Investment Securities

12 Months Ended

May 31, 2025


NOTE 3—INVESTMENT SECURITIES

Our investment securities portfolio consists of debt securities classified as trading and equity securities with readily determinable fair values. We therefore record changes in the fair value of our debt and equity securities in earnings and report these unrealized changes together with realized gains and losses from the sale of securities as a component of non-interest income in our consolidated statements of operations. For additional information on our investments in debt securities, see “Note 1—Summary of Significant Accounting Policies.”

Debt Securities

Our debt securities portfolio consists of corporate debt securities, municipality debt securities, commercial mortgage-backed securities (“MBS”) and other asset-backed securities (“ABS”). Pursuant to our investment policy guidelines, all fixed-income debt securities, at the time of purchase, must be rated at least investment grade based on external credit ratings from at least two of the leading global credit rating agencies, when available, or the corresponding equivalent, when not available. Securities rated investment grade, that is those rated Baa3 or higher by Moody’s Investors Service (“Moody’s”) or BBB- or higher by S&P Global Inc. (“S&P”) or BBB- or higher by Fitch Ratings Inc. (“Fitch”), are generally considered by the rating agencies to be of lower credit risk than non-investment-grade securities.

The following table presents the composition of our investment debt securities portfolio and the fair value as of May 31, 2025 and 2024.

Table 3.1: Investments in Debt Securities, at Fair Value


	May 31,
(Dollars in thousands)	2025		2024
Debt securities, at fair value:



Corporate debt securities	$	107,957	$	246,041

Commercial agency MBS(1)	525		6,663


U.S. state and municipality debt securities	1,049		8,179

Other ABS(2)	4,132		20,468
Total debt securities trading, at fair value	$	113,663	$	281,351

____________________________

(1)Consists of securities backed by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”).

(2)Consists primarily of securities backed by auto lease loans, equipment-backed loans, auto loans and credit card loans.

We recognized net unrealized gains of $9 million and $15 million on our debt securities for FY2025 and FY2024, respectively, and net unrealized losses of $3 million for FY2023.

We sold $14 million of debt securities during FY2025 and recorded realized gains on the sale of these securities of less than $1 million. We did not sell any debt securities during FY2024. We sold $36 million of debt securities at fair value and recorded realized gains on the sale of these securities of less than $1 million during FY2023.

Equity Securities

The following table presents the composition of our equity security holdings and the fair value as of May 31, 2025 and 2024.

Table 3.2: Investments in Equity Securities, at Fair Value


	May 31,
(Dollars in thousands)	2025		2024
Equity securities, at fair value:

Farmer Mac—Series C noncumulative preferred stock	$	—	$	25,130
Farmer Mac—Class A common stock	11,252		11,756
Total equity securities, at fair value	$	11,252	$	36,886

On July 18, 2024, the Federal Agricultural Mortgage Corporation (“Farmer Mac”) redeemed its Series C noncumulative preferred stock at a redemption price of $25.00 per share, plus any declared and unpaid dividends through and including the redemption date. We recorded an immaterial loss as part of this transaction.

We recognized net unrealized losses on our equity securities of $1 million for FY2025, and net unrealized gains of $1 million and $2 million for FY2024 and FY2023, respectively. These unrealized amounts are reported as a component of non-interest income in our consolidated statements of operations.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/ 10-K