Federal Home Loan Bank of Dallas
11/12/2026 | Press release | Distributed by Public on 11/12/2026 14:50
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included in "Item 1. Financial Statements."
Forward-Looking Information
This quarterly report contains forward-looking statements that reflect current beliefs and expectations of the Federal Home Loan Bank of Dallas (the "Bank") about its future results, performance, liquidity, financial condition, prospects and opportunities. These statements are identified by the use of forward-looking terminology, such as "anticipates," "plans," "believes," "could," "estimates," "may," "should," "would," "will," "might," "expects," "intends" or their negatives or other similar terms. The Bank cautions that forward-looking statements involve risks or uncertainties that could cause the Bank's actual results to differ materially from those expressed or implied in these forward-looking statements, or could affect the extent to which a particular objective, projection, estimate or prediction is realized. As a result, undue reliance should not be placed on these statements.
These risks and uncertainties include, without limitation, evolving economic and market conditions, political events, and the impact of competitive business forces. The risks and uncertainties related to evolving economic and market conditions include, but are not limited to, changes in interest rates, changes in the Bank's access to the capital markets, changes in the cost of the Bank's debt, changes in the ratings on the Bank's debt, adverse consequences resulting from a significant regional, national or global economic downturn (including, but not limited to, reduced demand for the Bank's products and services), potential impacts from tariffs imposed or proposed by the United States and/or its trading partners, credit and prepayment risks and changes in the financial health of the Bank's members or non-member borrowers. Among other things, political or other events could possibly lead to changes in the Bank's regulatory environment or its status as a government-sponsored enterprise ("GSE"), or to changes in the regulatory environment for the Bank's members or non-member borrowers. Risks and uncertainties related to competitive business forces include, but are not limited to, the potential loss of a significant amount of member borrowings through acquisitions or other means or changes in the relative competitiveness of the Bank's products and services for member institutions. For a more detailed discussion of the risk factors applicable to the Bank, see "Item 1A - Risk Factors" in the Bank's Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the Securities and Exchange Commission ("SEC") on March 20, 2026 (the "2025 10-K"). The Bank undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason.
Overview
Business
The Bank is one of 11 district Federal Home Loan Banks (each individually a "FHLBank" and collectively the "FHLBanks" and, together with the Federal Home Loan Banks Office of Finance ("Office of Finance"), a joint office of the FHLBanks, the "FHLBank System") that were created by the Federal Home Loan Bank Act of 1932. The FHLBanks serve the public by enhancing the availability of credit for residential mortgages, community lending and targeted community development. As independent, member-owned cooperatives, the FHLBanks seek to maintain a balance between their public purpose and their ability to provide adequate returns on the capital supplied by their members. The Federal Housing Finance Agency ("Finance Agency"), an independent agency in the executive branch of the U.S. government, is responsible for supervising and regulating the FHLBanks and the Office of Finance. The Finance Agency's stated mission is to ensure that the housing GSEs, including the FHLBanks, operate in a safe and sound manner so that they serve as a reliable source of liquidity and funding for housing finance and community investment. Consistent with this mission, the Finance Agency establishes policies and regulations covering the operations of the FHLBanks.
The Bank serves eligible financial institutions in Arkansas, Louisiana, Mississippi, New Mexico and Texas (collectively, the Ninth District of the FHLBank System). The Bank's primary business is lending relatively low cost funds (known as advances) to its member institutions, which include commercial banks, savings institutions, insurance companies, credit unions, and Community Development Financial Institutions that are certified under the Community Development Banking and Financial Institutions Act of 1994 ("CDFIs"). While not members of the Bank, housing associates, including state and local housing authorities, that meet certain statutory criteria may also borrow from the Bank. The Bank also maintains a portfolio of highly rated investments for liquidity purposes and to provide additional earnings which help to support the Bank's affordable housing and community investment activities. Additionally, the Bank holds interests in a portfolio of mortgage loans that have been acquired through the Mortgage Partnership Finance® ("MPF"®) Program administered by the FHLBank of Chicago, substantially all of which are conventional loans. The Bank also offers an Affordable Housing Program ("AHP"), as required by the Federal Home Loan Bank Act of 1932, as amended, and a number of voluntary loan and grant programs that are designed to meet specific community investment needs in its district. Shareholders' return on their investment includes the value derived
from access to the Bank's products and services and, to a far lesser extent, dividends (which are typically paid quarterly in the form of capital stock). Historically, the Bank has balanced the financial rewards to shareholders by seeking to pay a dividend that meets or slightly exceeds the return on alternative short-term money market investments available to shareholders, while lending funds at the lowest rates expected to be compatible with that objective and its objective to build retained earnings over time.
The Bank's capital stock is not publicly traded and can be held only by members of the Bank, by non-member institutions that acquire stock by virtue of acquiring member institutions, by a federal or state agency or insurer acting as a receiver of a closed institution, or by former members of the Bank that retain capital stock to support advances or other obligations that remain outstanding or until any applicable stock redemption or withdrawal notice period expires. All members must hold stock in the Bank. The Bank's capital stock has a par value of $100 per share and is purchased, redeemed, repurchased and transferred only at its par value. By regulation, the parties to a transaction involving the Bank's stock can include only the Bank and its member institutions (or non-member institutions or former members, as described above). While a member could transfer stock to another member of the Bank, that transfer could occur only upon approval of the Bank and then only at par value. Members may redeem excess stock, or withdraw from membership and redeem all outstanding capital stock, with five years' written notice to the Bank.
The FHLBanks' debt instruments (known as consolidated obligations) are their primary source of funds and are the joint and several obligations of all 11 FHLBanks. Consolidated obligations are issued through the Office of Finance (acting as agent for the FHLBanks) and generally are publicly traded in the over-the-counter market. The Bank records on its statements of condition only those consolidated obligations for which it receives the proceeds. Although consolidated obligations are not obligations of or guaranteed by the U.S. government, FHLBanks are considered to be GSEs and thus have historically been able to borrow at the more favorable rates generally available to GSEs. Consolidated obligations are currently rated Aa1/P-1 by Moody's Investors Service ("Moody's") and AA+/A-1+ by S&P Global Ratings ("S&P"), each with a stable outlook. Pursuant to criteria used by S&P and Moody's, the FHLBank System's debt rating and the credit ratings of the individual FHLBanks are linked closely to the U.S. sovereign credit rating because of the FHLBanks' GSE status.
These ratings indicate that each of these nationally recognized statistical rating organizations ("NRSROs") has concluded that the FHLBanks have a very strong capacity to meet their commitments to pay principal and interest on consolidated obligations. The ratings also reflect the FHLBank System's status as a GSE. Historically, the FHLBanks' GSE status and very high credit ratings on consolidated obligations have provided the FHLBanks with excellent capital markets access. Deposits, other borrowings and the proceeds from capital stock issued to members are also sources of funds for the Bank.
In addition to ratings on the FHLBanks' consolidated obligations, each FHLBank is rated individually by both S&P and Moody's. These individual FHLBank ratings apply to the individual obligations of the respective FHLBanks, such as interest rate derivatives, deposits and letters of credit. As of September 30, 2026, Moody's had assigned a deposit rating of Aa1/P-1 to each of the FHLBanks and S&P had rated each of the FHLBanks AA+/A-1+.
Shareholders, bondholders and prospective shareholders and bondholders should understand that these credit ratings are not a recommendation to buy, hold or sell securities and they may be subject to revision or withdrawal at any time by the NRSRO. The ratings from each of the NRSROs should be evaluated independently.
The Bank conducts its business and fulfills its public purpose primarily by acting as a financial intermediary between its members and the capital markets. The intermediation of the timing, structure and amount of its members' credit needs with the investment requirements of the Bank's creditors is made possible by the extensive use of interest rate exchange agreements, including interest rate swaps, swaptions and caps.
The Bank's profitability objective is to generate sufficient earnings to allow the Bank to continue to increase its retained earnings and pay dividends on capital stock at rates that meet the Bank's dividend targets. All other things being equal, the Bank's earnings are typically expected to rise and fall with the general level of market interest rates, particularly short-term money market rates, and the Bank's total capital and asset size. Other factors that could have an effect on the Bank's future earnings include the level, volatility of and relationships between short-term money market rates such as federal funds and the Secured Overnight Financing Rate ("SOFR"); the availability and cost of the Bank's short- and long-term debt relative to benchmark rates such as federal funds, SOFR, and long-term fixed mortgage rates; the availability of interest rate exchange agreements at competitive prices; whether the Bank's larger borrowers continue to be members of the Bank and the level at which they maintain their borrowing activity; the extent to which the Bank's members continue to sell mortgage loans to the Bank; and the impact of economic and financial market conditions on both the near-term and longer-term demand for the Bank's credit products.
