(3) Loans and Commitments

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

	August 31, 2013					May 31, 2013
(dollar amounts in thousands)	Loans outstanding			Unadvanced commitments (1)		Loans outstanding			Unadvanced commitments (1)
Total by loan type (2):
Long-term fixed-rate loans	$	18,208,107		$	—	$	17,918,268		$	—
Long-term variable-rate loans	681,573			5,056,010		782,006			4,718,162
Loans guaranteed by RUS	209,560			—		210,815			—
Line of credit loans	1,305,851			8,663,797		1,385,228			8,704,586
Total loans outstanding	20,405,091			13,719,807		20,296,317			13,422,748
Deferred origination costs	9,702			—		9,557			—
Less: Allowance for loan losses	(55,656		)	—		(54,325		)	—
Net loans outstanding	$	20,359,137		$	13,719,807	$	20,251,549		$	13,422,748

Total by member class (2):
CFC:
Distribution	$	15,083,474		$	9,307,402	$	14,941,192		$	8,948,826
Power supply	4,065,241			3,125,136		4,007,669			3,145,518
Statewide and associate	71,574			101,970		70,956			102,087
CFC total	19,220,289			12,534,508		19,019,817			12,196,431
RTFC	479,769			315,544		503,359			317,344
NCSC	705,033			869,755		773,141			908,973
Total loans outstanding	$	20,405,091		$	13,719,807	$	20,296,317		$	13,422,748

(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.

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:

	August 31, 2013				May 31, 2013
	Loans		Unadvanced		Loans		Unadvanced
(dollar amounts in thousands)	outstanding		commitments (1)		outstanding		commitments (1)
Non-performing and restructured loans:
Non-performing loans:
CFC:
Line of credit loans	$	5,000	$	—	$	5,000	$	—
RTFC:
Long-term fixed-rate loans	3,174		—		3,690		—
Long-term variable-rate loans	7,100		—		6,807		—
Total non-performing loans	$	15,274	$	—	$	15,497	$	—

Restructured loans:
CFC:
Long-term fixed-rate loans	$	7,585	$	—	$	46,953	$	—
Line of credit loans (2)	—		—		—		5,000
Total restructured loans	$	7,585	$	—	$	46,953	$	5,000

(2) 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 $1,753 million and $1,703 million of unadvanced commitments at August 31, 2013 and May 31, 2013, 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 August 31, 2013, and the related maturities by fiscal year and thereafter as follows:

	Available		Notional maturities of committed lines of credit
(dollar amounts in thousands)	balance		2014		2015		2016		2017		2018		Thereafter
Committed lines of credit	$	1,753,021	$	108,210	$	91,104	$	134,800	$	562,466	$	809,691	$	46,750

The remaining unadvanced commitments totaling $11,967 million and $11,720 million at August 31, 2013 and May 31, 2013, 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:

	August 31, 2013
(dollar amounts in thousands)	30-89 days past due			90 days or more past due (1)			Total past due			Current			Total financing receivables			Non-accrual loans
CFC:
Distribution	$	—		$	—		$	—		$	15,083,474		$	15,083,474		$	—
Power supply	—			5,000			5,000			4,060,241			4,065,241			5,000
Statewide and associate	—			—			—			71,574			71,574			—
CFC total	—			5,000			5,000			19,215,289			19,220,289			5,000
RTFC	—			8,219			8,219			471,550			479,769			10,274
NCSC	—			—			—			705,033			705,033			—
Total loans outstanding	$	—		$	13,219		$	13,219		$	20,391,872		$	20,405,091		$	15,274

As a % of total loans	0.00		%	0.06		%	0.06		%	99.94		%	100.00		%	0.07		%

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

	May 31, 2013
(dollar amounts in thousands)	30-89 days past due			90 days or more past due (1)			Total past due			Current			Total financing receivables			Non-accrual loans
CFC:
Distribution	$	2,841		$	—		$	2,841		$	14,938,351		$	14,941,192		$	7,584
Power supply	—			5,000			5,000			4,002,669			4,007,669			5,000
Statewide and associate	—			—			—			70,956			70,956			—
CFC total	2,841			5,000			7,841			19,011,976			19,019,817			12,584
RTFC	4,163			4,156			8,319			495,040			503,359			10,497
NCSC	—			—			—			773,141			773,141			—
Total loans outstanding	$	7,004		$	9,156		$	16,160		$	20,280,157		$	20,296,317		$	23,081

As a % of total loans	0.03		%	0.05		%	0.08		%	99.92		%	100.00		%	0.11		%

(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.

