a servicing asset or liability.

During the three months ended August31, 2012 and 2011, we sold CFC loans with outstanding balances totaling $14 million and $11 million, respectively, at par for cash. We recorded a loss on sale of loans, representing the unamortized deferred loan origination costs and transaction costs for the loans sold, which was immaterial during the three months ended August31, 2012 and 2011.

Interest Income

(d) Interest Income

Interest income on loans is recognized using the effective interest method. The following table presents the components of interest income:

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Interest on long-term fixed-rate loans	$	217,940	$	225,346
Interest on long-term variable-rate loans	6,025		8,252
Interest on line of credit loans	7,692		9,626
Interest on restructured loans	5,462		692
Interest on investments	938		928
Fee income (1)	2,028		2,406
Total interest income	$	240,085	$	247,250

(1)Primarily related to conversion fees that are deferred and recognized using the effective interest method over the remaining original loan interest rate pricing term, except for a small portion of the total fee charged to cover administrative costs related to the conversion, which is recognized immediately.

Deferred income on the consolidated balance sheets primarily includes deferred conversion fees totaling $19 million and $20 million at August31, 2012 and May31, 2012, respectively.

Interest Expense

(e) Interest Expense

The following table presents the components of interest expense:

	ForthethreemonthsendedAugust31,
(dollaramountsinthousands)	2012		2011
Interest expense on debt (1):
Commercial paper and bank bid notes	$	1,619	$	1,769
Medium-term notes	27,883		53,841
Collateral trust bonds	81,439		77,272
Subordinated deferrable debt	2,806		2,806
Subordinated certificates	20,354		18,301
Long-term notes payable	38,396		39,827
Debt issuance costs (2)	1,937		5,125
Fee expense (3)	2,162		3,103
Total interest expense	$	176,596	$	202,044

(1)Represents interest expense and the amortization of discounts on debt.

(2)Includes amortization of all deferred charges related to the issuance of debt, principally underwriters' fees, legal fees, printing costs and comfort letter fees. Amortization is calculated using the effective interest method or a method approximating the effective interest method. Also includes issuance costs related to dealer commercial paper, which are recognized as incurred.

(3)Includes various fees related to funding activities, including fees paid to banks participating in our revolving credit agreements. Fees are recognized as incurred or amortized on a straight-line basis over the life of the respective agreement.

We exclude indirect costs, if any, related to funding activities from interest expense.

Derivative Financial Instruments

(f) Derivative Financial Instruments

We are an end user of financial derivative instruments. We use derivatives such as interest rate swaps and treasury locks to mitigate interest rate risk. Consistent with the accounting standards for derivative financial instruments, we record derivative instruments on the consolidated balance sheets as either an asset or liability measured at fair value. In recording the fair value of derivative assets and liabilities, we do not net our positions under contracts with individual counterparties. Changes in the fair value of derivative instruments along with realized gains and losses from cash settlements are recognized in the derivative gains (losses) line item of the consolidated statement of operations unless specific hedge accounting criteria are met.

We formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. If applicable hedge accounting criteria are satisfied, the change in fair value of derivative instruments is recorded to other comprehensive income, and net cash settlements are recorded in interest expense. The gain or loss on derivatives used as a cash flow hedge of a forecasted debt transaction is recorded as a component of other comprehensive income (loss) and amortized through interest expense using the effective interest method over the term of the hedged debt. Any ineffectiveness in the hedging relationship is recognized in the derivative gains (losses) line of the statement of operations.

A transition adjustment was recorded as an other comprehensive loss on June1, 2001, the date we implemented the accounting standards for derivative financial instruments. This amount will be amortized into earnings through April2029 in the derivative gains (losses) line of the statement of operations.

Cash activity associated with interest rate swaps is classified as an operating activity in the consolidated statements of cash flows.

Early Extinguishment of Debt

(g) Early Extinguishment of Debt

We redeem outstanding debt early from time to time to manage liquidity and interest rate risk. When we redeem outstanding debt early, we recognize a gain or loss related to the difference between the amount paid to redeem the debt and the net book value of the extinguished debt as a component of non-interest expense in the gain (loss) on early extinguishment of debt line item.

In August2011, we redeemed $250 million of our $1,500 million, 7.25 percent SeriesC medium-term notes with an original maturity of March1, 2012 at a premium. Both the premium and unamortized issuance costs totaling $9 million were recorded as a loss on extinguishment of debt during the quarter ended August31, 2011.

Reclassifications

(h) Reclassifications

Reclassifications of prior period amounts have been made to conform to the current reporting format and the presentation in our Form10-Q for the quarter ended August31, 2012. Specifically, the fair value adjustments on DRP foreclosed assets have been reclassified into results of operations of foreclosed assets in the condensed consolidated statement of operations for the quarter ended August31, 2011. The corresponding non-cash adjustments were reclassified to the results of operations of foreclosed assets on the condensed consolidated statement of cash flows for the quarter ended August31, 2011.