For a discussion of the Bank's target range for quarterly dividends, see the section entitled "Capital" beginning on page 42 of this report.
The Bank operates in only one reportable segment. All of the Bank's revenues are derived from U.S. operations.
The following table summarizes the Bank's membership, by type of institution, as of September 30, 2026 and December 31, 2025.
| MEMBERSHIP SUMMARY | |||||||||||
| September 30, 2026 | December 31, 2025 | ||||||||||
| Commercial banks | 503 | 517 | |||||||||
| Credit unions | 139 | 136 | |||||||||
| Insurance companies | 68 | 68 | |||||||||
| Savings institutions | 48 | 49 | |||||||||
| CDFIs | 10 | 9 | |||||||||
| Total members | 768 | 779 | |||||||||
| Housing associates | 8 | 8 | |||||||||
| Non-member borrowers | 4 | 1 | |||||||||
| Total | 780 | 788 | |||||||||
|
Community Financial Institutions ("CFIs") (1)
|
460 | 469 | |||||||||
_____________________________
(1)The figures shown reflect the number of members that were CFIs as of September 30, 2026 and December 31, 2025 based upon the definitions of CFIs that applied as of those dates.
For 2026, Community Financial Institutions ("CFIs") are defined to include all institutions insured by the Federal Deposit Insurance Corporation ("FDIC") with average total assets as of December 31, 2025, 2024 and 2023 of less than $1.541 billion. For 2025, CFIs were defined as FDIC-insured institutions with average total assets as of December 31, 2024, 2023 and 2022 of less than $1.500 billion.
Financial Market Conditions
According to the advance estimate reported by the Bureau of Economic Analysis, gross domestic product increased at an annual rate of 3.4 percent during the third quarter of 2026, after increasing at annual rates of 2.2 percent, 2.1 percent and 2.1 percent during the second quarter of 2026, the first quarter of 2026 and the year ended December 31, 2025, respectively. According to the Bureau of Labor Statistics, the U.S. unemployment rate was 4.2 percent at September 30, 2026, compared to 4.2 percent at June 30, 2026, 4.3 percent at March 31, 2026 and 4.4 percent at December 31, 2025. The Bureau of Labor Statistics also reported that the unadjusted U.S. consumer price index increased 3.7 percent for the 12 months ended September 30, 2026, compared to an increase of 3.5 percent for the 12 months ended June 30, 2026, 3.3 percent for the 12 months ended March 31, 2026 and 2.7 percent for the 12 months ended December 31, 2025.
At its September 15/16 meeting, the Federal Open Market Committee ("FOMC") raised its target for the federal funds rate by 0.25 percent to a range between 3.75 percent and 4.00 percent. This marked the first rate increase since July 2023. At its October 27/28 meeting, the FOMC maintained its target for the federal funds rate at a range between 3.75 percent and 4.00 percent. The FOMC noted that economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, capital investment is robust, job gains have kept pace with the workforce, and the unemployment rate has changed little. The FOMC noted that inflation remains elevated relative to its two percent goal, and the accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return to the Committee's 2 percent goal. The FOMC further noted that it is continuing its policy of maintaining ample reserves in the banking system.
The following table presents information on various market interest rates at September 30, 2026 and December 31, 2025 and various average market interest rates for the three- and nine-month periods ended September 30, 2026 and 2025.
| Ending Rate | Average Rate | Average Rate | |||||||||||||||||||||||||||||||||
| September 30, 2026 | December 31, 2025 | Third Quarter 2026 | Third Quarter 2025 | Nine Months Ended September 30, 2026 | Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||
|
Federal Funds Target (1)
|
4.00% | 3.75% | 3.79% | 4.46% | 3.76% | 4.49% | |||||||||||||||||||||||||||||
|
Average Effective Federal Funds Rate (2)
|
3.88% | 3.64% | 3.67% | 4.30% | 3.65% | 4.32% | |||||||||||||||||||||||||||||
|
Overnight SOFR (3)
|
3.90% | 3.87% | 3.67% | 4.33% | 3.65% | 4.33% | |||||||||||||||||||||||||||||
|
1-month SOFR (3)
|
3.75% | 3.79% | 3.64% | 4.35% | 3.65% | 4.35% | |||||||||||||||||||||||||||||
|
3-month SOFR (3)
|
3.68% | 4.01% | 3.64% | 4.53% | 3.69% | 4.39% | |||||||||||||||||||||||||||||
|
2-year SOFR (3)
|
4.75% | 3.31% | 4.22% | 3.49% | 3.83% | 3.70% | |||||||||||||||||||||||||||||
|
5-year SOFR (3)
|
4.81% | 3.46% | 4.22% | 3.43% | 3.85% | 3.66% | |||||||||||||||||||||||||||||
|
10-year SOFR (3)
|
4.90% | 3.80% | 4.35% | 3.72% | 4.05% | 3.85% | |||||||||||||||||||||||||||||
|
3-month U.S. Treasury (3)
|
4.20% | 3.67% | 3.94% | 4.26% | 3.79% | 4.32% | |||||||||||||||||||||||||||||
|
2-year U.S. Treasury (3)
|
4.88% | 3.47% | 4.36% | 3.72% | 3.98% | 3.91% | |||||||||||||||||||||||||||||
|
5-year U.S. Treasury (3)
|
5.09% | 3.73% | 4.50% | 3.80% | 4.13% | 4.00% | |||||||||||||||||||||||||||||
|
10-year U.S. Treasury (3)
|
5.29% | 4.18% | 4.76% | 4.26% | 4.46% | 4.36% | |||||||||||||||||||||||||||||
(1)Source: Bloomberg (reflects upper end of target range)
(2)Source: Federal Reserve Statistical Release
(3)Source: Bloomberg
Year-to-Date 2026 Summary
•The Bank ended the third quarter of 2026 with total assets of $106.8 billion compared with $108.5 billion at the end of 2025. The $1.7 billion decrease in total assets for the nine months ended September 30, 2026 was primarily attributable to decreases in the Bank's advances ($1.3 billion) and long-term investments ($1.2 billion), partially offset by increases in the Bank's mortgage loans held for portfolio ($0.5 billion) and short-term liquidity holdings ($0.3 billion).
•Advances decreased from $50.8 billion at December 31, 2025 to $49.5 billion at September 30, 2026. For the nine months ended September 30, 2026, the Bank's average advances were $53.1 billion.
•Mortgage loans held for portfolio increased from $6.6 billion at December 31, 2025 to $7.1 billion at September 30, 2026.
•The Bank's net income for the three and nine months ended September 30, 2026 was $110.8 million and $356.2 million, respectively, as compared to $156.7 million and $456.3 million during the corresponding periods in 2025. For discussion and analysis of the changes in net income, see the section entitled "Results of Operations" beginning on page 45 of this report.
•At all times during the first nine months of 2026, the Bank was in compliance with all of its regulatory capital requirements. In addition, the Bank's retained earnings increased to $3.473 billion at September 30, 2026 from $3.227 billion at December 31, 2025. Retained earnings was 3.3 percent and 3.0 percent of total assets at September 30, 2026 and December 31, 2025, respectively.