Borrowers included in the pass, special mention, and substandard categories are reflected in the general portfolio of loans. Borrowers included in the doubtful category are reflected in the impaired portfolio of loans. 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:

	August 31, 2013						May 31, 2013
(dollar amounts in thousands)	Pass		Criticized		Total		Pass		Criticized		Total
CFC:
Distribution	$	15,066,434	$	17,040	$	15,083,474	$	14,922,558	$	18,634	$	14,941,192
Power supply	4,060,241		5,000		4,065,241		4,002,669		5,000		4,007,669
Statewide and associate	71,289		285		71,574		70,668		288		70,956
CFC total	19,197,964		22,325		19,220,289		18,995,895		23,922		19,019,817
RTFC	460,043		19,726		479,769		483,058		20,301		503,359
NCSC	700,573		4,460		705,033		770,419		2,722		773,141
Total loans outstanding	$	20,358,580	$	46,511	$	20,405,091	$	20,249,372	$	46,945	$	20,296,317

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:

	August 31, 2013								May 31, 2013
(dollar amounts in thousands)	Secured		%		Unsecured		%		Secured		%		Unsecured		%
Total by loan type:
Long-term fixed-rate loans	$	17,116,916	94	%	$	1,091,191	6	%	$	16,871,594	94	%	$	1,046,674	6	%
Long-term variable-rate loans	577,880		85		103,693		15		676,075		86		105,931		14
Loans guaranteed by RUS	209,560		100		—		—		210,815		100		—		—
Line of credit loans	250,098		19		1,055,753		81		294,575		21		1,090,653		79
Total loans outstanding	$	18,154,454	89		$	2,250,637	11		$	18,053,059	89		$	2,243,258	11

Total by company:
CFC	$	17,240,266	90	%	$	1,980,023	10	%	$	17,049,029	90	%	$	1,970,788	10	%
RTFC	459,163		96		20,606		4		482,647		96		20,712		4
NCSC	455,025		65		250,008		35		521,383		67		251,758		33
Total loans outstanding	$	18,154,454	89		$	2,250,637	11		$	18,053,059	89		$	2,243,258	11

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 by company:

	As of and for the three months ended August 31, 2013
(dollar amounts in thousands)	CFC		RTFC			NCSC			Total
Balance as of May 31, 2013	$	41,246	$	9,158		$	3,921		$	54,325
Provision for (recovery of) loan losses	2,037		(661		)	(98		)	1,278
Recoveries of loans previously charged-off	53		—			—			53
Balance as of August 31, 2013	$	43,336	$	8,497		$	3,823		$	55,656

	As of and for the three months ended August 31, 2012
(dollar amounts in thousands)	CFC		RTFC		NCSC			Total
Balance as of May 31, 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 August 31, 2012	$	136,781	$	8,877	$	6,843		$	152,501

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:

	August 31, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	43,336	$	5,346	$	3,823	$	52,505
Individually evaluated	—		3,151		—		3,151
Total ending balance of the allowance	$	43,336	$	8,497	$	3,823	$	55,656

Recorded investment in loans:
Collectively evaluated	$	19,207,704	$	469,495	$	705,033	$	20,382,232
Individually evaluated	12,585		10,274		—		22,859
Total recorded investment in loans	$	19,220,289	$	479,769	$	705,033	$	20,405,091

Loans to members, net	$	19,176,953	$	471,272	$	701,210	$	20,349,435

	May 31, 2013
(dollar amounts in thousands)	CFC		RTFC		NCSC		Total
Ending balance of the allowance:
Collectively evaluated	$	41,246	$	5,731	$	3,921	$	50,898
Individually evaluated	—		3,427		—		3,427
Total ending balance of the allowance	$	41,246	$	9,158	$	3,921	$	54,325

Recorded investment in loans:
Collectively evaluated	$	18,967,864	$	492,862	$	773,141	$	20,233,867
Individually evaluated	51,953		10,497		—		62,450
Total recorded investment in loans	$	19,019,817	$	503,359	$	773,141	$	20,296,317

Loans to members, net (1)	$	18,978,571	$	494,201	$	769,220	$	20,241,992

(1) Excludes deferred origination costs of $10 million at August 31, 2013 and May 31, 2013.