Fair Value Measurement

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We account for derivative instruments (including certain derivative instruments embedded in other contracts) in the consolidated balance sheets as either an asset or liability measured at fair value. Since there is not an active secondary market for the types of interest rate swaps we use, we obtain market quotes from the interest rate swap counterparties to adjust all swaps to fair value on a quarterly basis. The market quotes are based on the expected future cash flow and the estimated yield curve.

We perform analysis to validate the market quotes obtained from our swap counterparties. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. We only enter into exchange agreements with counterparties that are participating in our revolving lines of credit at the time the exchange agreements are executed. All of our exchange agreements are subject to master netting agreements.

Our valuation techniques for interest rate swaps are based on observable inputs, which reflect market data. Fair values for our interest rate swaps are classified as a Level 2 valuation. We record the change in the fair value of our derivatives for each reporting period in the derivative gains (losses) line, included in non-interest income in the consolidated statements of operations, as currently none of our derivatives qualify for hedge accounting.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

We may be required, from time to time, to measure certain assets at fair value on a non-recurring basis in accordance with GAAP. Any adjustments to fair value usually result from application of lower-of-cost or fair value accounting or write-downs of individual assets. At August31, 2012 and May31, 2012, we measured certain collateral-dependent non-performing loans at fair value. In certain instances when a loan is non-performing, we utilize the collateral fair value underlying the loan in estimating the specific loan loss allowance. To estimate the fair value of the collateral, we may use third party valuation specialists, we may use internal estimates or a combination of both. The approaches used by both our internal staff and third party specialists include the discounted cash flow, market multiple and replacement cost methods. The material inputs used in estimating the fair value of such collateral, by both internal staff and third party specialists, are Level 3 within the fair value hierarchy. In these instances, the valuation is considered to be a non-recurring item. The significant unobservable inputs for Level 3 assets that are valued using fair values obtained from third party specialists are reviewed by our Credit Risk Management group to assess the reasonableness of the assumptions used and the accuracy of the work performed. In cases where we rely on third party inputs, we use the final unadjusted third party valuation analysis as support for any financial statement adjustments and disclosures to the financial statements. The valuation techniques and significant unobservable inputs for assets classified as Level 3 in the fair value hierarchy, which are measured using an internal model, are independently reviewed by other internal staff.

For assets measured at fair value on a non-recurring basis at August31, 2012 and May31, 2012 that are classified as Level 3 within the fair value hierarchy, any increase or decrease to significant unobservable inputs used in the determination of fair value, will not have a material impact on the fair value measurement of those assets or to the results of operations of the Company.

Fair Value of Financial Instruments

See Note 10, Fair Value Measurement, for more details on assets and liabilities measured at fair value on a recurring or non-recurring basis on our consolidated balance sheets. We consider relevant and observable prices in the principal market in our valuations where possible. Fair value estimates were developed at the reporting date and may not necessarily be indicative of amounts that could ultimately be realized in a market transaction at a future date.

With the exception of redeeming debt under early redemption provisions, terminating derivative instruments under early termination provisions and allowing borrowers to prepay their loans, we held and intend to hold all financial instruments to maturity excluding common stock investments that have no stated maturity. Below is a summary of significant methodologies used in estimating fair value amounts at August31, 2012 and May31, 2012.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and certificates of deposit with original maturities of less than 90 days. Cash and cash equivalents are valued at the carrying value, which approximates fair value. Cash and cash equivalents are classified within Level 1 of the fair value hierarchy.

Restricted Cash

Restricted cash consists of cash and cash equivalents for which use is contractually restricted. Restricted cash is valued at the carrying value, which approximates fair value. Restricted cash is classified within Level 1 of the fair value hierarchy.

Investments in Equity Securities

Our investments in equity securities included investments in the Federal Agricultural Mortgage Corporation SeriesA common stock and SeriesC preferred stock. The SeriesA common stock is classified as available-for-sale securities and recorded in the consolidated balance sheets at fair value. We calculate fair value based on the quoted price on the stock exchange where the stock is traded. That stock exchange is an active market based on the volume of shares transacted. The common stock is classified within Level 1 of the fair value hierarchy.

Our investments in equity securities also included investments in Federal Agricultural Mortgage Corporation SeriesC non-voting, cumulative preferred stock purchased based on a percentage of debt issued under note purchase agreements. The note purchase agreements have since been amended so that we may be required to purchase additional SeriesC preferred stock based on the terms and circumstances at the time of each advance. The fair value for the SeriesC preferred stock is estimated at cost, which approximates fair value as the preferred stock securities do not meet the definition of marketable securities and the stock is callable at par. These securities carry with it a netting provision against our debt held by Federal Agricultural Mortgage Corporation in case of non-payment, therefore transferability of these securities is unlikely. The preferred stock is classified within Level 3 of the fair value hierarchy.

Loans to Members, Net

As part of receiving a loan from us, our members have additional requirements and rights that are not typical of other financial institutions, such as the ability to receive a patronage capital allocation, the general requirement to purchase subordinated certificates or member capital securities to meet their capital contribution requirements as a condition of obtaining additional credit from us, the option to select fixed rates from one year to maturity with the fixed rate resetting or repricing at the end of each selected rate term, the ability to convert from a fixed rate to another fixed rate or the variable rate at any time, and certain interest rate discounts that are specific to the borrower's activity with us. These features make it difficult to obtain market data for similar loans. Therefore, we must use other methods to estimate the fair value.