Selected Financial Data
SELECTED FINANCIAL DATA
(dollars in thousands)
| 2026 | 2025 | ||||||||||||||||||||||||||||
|
Third Quarter |
Second Quarter |
First Quarter |
Fourth Quarter |
Third Quarter |
|||||||||||||||||||||||||
|
Balance sheet (at quarter end)
|
|||||||||||||||||||||||||||||
| Advances | $ | 49,516,673 | $ | 47,410,991 | $ | 44,215,047 | $ | 50,820,106 | $ | 51,163,413 | |||||||||||||||||||
|
Investments (1)
|
49,825,230 | 53,023,732 | 45,709,491 | 50,656,003 | 54,214,405 | ||||||||||||||||||||||||
| Mortgage loans held for portfolio | 7,065,716 | 6,919,381 | 6,733,960 | 6,563,685 | 6,378,041 | ||||||||||||||||||||||||
|
Allowance for credit losses on mortgage loans
|
9,806 | 9,491 | 8,673 | 8,554 | 7,991 | ||||||||||||||||||||||||
| Total assets | 106,798,620 | 107,768,470 | 97,072,064 | 108,512,015 | 112,185,020 | ||||||||||||||||||||||||
|
Consolidated obligations - discount notes
|
36,502,700 | 40,033,146 | 27,317,808 | 40,185,289 | 32,352,595 | ||||||||||||||||||||||||
| Consolidated obligations - bonds | 60,031,775 | 55,899,046 | 60,190,861 | 57,885,556 | 67,904,709 | ||||||||||||||||||||||||
|
Total consolidated obligations(2)
|
96,534,475 | 95,932,192 | 87,508,669 | 98,070,845 | 100,257,304 | ||||||||||||||||||||||||
|
Mandatorily redeemable capital stock(3)
|
84,310 | 85,231 | 101,662 | 7,967 | 1,152 | ||||||||||||||||||||||||
| Capital stock - putable | 3,161,332 | 3,132,498 | 2,752,740 | 3,338,359 | 3,340,830 | ||||||||||||||||||||||||
| Unrestricted retained earnings | 2,634,828 | 2,580,327 | 2,515,944 | 2,460,107 | 2,407,362 | ||||||||||||||||||||||||
| Restricted retained earnings | 838,173 | 816,013 | 791,312 | 766,937 | 741,694 | ||||||||||||||||||||||||
| Total retained earnings | 3,473,001 | 3,396,340 | 3,307,256 | 3,227,044 | 3,149,056 | ||||||||||||||||||||||||
| Accumulated other comprehensive income | 233,457 | 266,676 | 205,412 | 204,468 | 137,646 | ||||||||||||||||||||||||
| Total capital | 6,867,790 | 6,795,514 | 6,265,408 | 6,769,871 | 6,627,532 | ||||||||||||||||||||||||
|
Dividends paid(3)
|
34,141 | 34,417 | 41,665 | 48,228 | 48,596 | ||||||||||||||||||||||||
|
Income statement (for the quarter)
|
|||||||||||||||||||||||||||||
|
Net interest income after provision for credit losses(4)
|
$ | 164,585 | $ | 169,373 | $ | 171,063 | $ | 176,797 | $ | 203,687 | |||||||||||||||||||
| Other income | 1,405 | 9,095 | 1,769 | 16,007 | 15,224 | ||||||||||||||||||||||||
| Other expense | |||||||||||||||||||||||||||||
| Operating expenses | 28,828 | 31,663 | 29,844 | 28,194 | 30,095 | ||||||||||||||||||||||||
| Voluntary grants, subsidies, donations and AHP contributions | 10,300 | 5,415 | 3,693 | 19,861 | 9,964 | ||||||||||||||||||||||||
| Other | 3,635 | 4,019 | 3,735 | 4,470 | 4,719 | ||||||||||||||||||||||||
| Total other expenses | 42,763 | 41,097 | 37,272 | 52,525 | 44,778 | ||||||||||||||||||||||||
| AHP assessment | 12,425 | 13,870 | 13,683 | 14,033 | 17,415 | ||||||||||||||||||||||||
| Net income | 110,802 | 123,501 | 121,877 | 126,216 | 156,718 | ||||||||||||||||||||||||
| Performance ratios | |||||||||||||||||||||||||||||
|
Net interest margin(4)(5)
|
0.64 | % | 0.67 | % | 0.65 | % | 0.66 | % | 0.73 | % | |||||||||||||||||||
|
Net interest spread (4)(6)
|
0.38 | 0.42 | 0.40 | 0.37 | 0.42 | ||||||||||||||||||||||||
| Return on average assets | 0.42 | 0.49 | 0.47 | 0.46 | 0.56 | ||||||||||||||||||||||||
| Return on average equity | 6.39 | 7.34 | 7.36 | 7.30 | 8.88 | ||||||||||||||||||||||||
|
Return on average capital stock (7)
|
14.01 | 15.87 | 15.53 | 14.41 | 16.66 | ||||||||||||||||||||||||
| Total average equity to average assets | 6.64 | 6.62 | 6.39 | 6.35 | 6.26 | ||||||||||||||||||||||||
|
Regulatory capital ratio(8)
|
6.29 | 6.14 | 6.35 | 6.06 | 5.79 | ||||||||||||||||||||||||
|
Dividend payout ratio (3)(9)
|
30.81 | 27.87 | 34.19 | 38.21 | 31.01 | ||||||||||||||||||||||||
_____________________________
(1)Investments consist of interest-bearing deposits, federal funds sold, securities purchased under agreements to resell and securities classified as held-to-maturity, available-for-sale and trading.
(2)The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on the consolidated obligations of all of the FHLBanks. At September 30, 2026, June 30, 2026, March 31, 2026, December 31, 2025 and September 30, 2025, the outstanding consolidated obligations (at par value) of all of the FHLBanks totaled approximately $1.289 trillion, $1.331 trillion, $1.204 trillion, $1.152 trillion and $1.184 trillion, respectively. As of those dates, the Bank's outstanding consolidated obligations (at par value) were $98 billion, $97 billion, $88 billion, $99 billion and $101 billion, respectively.
(3)Mandatorily redeemable capital stock represents capital stock that is classified as a liability under accounting principles generally accepted in the United States of America ("U.S. GAAP"). Dividends on mandatorily redeemable capital stock are recorded as interest expense and excluded from dividends paid. Dividends paid on mandatorily redeemable capital stock totaled $1 million, $1 million, $107 thousand, $13 thousand and $82 thousand for the quarters ended September 30, 2026, June 30, 2026, March 31, 2026, December 31, 2025 and September 30, 2025, respectively.
(4)Under U.S. GAAP, changes in the fair value of a derivative in a qualifying fair value hedge along with changes in the fair value of the hedged asset or liability attributable to the hedged risk (the net amount of which is referred to as fair value hedge ineffectiveness) are recorded in net interest income. Fair value hedge ineffectiveness increased (reduced) net interest income by $(1.3) million, $(1.9) million, $(3.4) million, $(4.2) million and $1.5 million for the quarters ended September 30, 2026, June 30, 2026, March 31, 2026, December 31, 2025 and September 30, 2025, respectively. Included in the fair value hedge ineffectiveness amounts are price alignment amounts on cleared derivatives totaling $(3.2) million, (2.8) million, $(2.5) million, $(3.2) million and $(4.5) million for the quarters ended September 30, 2026, June 30, 2026, March 31, 2026, December 31, 2025 and September 30, 2025, respectively. For additional discussion, see the section entitled "Results of Operations" beginning on page 45 of this report.
(5)Net interest margin is net interest income as a percentage of average earning assets.
(6)Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(7)Return on average capital stock is derived by dividing net income by average capital stock balances excluding mandatorily redeemable capital stock.
(8)The regulatory capital ratio is computed by dividing regulatory capital (the sum of capital stock - putable, mandatorily redeemable capital stock and retained earnings) by total assets at each quarter-end.
(9)Dividend payout ratio is computed by dividing dividends paid by net income for each quarter.
Legislative and Regulatory Developments
Finance Agency Actions
On July 6, 2026, the Finance Agency rescinded Advisory Bulletin 2015-05, which provided guidance to the FHLBanks regarding core mission achievement. Pursuant to this guidance, each FHLBank's core mission achievement was assessed by dividing the sum of a FHLBank's primary mission assets (defined for this purpose as advances and mortgage loans held for portfolio) by a FHLBank's consolidated obligations minus certain holdings of U.S. Treasury securities (commonly referred to as the core mission asset or "CMA" ratio). Existing statutory and regulatory requirements relating to core mission activities, which are defined more broadly, remain in effect.
On July 13, 2026, the Finance Agency published a notice of proposed rulemaking that would repeal the New Business Activities regulation (12 CFR Part 1272). The regulation sets forth the requirements pertaining to the submission and approval of notices for a FHLBank to commence a new business activity, which is defined as any business activity undertaken, transacted, conducted, or engaged in by a FHLBank that entails material risks not previously managed by the FHLBank. Comments on the proposed rule were due by August 12, 2026.
21st Century ROAD to Housing Act
On July 11, 2026, the 21st Century ROAD to Housing Act (the "Act") was enacted. The Act contains a number of reforms that are designed to increase housing supply and improve affordability, which include barring large institutional investors from purchasing single-family homes (subject to certain exceptions), allowing community banks with under $10 billion in assets to exempt custodial deposits of up to 20 percent of total liabilities from regulations governing brokered deposits, and exempting a higher portion of reciprocal deposits of such community banks from the brokered deposit classification. These reforms are not expected to have a significant impact on the Bank's business including, but not limited to, the future demand for its advances.
Financial Condition
The following table provides selected period-end balances as of September 30, 2026 and December 31, 2025, as well as selected average balances for the nine-month period ended September 30, 2026 and the year ended December 31, 2025. As shown in the table, the Bank's total assets decreased by 1.6 percent between December 31, 2025 and September 30, 2026, due primarily to decreases in the Bank's advances and long-term investments, partially offset by increases in the Bank's mortgage loans held for portfolio and short-term liquidity holdings. Total consolidated obligations decreased by $1.5 billion during the nine months ended September 30, 2026 as consolidated obligation discount notes decreased by 3.7 billion and consolidated obligation bonds increased by 2.1 billion. The activity in each of the major balance sheet captions is discussed in the sections following the table.