Impaired Loans

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

	August 31, 2013				May 31, 2013
(dollar amounts in thousands)	Recorded investment		Related allowance		Recorded investment		Related allowance
With no specific allowance recorded:
CFC/Distribution	$	7,585	$	—	$	46,953	$	—
CFC/Power Supply	5,000		—		5,000		—
Total	12,585		—		51,953		—

With a specific allowance recorded:
RTFC	10,274		3,151		10,497		3,427
Total	10,274		3,151		10,497		3,427
Total impaired loans	$	22,859	$	3,151	$	62,450	$	3,427

The recorded investment for impaired loans was equal to the total unpaid principal balance for impaired loans as of May 31, 2013 and 2012. The table below represents the average recorded investment in impaired loans and the interest income recognized by member class:

	For the three months ended August 31,
	2013		2012		2013		2012
(dollar amounts in thousands)	Average recorded investment				Interest income recognized
CFC/Distribution	$	20,648	$	485,077	$	136	$	5,462
CFC/Power Supply	5,000		5,000		—		—
RTFC	10,382		6,890		—		—
Total impaired loans	$	36,030	$	496,967	$	136	$	5,462

Non-performing and Restructured Loans

Foregone interest income as a result of holding loans on non-accrual status:

	For the three months ended August 31,
(dollar amounts in thousands)	2013		2012
Non-performing loans	$	179	$	407
Restructured loans	—		—
Total	$	179	$	407

At August 31, 2013 and May 31, 2013, non-performing loans totaled $15 million or 0.1 percent, of loans outstanding. One borrower in this group is currently in bankruptcy. A trustee for the borrower filed a disclosure statement and draft plan of reorganization on February 15, 2013. The Trustee filed an amended disclosure statement and plan of reorganization on August 14, 2013. The bankruptcy court approved the amended disclosure statement on October 1, 2013. The amended plan of reorganization will be subject to certain changes and ultimate approval of the bankruptcy court. On October 9, 2013, the bankruptcy court canceled the confirmation hearing originally scheduled for November 12, 2013, due to conflicts among the case participants regarding scheduling and other matters. If the trustee is unable to reach agreement with the interested parties, then the court will hold another status conference to resolve the scheduling disputes. Another borrower in this group is contesting a ruling that it is required to repay state USF payments received. 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. We have approval rights with respect to the sale of either of these companies.

At August 31, 2013 and May 31, 2013, we had restructured loans totaling $8 million, or 0.04 percent, of loans outstanding and $47 million, or 0.2 percent, of loans outstanding, respectively, all of which were performing according to their restructured terms. Approximately $0.1 million of interest income was accrued on restructured loans during the three months ended August 31, 2013 compared with $5 million of interest income in the prior-year period. One of the restructured loans totaling $39 million at May 31, 2013, was refinanced without concession during the quarter with the new loan classified as performing at August 31, 2013. This loan was on accrual status since the time of restructuring.

We believe our allowance for loan loss is adequate to cover the losses inherent in our loan portfolio at August 31, 2013.

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 5, Short-Term Debt and Credit Arrangements and Note 6, Long-Term Debt).

(dollar amounts in thousands)	August 31, 2013		May 31, 2013
Collateral trust bonds:
2007 indenture
Distribution system mortgage notes	$	5,591,114	$	5,674,804
RUS guaranteed loans qualifying as permitted investments	164,736		165,823
Total pledged collateral	$	5,755,850	$	5,840,627
Collateral trust bonds outstanding	4,479,372		4,679,372

1994 indenture
Distribution system mortgage notes	$	1,627,599	$	1,641,858
Collateral trust bonds outstanding	1,465,000		1,465,000

Federal Agricultural Mortgage Corporation:
Distribution and power supply system mortgage notes	$	1,757,877	$	1,795,947
Notes payable outstanding	1,535,851		1,542,474

Clean Renewable Energy Bonds Series 2009A:
Distribution and power supply system mortgage notes	$	23,002	$	23,536
Cash	7,753		7,634
Total pledged collateral	$	30,755	$	31,170
Notes payable outstanding	19,888		19,888

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 (the “Guaranteed Underwriter Program”). See Note 6, Long-Term Debt.

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

(dollar amounts in thousands)	August 31, 2013		May 31, 2013
Federal Financing Bank
Distribution and power supply system mortgage notes on deposit	$	4,545,777	$	3,903,786
Notes payable outstanding	3,999,000		3,674,000