Fair values for fixed-rate loans are estimated by discounting the future cash flows using the current rates at which we would make similar loans to new borrowers for the same remaining maturities. The maturity date used in the fair value calculation of loans with a fixed rate for a selected rate term is the next repricing date since these borrowers must reprice their loans at various times throughout the life of the loan at the then-current market rate.

Loans with different risk characteristics, specifically non-performing and restructured loans, are valued by 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. See Note 10, Fair Value Measurement, for more details about how we calculate the fair value of certain non-performing loans.

Variable-rate loans are valued at cost, which approximates fair value since we can reset rates every 15 days.

Credit risk for the loan portfolio is estimated based on the associated reserve in our allowance for loan losses.

Loans to members, net are classified within Level 3 of the fair value hierarchy.

Debt Service Reserve Funds

Debt service reserve funds represent cash and/or investments on deposit with the bond trustee for tax-exempt bonds that we guarantee. Carrying value is considered to be equal to fair value. Debt service reserve funds are classified within Level 1 of the fair value hierarchy.

Short-Term Debt

Short-term debt consists of commercial paper, bank bid notes and other debt due within one year. The fair value of short-term debt with maturities greater than 90 days is estimated based on quoted market rates for debt with similar maturities. The fair value of short-term debt with maturities less than or equal to 90 days is carrying value, which is a reasonable estimate of fair value. Short-term debt is classified within Level 2 and Level 3 of the fair value hierarchy.

Long-Term Debt

Long-term debt consists of collateral trust bonds, medium-term notes and long-term notes payable. We issue all collateral trust bonds and some medium-term notes in underwritten public transactions. There is not active secondary trading for all underwritten collateral trust bonds and medium-term notes; therefore, dealer quotes and recent market prices are both used in estimating fair value. There is essentially no secondary market for the medium-term notes issued to our members or in transactions that are not underwritten; therefore, fair value is estimated based on observable benchmark yields and spreads for similar instruments supplied by banks that underwrite our other debt transactions. Collateral trust bonds and medium-term notes are classified within Level 2 of the fair value hierarchy. The long-term notes payable are issued in private placement transactions and there is no secondary trading of such debt. Therefore, the fair value is estimated based on underwriter quotes for similar instruments, if available, or based on cash flows discounted at current rates for similar instruments supplied by underwriters or by the original issuer. Secondary trading quotes for our debt instruments used in the determination of fair value incorporate our credit risk. Long-term notes payable are classified within Level 3 of the fair value hierarchy.

Guarantees

The fair value of our guarantee liability is based on the fair value of our contingent and non-contingent exposure related to our guarantees. The fair value of our contingent exposure for guarantees is based on management's estimate of our exposure to losses within the guarantee portfolio. The fair value of our non-contingent exposure for guarantees issued is estimated based on the total unamortized balance of guarantee fees paid and guarantee fees to be paid discounted at our current short-term funding rate, which represents management's estimate of the fair value of our obligation to stand ready to perform. Guarantees are classified within Level 3 of the fair value hierarchy.

Subordinated Deferrable Debt

Our subordinated deferrable debt is traded on the New York Stock Exchange; therefore, daily market quotes are available. The fair value for subordinated deferrable debt is based on the closing market quotes from the last day of the reporting period. Subordinated deferrable debt is classified within Level 1 of the fair value hierarchy.

Members' Subordinated Certificates

Members' subordinated certificates include (i)membership subordinated certificates issued to our members as a condition of membership, (ii)loan and guarantee subordinated certificates as a condition of obtaining loan funds or guarantees and (iii)member capital securities issued as voluntary investments by our members. All members' subordinated certificates are non-transferable other than among members with CFC's consent. As there is no ready market from which to obtain fair value quotes for membership, loan and guarantee subordinated certificates, it is impracticable to estimate fair value, and such certificates are, therefore, valued at par. There also is no ready market from which to obtain fair value quotes for member capital securities. Fair value for member capital securities is based on the discounted cash flows using the coupon interest rate on the last business day of the reporting period. Members' subordinated certificates are classified within Level 3 of the fair value hierarchy.

Derivative Instruments

We record derivative instruments in the consolidated balance sheets as either an asset or liability measured at fair value. Because there is not an active secondary market for the types of interest rate swaps we use, we obtain market quotes from the interest rate swap counterparties to adjust all interest rate swaps to fair value on a quarterly basis. The market quotes are based on the expected future cash flow and estimated yield curves. We adjust the market values received from the counterparties using credit default swap levels for us and the counterparties. The credit default swap levels represent the credit risk premium required by a market participant based on the available information related to us and the counterparty. Derivative instruments are classified within Level 2 of the fair value hierarchy.

Commitments

The fair value of our commitments is estimated as the carrying value, or zero. Extensions of credit under these commitments, if exercised, would result in loans priced at market rates. Commitments are classified within Level 3 of the fair value hierarchy.