SUMMARY OF CHANGES IN FINANCIAL CONDITION
(dollars in millions)
| September 30, 2026 | ||||||||||||||||||||||||||
| Increase (Decrease) | Balance at | |||||||||||||||||||||||||
| Balance | Amount | Percentage | December 31, 2025 | |||||||||||||||||||||||
| Advances | $ | 49,517 | $ | (1,303) | (2.6) | % | $ | 50,820 | ||||||||||||||||||
| Short-term liquidity holdings | ||||||||||||||||||||||||||
| Interest-bearing deposits | 2,640 | (86) | (3.2) | % | 2,726 | |||||||||||||||||||||
|
Securities purchased under agreements to resell
|
13,700 | (2,950) | (17.7) | % | 16,650 | |||||||||||||||||||||
| Federal funds sold | 11,915 | 4,506 | 60.8 | % | 7,409 | |||||||||||||||||||||
| Trading securities | ||||||||||||||||||||||||||
| U.S. Treasury Bills | 990 | 990 | * | - | ||||||||||||||||||||||
| U.S. Treasury Notes | 1,401 | (2,114) | (60.1) | % | 3,515 | |||||||||||||||||||||
| Total short-term liquidity holdings | 30,646 | 346 | 1.1 | % | 30,300 | |||||||||||||||||||||
| Long-term investments | ||||||||||||||||||||||||||
| Available-for-sale securities | 16,838 | (2,470) | (12.8) | % | 19,308 | |||||||||||||||||||||
| Held-to-maturity securities | 2,341 | 1,293 | 123.4 | % | 1,048 | |||||||||||||||||||||
| Total long-term investments | 19,179 | (1,177) | (5.8) | % | 20,356 | |||||||||||||||||||||
| Mortgage loans held for portfolio, net | 7,056 | 501 | 7.6 | % | 6,555 | |||||||||||||||||||||
| Total assets | 106,799 | (1,713) | (1.6) | % | 108,512 | |||||||||||||||||||||
| Consolidated obligations | ||||||||||||||||||||||||||
| Consolidated obligations - bonds | 60,032 | 2,146 | 3.7 | % | 57,886 | |||||||||||||||||||||
| Consolidated obligations - discount notes | 36,503 | (3,682) | (9.2) | % | 40,185 | |||||||||||||||||||||
| Total consolidated obligations | 96,535 | (1,536) | (1.6) | % | 98,071 | |||||||||||||||||||||
| Mandatorily redeemable capital stock | 84 | 76 | * | 8 | ||||||||||||||||||||||
| Capital stock | 3,161 | (177) | (5.3) | % | 3,338 | |||||||||||||||||||||
| Retained earnings | 3,473 | 246 | 7.6 | % | 3,227 | |||||||||||||||||||||
| Average advances | 53,094 | (10,448) | (16.4) | % | 63,542 | |||||||||||||||||||||
| Average total assets | 103,547 | (8,558) | (7.6) | % | 112,105 | |||||||||||||||||||||
| Average capital stock | 3,153 | (572) | (15.4) | % | 3,725 | |||||||||||||||||||||
*The percentage increase is not meaningful.
Advances
The Bank's advances balances (at par value) decreased by $1.1 billion (2 percent) during the first nine months of 2026. The decrease in advances during the first nine months of 2026 was attributable in large part to reductions in advances to Huntington National Bank, formerly Cadence Bank ($2.2 billion), USAA Federal Savings Bank ($1.5 billion), and Fifth Third Bank, formerly Comerica Bank ($1.0 billion). The reduction was partially offset by increases in advances to Simmons Bank ($1.1 billion), Bank OZK ($0.6 billion) and Southside Bank ($0.6 billion).
The following table presents advances outstanding, by type of institution, as of September 30, 2026 and December 31, 2025.
ADVANCES OUTSTANDING BY BORROWER TYPE
(par value, dollars in millions)
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||
| Commercial banks | $ | 16,606 | 33 | % | $ | 19,966 | 39 | % | |||||||||||||||
| Savings institutions | 11,693 | 24 | 12,141 | 24 | |||||||||||||||||||
| Insurance companies | 10,044 | 20 | 9,228 | 18 | |||||||||||||||||||
| Credit unions | 9,259 | 19 | 9,388 | 19 | |||||||||||||||||||
| Community Development Financial Institutions | 35 | - | 32 | - | |||||||||||||||||||
| Total member advances | 47,637 | 96 | 50,755 | 100 | |||||||||||||||||||
| Housing associates | 101 | - | 85 | - | |||||||||||||||||||
| Non-member borrowers | 2,000 | 4 | - | - | |||||||||||||||||||
| Total par value of advances | $ | 49,738 | 100 | % | $ | 50,840 | 100 | % | |||||||||||||||
|
Total par value of advances outstanding to CFIs (1)
|
$ | 4,329 | 9 | % | $ | 4,176 | 8 | % | |||||||||||||||
_____________________________
(1)The figures shown reflect the advances outstanding to CFIs as of September 30, 2026 and December 31, 2025 based upon the definitions of CFIs that applied as of those dates.
At September 30, 2026, advances outstanding to the Bank's five largest borrowers totaled $17.7 billion, representing 35.7 percent of the Bank's total outstanding advances as of that date. In comparison, advances outstanding to the Bank's five largest borrowers as of December 31, 2025 totaled $19.0 billion, representing 37.4 percent of the total outstanding advances at that date. The following table presents the Bank's five largest borrowers as of September 30, 2026.
FIVE LARGEST BORROWERS AS OF SEPTEMBER 30, 2026
(par value, dollars in millions)
| Name | Par Value of Advances |
Percent of Total Par Value of Advances |
||||||||||||
| USAA Federal Savings Bank | $ | 4,500 | 9.0 | % | ||||||||||
| American General Life Insurance Company | 4,419 | 8.9 | ||||||||||||
| Beal Bank USA | 4,400 | 8.9 | ||||||||||||
| Prosperity Bank | 2,400 | 4.8 | ||||||||||||
| Life Insurance Company of the Southwest | 2,020 | 4.1 | ||||||||||||
| $ | 17,739 | 35.7 | % | |||||||||||
In addition, the Variable Annuity Life Insurance Company (an affiliate of American General Life Insurance Company) had outstanding advances of $0.9 billion as of September 30, 2026, representing 1.8 percent of the Bank's total outstanding advances as of that date.
On February 2, 2026, Fifth Third Bancorp (Nasdaq: FITB) (domiciled in the Fifth District of the FHLBank System) acquired Comerica, Incorporated (NYSE: CMA), the holding company of Comerica Bank, and dissolved Comerica Bank's Ninth District
charter. Fifth Third Bank, National Association, a subsidiary of Fifth Third Bancorp, assumed Comerica Bank's advances and in so doing became a non-member borrower. On March 16, 2026, $1.0 billion of advances matured and were repaid by Fifth Third Bank. The remaining $2.0 billion of Fifth Third Bank's advances mature in March 2027 and March 2028. Advances to non-member borrowers cannot be renewed at maturity. It is possible that the remaining outstanding advances could be prepaid prior to their maturity.
On February 2, 2026, Huntington Bancshares, Incorporated (Nasdaq: HBAN) (domiciled in the Fifth District of the FHLBank System) acquired Cadence Bank (NYSE: CADE), and dissolved Cadence Bank's Ninth District charter. The Huntington National Bank, a subsidiary of Huntington Bancshares, Incorporated, assumed Cadence Bank's advances and in so doing became a non-member borrower. On February 11, 2026, The Huntington National Bank prepaid all of the then outstanding advances ($2.2 billion). In connection with these advance prepayments, the Bank received gross prepayment fees totaling $6.6 million.
The following table presents information regarding the composition of the Bank's advances by product type as of September 30, 2026 and December 31, 2025.
ADVANCES OUTSTANDING BY PRODUCT TYPE
(par value, dollars in millions)
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Balance |
Percentage of Total |
Balance |
Percentage of Total |
||||||||||||||||||||
| Fixed-rate | $ | 42,258 | 85.0 | % | $ | 43,783 | 86.1 | % | |||||||||||||||
| Adjustable/variable-rate indexed | 6,689 | 13.4 | 6,191 | 12.2 | |||||||||||||||||||
| Fixed-rate amortizing | 791 | 1.6 | 866 | 1.7 | |||||||||||||||||||
| Total par value | $ | 49,738 | 100.0 | % | $ | 50,840 | 100.0 | % | |||||||||||||||
The Bank is required by statute and regulation to obtain sufficient collateral from members/borrowers to fully secure all advances and other secured extensions of credit. The Bank's collateral arrangements with its members/borrowers and the types of collateral it accepts to secure advances are described in the 2025 10-K. To ensure the value of collateral pledged to the Bank is sufficient to secure its advances, the Bank applies various haircuts, or discounts, to determine the value of the collateral against which borrowers may borrow. From time to time, the Bank reevaluates the adequacy of its collateral haircuts under a range of stress scenarios to ensure that its collateral haircuts are sufficient to protect the Bank from credit losses on advances.
In addition, as described in the 2025 10-K, the Bank reviews the financial condition of its depository institution borrowers on at least a quarterly basis to identify any borrowers whose financial condition indicates they might pose an increased credit risk and, as needed, takes appropriate action. The Bank has not experienced any credit losses on advances since it was founded in 1932 and, based on its credit extension and collateral policies, management currently does not anticipate any credit losses on advances. Accordingly, the Bank has not provided any allowance for credit losses on advances.
Short-Term Liquidity Holdings
At September 30, 2026, the Bank's short-term liquidity holdings were comprised of $13.7 billion of overnight reverse repurchase agreements (of which $4.3 billion was transacted with the Federal Reserve Bank of New York), $11.9 billion of overnight federal funds sold, $2.6 billion of overnight interest-bearing deposits, $1.4 billion of U.S. Treasury Notes, and $1.0 billion of U.S. Treasury Bills. At December 31, 2025, the Bank's short-term liquidity holdings were comprised of $16.7 billion of overnight reverse repurchase agreements (of which $6.4 billion was transacted with the Federal Reserve Bank of New York), $7.4 billion of overnight federal funds sold, $3.5 billion of U.S. Treasury Notes and $2.7 billion of overnight interest-bearing deposits. All of the Bank's federal funds sold during the nine months ended September 30, 2026 were transacted with domestic bank counterparties, U.S. subsidiaries of foreign holding companies or U.S. branches of foreign financial institutions on an overnight basis. All of the Bank's interest-bearing deposits were transacted on an overnight basis with domestic bank counterparties.
As of September 30, 2026, the Bank's overnight federal funds sold consisted of $4.6 billion transacted with counterparties rated double-A and $7.3 billion transacted with counterparties rated single-A. At that same date, $0.5 billion of the Bank's interest-bearing deposits were held in a double-A rated bank and $2.1 billion of the Bank's interest-bearing deposits were held in single-A rated banks. The credit ratings presented in the two preceding sentences represent the lowest long-term rating assigned to the counterparty by Moody's or S&P.
The amount and composition of the Bank's short-term liquidity holdings fluctuates in response to several factors, including the anticipated demand for advances, the timing and extent of advance maturities and prepayments, changes in the Bank's deposit
balances, the Bank's pre-funding activities, prevailing conditions (or anticipated changes in conditions) in the short-term debt markets, the level of liquidity needed to satisfy Finance Agency requirements and, prior to July 6, 2026, the Finance Agency's expectations with regard to the Bank's core mission achievement. For a discussion of the Finance Agency's liquidity requirements, see the section below entitled "Liquidity and Capital Resources." For a discussion of the Finance Agency's recently rescinded guidance regarding core mission achievement, see the "Legislative and Regulatory Developments" section on page 35 of this report and Item 1 - Business - Core Mission Achievement in the 2025 10-K. For the six months ended June 30, 2026, the Bank's CMA ratio was 67.5 percent. In comparison, the Bank's CMA ratio was 70.3 percent for the year ended December 31, 2025. The decrease in the Bank's CMA ratio was due in large part to the decrease in its average advances balance during the six months ended June 30, 2026.
Long-Term Investments
At September 30, 2026 and December 31, 2025, the Bank's long-term investment portfolio was comprised substantially of GSE mortgage-backed securities ("MBS"). The composition of the portfolio as of those dates is set forth in the table below.
COMPOSITION OF LONG-TERM INVESTMENT PORTFOLIO
(in millions)
| Balance Sheet Classification | Total Long-Term | ||||||||||||||||||||||||||||
| Held-to-Maturity | Available-for-Sale | Investments | Held-to-Maturity | ||||||||||||||||||||||||||
| September 30, 2026 | (at amortized cost) | (at fair value) | (at carrying value) | (at fair value) | |||||||||||||||||||||||||
| GSE debentures | $ | - | $ | 514 | $ | 514 | $ | - | |||||||||||||||||||||
| MBS portfolio | |||||||||||||||||||||||||||||
| GSE residential MBS | 2,341 | - | 2,341 | 2,296 | |||||||||||||||||||||||||
| GSE commercial MBS | - | 16,324 | 16,324 | - | |||||||||||||||||||||||||
| Total MBS | 2,341 | 16,324 | 18,665 | 2,296 | |||||||||||||||||||||||||
| Total long-term investments | $ | 2,341 | $ | 16,838 | $ | 19,179 | $ | 2,296 | |||||||||||||||||||||
| Balance Sheet Classification | Total Long-Term | ||||||||||||||||||||||||||||
| Held-to-Maturity | Available-for-Sale | Investments | Held-to-Maturity | ||||||||||||||||||||||||||
| December 31, 2025 | (at amortized cost) | (at fair value) | (at carrying value) | (at fair value) | |||||||||||||||||||||||||
| GSE debentures | $ | - | $ | 1,499 | $ | 1,499 | $ | - | |||||||||||||||||||||
| MBS portfolio | |||||||||||||||||||||||||||||
| GSE residential MBS | 1,048 | - | 1,048 | 1,049 | |||||||||||||||||||||||||
|
GSE commercial MBS
|
- | 17,809 | 17,809 | - | |||||||||||||||||||||||||
| Total MBS | 1,048 | 17,809 | 18,857 | 1,049 | |||||||||||||||||||||||||
| Total long-term investments | $ | 1,048 | $ | 19,308 | $ | 20,356 | $ | 1,049 | |||||||||||||||||||||
During the nine months ended September 30, 2026, proceeds from maturities, prepayments and paydowns of held-to-maturity securities and available-for-sale securities totaled approximately $177 million and $1.827 billion, respectively. During the nine months ended September 30, 2025, proceeds from maturities, prepayments and paydowns of held-to-maturity securities and available-for-sale securities totaled approximately $89 million and $1.750 billion, respectively.
During the three and nine months ended September 30, 2026, 3 and 10 GSE commercial MBS ("CMBS") with aggregate par values of $102.7 million and $273.3 million, respectively, were prepaid. In connection with one of the GSE CMBS prepayments that occurred during the three months ended March 31, 2026, the Bank received a yield maintenance fee of $0.1 million. Yield maintenance fees are recorded in interest income on available-for-sale securities, net of unamortized purchase premiums or discounts and hedge basis adjustments. The unamortized purchase premiums or discounts and hedge basis adjustments on the prepaid securities totaled $0.7 million and $1.8 million for the three and nine months ended September 30, 2026, respectively, and were recorded as an increase in interest income on available-for-sale securities. During the three and nine months ended September 30, 2025, 9 and 20 GSE CMBS with aggregate par values of $284.3 million and $539.0 million, respectively, were prepaid. In connection with 3 and 4 of the GSE CMBS prepayments that occurred during the three and nine months ended September 30, 2025, the Bank received yield maintenance fees of $3.9 million and $4.7 million, respectively. The unamortized purchase premiums or discounts and hedge basis adjustments on the prepaid securities totaled $2.7 million and $7.7 million for the three and nine months ended September 30, 2025, respectively, and were recorded as an increase in interest income on available-for-sale-securities.
There were no sales of long-term investments during the nine months ended September 30, 2026 or 2025.
The Bank is precluded by regulation from purchasing additional MBS if such purchase would cause the aggregate amortized historical cost of its MBS holdings to exceed 300 percent of the Bank's total regulatory capital (the sum of its capital stock, mandatorily redeemable capital stock and retained earnings). However, the Bank is not required to sell any mortgage securities that it purchased at a time when it was in compliance with this ratio. For purposes of applying this limit, the Finance Agency defines "amortized historical cost" as the sum of the initial investment, less the amount of cash collected that reduces principal, less write-downs plus yield accreted to date. This definition excludes hedge basis adjustments which, for investment securities, are included in the U.S. GAAP definition of amortized cost basis. Under this definition, the Bank's MBS holdings totaled $19.4 billion as of September 30, 2026, which represented 289 percent of its total regulatory capital at that date. Given the constraints imposed by the Finance Agency's previous guidance regarding core mission achievement, the Bank did not acquire any MBS during the six months ended June 30, 2026. After that guidance was rescinded on July 6, 2026 and with capacity to purchase MBS, the Bank acquired $1.5 billion (par value) of GSE residential MBS ("RMBS"), all of which were collateralized mortgage obligations ("CMOs") designated as held-to-maturity, during the three months ended September 30, 2026. The Bank also acquired (based on trade date) $101.6 million (par value) of GSE CMBS during the three months ended September 30, 2026. All of the Bank's CMBS holdings are backed by multi-family loans. To the extent it has capacity, the Bank intends to continue to purchase GSE MBS if attractive opportunities are available.
With capacity to purchase MBS and its CMA ratio above 70 percent, the Bank acquired $968 million (par value) of GSE RMBS, all of which were CMOs designated as held-to-maturity, during the three months ended March 31, 2025. The Bank did not acquire any MBS during the three months ended June 30, 2025. During the three months ended September 30, 2025, the Bank acquired (based on trade date) $1.45 billion (par value) of GSE CMBS.
In addition to MBS, the Bank is also permitted under applicable policies and regulations to purchase certain other types of highly rated, long-term, non-MBS investments subject to certain limits. These investments include but are not limited to the non-MBS debt obligations of other GSEs. The Bank has not purchased any long-term, non-MBS investments since October 2019 and it does not currently intend to purchase additional long-term, non-MBS investments in the near future.
The Bank evaluates all outstanding available-for-sale securities in an unrealized loss position and all outstanding held-to-maturity securities as of the end of each calendar quarter to determine whether an allowance is needed to reserve for expected credit losses on the securities. As of September 30, 2026, the Bank determined that an allowance for credit losses was not necessary on any of its held-to-maturity or available-for-sale securities. For a summary of the Bank's evaluation, see "Item 1. Financial Statements" (specifically, Note 9 beginning on page 13 of this report).
As of September 30, 2026, the issuers of the Bank's holdings of GSE debentures and GSE MBS were rated Aa1 by Moody's and AA+ by S&P.
The Bank's GSE RMBS portfolio is comprised of CMOs with variable-rate coupons ($2.342 billion par value at September 30, 2026). These CMOs include caps that would limit increases in the variable-rate coupons if short-term interest rates rise above the caps, exposing the Bank to interest rate risk. In addition, if interest rates rise, prepayments on the mortgage loans underlying the securities would likely decline, thus lengthening the time that the securities would remain outstanding with their coupon rates capped. As of September 30, 2026, one-month SOFR was 3.75 percent and the effective interest rate caps on one-month SOFR (the interest cap rate minus the stated spread on the coupon) embedded in the CMO floaters ranged from 5.29 percent to 8.44 percent. The largest concentration of embedded effective caps ($2.297 billion) was below 6.00 percent. As of September 30, 2026, one-month SOFR rates were 154 basis points below the lowest effective interest rate cap embedded in the CMO floaters.
Mortgage Loans Held For Portfolio
As of September 30, 2026 and December 31, 2025, mortgage loans held for portfolio (net of allowance for credit losses) were $7.1 billion and $6.6 billion, respectively, representing approximately 6.6 percent and 6.0 percent, respectively, of the Bank's total assets at those dates. Through the MPF program, the Bank currently invests in only conventional residential mortgage loans originated by its participating financial institutions ("PFIs").
During the three and nine months ended September 30, 2026, the Bank acquired mortgage loans totaling $339 million ($336 million unpaid principal balance) and $1.097 billion ($1.084 billion unpaid principal balance), respectively. In comparison, the Bank acquired mortgage loans totaling $363 million ($355 million unpaid principal balance) and $1.009 billion ($990 million unpaid principal balance) during the three and nine months ended September 30, 2025, respectively. During the three and nine months ended September 30, 2026, mortgage loan prepayments totaled $133 million and $420 million, respectively, compared to $100 million and $249 million during the three and nine months ended September 30, 2025, respectively.
The Bank manages the liquidity, interest rate and prepayment risk of these loans, while the PFIs or their designees retain the servicing activities. As more fully discussed in the 2025 10-K, the Bank and the PFIs share in the credit risk of the loans. PFIs
are paid credit enhancement fees as compensation for retaining a portion of the credit risk on the loans sold to the Bank, as an incentive to minimize credit losses on those loans, and to share in the risk of loss on MPF loans.
The Bank is subject to two annual housing goals relating to its purchases of mortgage loans. First, at least 20 percent of any mortgage loans that are purchased in a calendar year (based on the number of loans acquired) must be comprised of loans to low-income or very low-income families, or to families in low-income areas. Second, at least 50 percent of the Bank's members that are selling mortgage loans to the Bank in a calendar year must be small members. During the first nine months of 2026, approximately 24 percent of the mortgage loans purchased by the Bank were comprised of loans that were made to low-income or very low-income families, or to families in low-income areas and approximately 55 percent of members that sold mortgage loans to the Bank were small members.
Consolidated Obligations and Deposits
During the nine months ended September 30, 2026, the Bank's outstanding consolidated obligation bonds (at par value) increased by $2.5 billion and its outstanding consolidated obligation discount notes (at par value) decreased by $3.7 billion. The following table presents the composition of the Bank's outstanding bonds at September 30, 2026 and December 31, 2025.
COMPOSITION OF CONSOLIDATED OBLIGATION BONDS OUTSTANDING
(par value, dollars in millions)
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Balance |
Percentage of Total |
Balance |
Percentage of Total |
||||||||||||||||||||
| Variable-rate SOFR-indexed | |||||||||||||||||||||||
| Non-Callable | $ | 28,050 | 46.1 | % | $ | 21,099 | 36.2 | % | |||||||||||||||
| Callable | - | - | 750 | 1.3 | |||||||||||||||||||
| Fixed rate | |||||||||||||||||||||||
| Callable | 24,227 | 39.9 | 23,387 | 40.1 | |||||||||||||||||||
| Non-Callable | 5,905 | 9.7 | 8,568 | 14.7 | |||||||||||||||||||
| Step-up | |||||||||||||||||||||||
| Callable | 1,514 | 2.5 | 2,412 | 4.1 | |||||||||||||||||||
| Non-callable | 1,088 | 1.8 | 2,110 | 3.6 | |||||||||||||||||||
| Callable step-down | 15 | - | 15 | - | |||||||||||||||||||
| Total par value | $ | 60,799 | 100.0 | % | $ | 58,341 | 100.0 | % | |||||||||||||||
During the first nine months of 2026, the Bank issued $63.3 billion of consolidated obligation bonds and approximately $88.1 billion of consolidated obligation discount notes (excluding those with overnight terms), the proceeds of which were used primarily to replace maturing and called consolidated obligations. At September 30, 2026 and December 31, 2025, discount notes comprised approximately 38 percent and 41 percent, respectively, of the Bank's total consolidated obligations. During the nine months ended September 30, 2026, the Bank's bond issuance (based on trade date and par value) consisted of approximately $16.2 billion of swapped fixed-rate callable bonds (including step-up bonds), $49.7 billion of SOFR-indexed bonds and $0.6 billion of fixed-rate, predominately short-term non-callable bonds (which were not swapped).
The weighted average SOFR-equivalent cost of swapped and variable-rate consolidated obligation bonds issued by the Bank approximated SOFR plus 4 basis points during the three months ended September 30, 2026, compared to SOFR plus 1 basis point during the three months ended June 30, 2026, SOFR minus 1 basis point during the three months ended March 31, 2026 and SOFR minus 1 basis point during the three months ended September 30, 2025.
Demand and term deposits were approximately $2.6 billion and $2.2 billion at September 30, 2026 and December 31, 2025, respectively. The size of the Bank's deposit base varies as market factors change, including the attractiveness of the Bank's deposit pricing relative to the rates available to members on alternative money market investments, members' investment preferences with respect to the maturity of their investments, and member liquidity.
Capital
The Bank's outstanding capital stock (excluding mandatorily redeemable capital stock) was $3.2 billion and $3.3 billion at September 30, 2026 and December 31, 2025, respectively. The Bank's average outstanding capital stock (excluding
mandatorily redeemable capital stock) was approximately $3.2 billion and $3.7 billion for the nine months ended September 30, 2026 and the year ended December 31, 2025, respectively.
Mandatorily redeemable capital stock outstanding at September 30, 2026 and December 31, 2025 was $84.3 million and $8.0 million, respectively. Although mandatorily redeemable capital stock is excluded from capital for financial reporting purposes, it is considered capital for regulatory purposes.
At September 30, 2026 and December 31, 2025, the Bank's five largest shareholders collectively held $830.9 million and $898.5 million, respectively, of capital stock, which represented 25.6 percent and 26.9 percent, respectively, of the Bank's total outstanding capital stock (including mandatorily redeemable capital stock) as of those dates. The following table presents the Bank's five largest shareholders as of September 30, 2026.
FIVE LARGEST SHAREHOLDERS AS OF SEPTEMBER 30, 2026
(par value, dollars in thousands)
| Name | Par Value of Capital Stock | Percent of Total Par Value of Capital Stock | ||||||||||||
| USAA Federal Savings Bank | $ | 213,822 | 6.6 | % | ||||||||||
| American General Life Insurance Company | 200,712 | 6.2 | ||||||||||||
| Beal Bank USA | 165,205 | 5.1 | ||||||||||||
| American Airlines Federal Credit Union | 129,356 | 4.0 | ||||||||||||
| Randolph-Brooks Federal Credit Union | 121,818 | 3.7 | ||||||||||||
| $ | 830,913 | 25.6 | % | |||||||||||
As of September 30, 2026, all of the stock held by the five institutions shown in the table above was classified as capital in the statement of condition.
Six affiliates of USAA Federal Savings Bank held a combined total of $32,485,000 of the Bank's capital stock as of September 30, 2026. In addition, as of that date, the Variable Annuity Life Insurance Company, an affiliate of American General Life Insurance Company, held $49,247,000 of the Bank's capital stock. Further, Monet Bank (which was previously known as Beal Bank SSB), an affiliate of Beal Bank USA, held $1,419,000 of the Bank's capital stock. In aggregate, USAA-affiliated institutions, institutions affiliated with American General Life Insurance Company and institutions affiliated with Beal Bank USA held $246,307,000, $249,959,000 and $166,624,000, respectively, of the Bank's capital stock as of September 30, 2026, representing 7.6 percent, 7.7 percent and 5.1 percent, respectively, of the Bank's total outstanding capital stock (including mandatorily redeemable capital stock) as of that date.
The following table presents outstanding capital stock, by type of institution, as of September 30, 2026 and December 31, 2025.
CAPITAL STOCK OUTSTANDING BY INSTITUTION TYPE
(par value, dollars in millions)
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Par Value of Capital Stock | Percent of Total Par Value of Capital Stock | Par Value of Capital Stock | Percent of Total Par Value of Capital Stock | ||||||||||||||||||||
| Commercial banks | $ | 1,208 | 37 | % | $ | 1,399 | 42 | % | |||||||||||||||
| Credit unions | 853 | 26 | 812 | 25 | |||||||||||||||||||
| Insurance companies | 561 | 17 | 545 | 16 | |||||||||||||||||||
| Savings institutions | 537 | 17 | 580 | 17 | |||||||||||||||||||
| Community Development Financial Institutions | 2 | - | 2 | - | |||||||||||||||||||
| Total capital stock classified as capital | 3,161 | 97 | 3,338 | 100 | |||||||||||||||||||
| Mandatorily redeemable capital stock | 84 | 3 | 8 | - | |||||||||||||||||||
| Total regulatory capital stock | $ | 3,245 | 100 | % | $ | 3,346 | 100 | % | |||||||||||||||
During the nine months ended September 30, 2026, the Bank's retained earnings increased by $246 million, from $3.227 billion at December 31, 2025 to $3.473 billion at September 30, 2026. During this same period, the Bank paid dividends on capital
stock totaling $110.2 million, which represented a weighted average annualized dividend rate of 4.531 percent. These dividends were paid in the form of capital stock with any fractional shares paid in cash. The Bank's first quarter dividends on Class B-1 Stock and Class B-2 Stock were paid at annualized rates of 4.09 percent (a rate equal to average overnight SOFR for the fourth quarter of 2025 plus 0.1 percent) and 5.09 percent (a rate equal to average overnight SOFR for the fourth quarter of 2025 plus 1.1 percent), respectively. The first quarter dividends, which were applied to average Class B-1 Stock and average Class B-2 Stock held during the period from October 1, 2025 through December 31, 2025, were paid on March 24, 2026. The Bank's second quarter dividends on Class B-1 Stock and Class B-2 Stock were paid at annualized rates of 3.76 percent (a rate equal to average overnight SOFR for the first quarter of 2026 plus 0.1 percent) and 4.76 percent (a rate equal to average overnight SOFR for the first quarter of 2026 plus 1.1 percent), respectively. The second quarter dividends, which were applied to average Class B-1 Stock and average Class B-2 Stock held during the period from January 1, 2026 through March 31, 2026, were paid on June 24, 2026. The Bank's third quarter dividends on Class B-1 Stock and Class B-2 Stock were paid at annualized rates of 3.72 percent (a rate equal to average overnight SOFR for the second quarter of 2026 plus 0.1 percent) and 4.72 percent (a rate equal to average overnight SOFR for the second quarter of 2026 plus 1.1 percent), respectively. The third quarter dividends, which were applied to average Class B-1 Stock and average Class B-2 Stock held during the period from April 1, 2026 through June 30, 2026, were paid on September 23, 2026.
The Bank is precluded from paying dividends in the form of capital stock if excess stock held by its shareholders is greater than 1 percent of the Bank's total assets or if, after the issuance of such shares, excess stock held by its shareholders would be greater than 1 percent of the Bank's total assets.
While there can be no assurances about future dividends or future dividend rates, the target range for quarterly dividends on Class B-1 Stock is an annualized rate that approximates the average overnight SOFR rate plus 0 - 0.5 percent and the target range for quarterly dividends on Class B-2 Stock is an annualized rate that approximates the average overnight SOFR rate plus 1.0 - 1.5 percent. Dividends are based upon shareholders' average capital stock holdings and the average benchmark index rate for the preceding quarter.
Derivatives and Hedging Activities
The Bank enters into interest rate swap, swaption and cap agreements (collectively, interest rate exchange agreements) to manage its exposure to changes in interest rates and/or to adjust the effective maturity, repricing index and/or frequency or option characteristics of financial instruments. This use of derivatives is integral to the Bank's financial management strategy, and the impact of these interest rate exchange agreements permeates the Bank's financial statements. For additional discussion, see the Bank's 2025 10-K.
Certain derivative transactions that the Bank enters into are required to be cleared through a third-party central clearinghouse. As of September 30, 2026, the Bank had cleared trades outstanding with notional amounts totaling $58.3 billion. Cleared trades are subject to initial and variation margin requirements established by the clearinghouse and its clearing members. Collateral (or variation margin on daily settled derivative contracts) is typically delivered/paid (or returned/received) daily and, unlike bilateral derivatives, is not subject to any maximum unsecured credit exposure thresholds. The fair values of all interest rate derivatives (including accrued interest receivables and payables) with each clearing member of each clearinghouse are offset for purposes of measuring credit exposure and determining initial and variation margin requirements. With cleared transactions, the Bank is exposed to credit risk in the event that the clearinghouse or the clearing member fails to meet its obligations to the Bank. The Bank has determined that the exercise by a non-defaulting party of the setoff rights incorporated in its cleared derivative transactions should be upheld in the event of a default, including a bankruptcy, insolvency or similar proceeding involving the clearinghouse or any of its clearing members or both.
The Bank has also transacted interest rate exchange agreements bilaterally with large financial institutions (with which it has in place master agreements). In doing so, the Bank has generally exchanged a defined market risk for the risk that the counterparty will not be able to fulfill its obligations in the future. The Bank manages this credit risk by spreading its transactions among as many highly rated counterparties as is practicable, by entering into master agreements with each of its non-member bilateral counterparties that include maximum unsecured credit exposure thresholds ranging from $50,000 to $500,000, and by monitoring its exposure to each counterparty on a daily basis. In addition, all of the Bank's master agreements with its bilateral counterparties include netting arrangements whereby the fair values of all interest rate derivatives (including accrued interest receivables and payables) with each counterparty are offset for purposes of measuring credit exposure. As of September 30, 2026, the notional balance of outstanding interest rate exchange agreements transacted with non-member bilateral counterparties totaled $49.9 billion.
Under the Bank's master agreements with its non-member bilateral counterparties, the unsecured credit exposure thresholds must be met before collateral is required to be delivered by one party to the other party. Once the counterparties agree to the valuations of the interest rate exchange agreements, and if it is determined that the unsecured credit exposure exceeds the threshold, then, upon a request made by the unsecured counterparty, the party that has the unsecured obligation to the counterparty bearing the risk of the unsecured credit exposure generally must deliver sufficient collateral (or return a sufficient
amount of previously remitted collateral) to reduce the unsecured credit exposure to zero (or, in the case of pledged securities, to an amount equal to the discount applied to the securities under the terms of the master agreement). Collateral is delivered (or returned) daily when these thresholds are met. The master agreements with the Bank's non-member bilateral counterparties require the delivery of collateral consisting of cash or very liquid, highly rated securities (generally consisting of U.S. government-guaranteed or agency debt securities) if credit risk exposures rise above the thresholds.
While the Bank is able in certain instances to continue to enter into uncleared trades on a bilateral basis, transactions entered into on and after September 1, 2022 are subject to two-way initial margin requirements if certain thresholds are met. The Bank is required to post initial margin when its unmargined exposure (excluding legacy derivatives) exceeds $50 million on a counterparty-by-counterparty basis.
As of September 30, 2026, cash collateral totaling $367 million had been delivered by the Bank to certain of its non-member bilateral derivative counterparties under the terms of the collateral exchange agreements. At that date, certain of the Bank's non-member bilateral derivative counterparties had delivered cash collateral totaling $616 million to the Bank under the terms of the collateral exchange agreements. At September 30, 2026, the Bank had pledged securities with a carrying value (and fair value) of $91 million to three bilateral derivative counterparties to meet its initial margin requirements and those same counterparties had pledged securities with a fair value of $97 million to the Bank to meet their initial margin requirements. Further, as of September 30, 2026, the Bank had pledged $140 million (carrying value and fair value) of securities to satisfy initial margin requirements associated with its cleared derivatives. In addition, as of September 30, 2026, the Bank had received $388 million in cash variation margin to settle its cleared derivatives with its clearinghouse counterparties.
The following table provides information regarding the Bank's derivative counterparty credit exposure as of September 30, 2026.
DERIVATIVES COUNTERPARTY CREDIT EXPOSURE
(dollars in millions)
|
Credit Rating(1)
|
Number of Bilateral Counterparties |
Notional Principal(2)
|
Net Derivatives Fair Value Before Collateral | Cash Collateral Pledged To (From) Counterparty | Net Other Collateral Pledged To (From) Counterparty | Net Credit Exposure | ||||||||||||||||||||||||||||||||
| Non-member counterparties | ||||||||||||||||||||||||||||||||||||||
| Asset positions with credit exposure | ||||||||||||||||||||||||||||||||||||||
|
Single-A (4)
|
4 | $ | 29,316.3 | $ | 600.4 | $ | (591.5) | $ | 2.2 | $ | 11.1 | |||||||||||||||||||||||||||
|
Cleared derivatives (3)
|
- | 6,721.8 | 0.2 | - | 32.1 | 32.3 | ||||||||||||||||||||||||||||||||
| Liability positions with credit exposure | ||||||||||||||||||||||||||||||||||||||
| Single-A | 6 | 5,233.7 | (43.3) | 44.8 | - | 1.5 | ||||||||||||||||||||||||||||||||
|
Cleared derivatives (3)
|
- | 51,617.6 | (0.8) | - | 108.2 | 107.4 | ||||||||||||||||||||||||||||||||
| Total derivative positions with non-member counterparties to which the Bank had credit exposure | 10 | 92,889.4 | 556.5 | (546.7) | 142.5 | 152.3 | ||||||||||||||||||||||||||||||||
| Asset positions without credit exposure | 1 | 1,779.7 | 24.2 | (24.3) | - | - | ||||||||||||||||||||||||||||||||
| Liability positions without credit exposure | 9 | 13,617.7 | (327.4) | 322.7 | (8.0) | - | ||||||||||||||||||||||||||||||||
| Total derivative positions with non-member counterparties to which the Bank did not have credit exposure | 10 | 15,397.4 | (303.2) | 298.4 | (8.0) | - | ||||||||||||||||||||||||||||||||
| Total non-member counterparties | 20 | 108,286.8 | 253.3 | $ | (248.3) | $ | 134.5 | $ | 152.3 | |||||||||||||||||||||||||||||
| Member institutions | ||||||||||||||||||||||||||||||||||||||
|
Interest rate exchange agreements (5)
|
||||||||||||||||||||||||||||||||||||||
| Liability positions | 1 | 3.1 | - | |||||||||||||||||||||||||||||||||||
| Mortgage delivery commitments | - | 12.6 | - | |||||||||||||||||||||||||||||||||||
| Total member institutions | 1 | 15.7 | - | |||||||||||||||||||||||||||||||||||
| Total | 21 | $ | 108,302.5 | $ | 253.3 | |||||||||||||||||||||||||||||||||
_____________________________
(1)Credit ratings shown in the table reflect the lowest rating from Moody's or S&P and are as of September 30, 2026.
(2)Includes amounts that had not settled as of September 30, 2026.
(3)The Bank's cleared derivatives were transacted with clearinghouses that are rated double-A.
(4)The figures for asset positions with credit exposure to counterparties rated Single-A included transactions with a counterparty that is affiliated with a member of the Bank. Transactions with that counterparty had an aggregate notional principal of $5.7 billion and a net credit exposure of $2.7 million.
(5)Interest rate exchange agreements with members and the collateral provisions associated therewith are discussed in the paragraph below.
Previously, the Bank offered interest rate exchange agreements to its members to assist them in meeting their risk management objectives. In derivative transactions with its members, the Bank acts as an intermediary by entering into an interest rate exchange agreement with the member and then entering into an offsetting interest rate exchange agreement with one of the Bank's non-member derivative counterparties discussed above. For the one remaining interest rate exchange agreement, the Bank requires the member to post eligible collateral in an amount equal to the sum of the net market value of the member's derivative transaction with the Bank (if the value is positive to the Bank) plus a percentage of the notional amount of the interest rate swap, with its market value determined on at least a monthly basis. Eligible collateral for this derivative transaction consists of collateral that is eligible to secure advances and other obligations under the member's Advances and Security Agreement with the Bank.
Results of Operations
Net Income
Net income for the three months ended September 30, 2026 and 2025 was $110.8 million and $156.7 million, respectively. The Bank's net income for the three months ended September 30, 2026 represented an annualized return on average capital stock ("ROCS") of 14.01 percent. In comparison, the Bank's ROCS was 16.66 percent for the three months ended September 30, 2025. Net income for the nine months ended September 30, 2026 and 2025 was $356.2 million and $456.3 million, respectively. The Bank's net income for the nine months ended September 30, 2026 represented an annualized ROCS of 15.10 percent. In comparison, the Bank's ROCS was 16.02 percent for the nine months ended September 30, 2025. To derive the Bank's ROCS, net income is divided by average capital stock outstanding excluding stock that is classified as mandatorily redeemable capital stock. The following table presents the components of net income for the three and nine months ended September 30, 2026 and 2025. The factors contributing to the changes in the Bank's net income are discussed in the sections following the table.
SUMMARY OF CHANGES IN NET INCOME
(dollars in thousands)
| Increase (Decrease) | ||||||||||||||||||||||||||
| 2026 | 2025 | Amount | Percentage | |||||||||||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||||
| Net interest income after provision for credit losses | $ | 164,585 | $ | 203,687 | $ | (39,102) | (19.2) | % | ||||||||||||||||||
| Other income | 1,405 | 15,224 | (13,819) | (90.8) | ||||||||||||||||||||||
| Other expense | 42,763 | 44,778 | (2,015) | (4.5) | ||||||||||||||||||||||
| Income before assessments | 123,227 | 174,133 | (50,906) | (29.2) | ||||||||||||||||||||||
| AHP assessment | 12,425 | 17,415 | (4,990) | (28.7) | ||||||||||||||||||||||
| Net income | $ | 110,802 | $ | 156,718 | $ | (45,916) | (29.3) | % | ||||||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
| Net interest income after provision for credit losses | $ | 505,021 | $ | 585,467 | $ | (80,446) | (13.7) | % | ||||||||||||||||||
| Other income | 12,269 | 43,744 | (31,475) | (72.0) | ||||||||||||||||||||||
| Other expense | 121,132 | 122,144 | (1,012) | (0.8) | ||||||||||||||||||||||
| Income before assessments | 396,158 | 507,067 | (110,909) | (21.9) | ||||||||||||||||||||||
| AHP assessment | 39,978 | 50,729 | (10,751) | (21.2) | ||||||||||||||||||||||
| Net income | $ | 356,180 | $ | 456,338 | $ | (100,158) | (21.9) | % | ||||||||||||||||||
Net Interest Income After Provision for Credit Losses
For the three months ended September 30, 2026, the Bank's net interest income after provision for credit losses was $164.6 million compared to $203.7 million for the comparable period in 2025. The $39.1 million decrease in net interest income after provision for credit losses for the three months ended September 30, 2026, as compared to the corresponding period in 2025, was due largely to the $8.4 billion decrease in the average balances of the Bank's interest-earning assets (from $111.5 billion during the three months ended September 30, 2025 to $103.1 billion during the comparable period in 2026), lower average capital balances, lower rates of return on the Bank's invested capital, a $5.9 million decrease in net gains recorded in connection with GSE CMBS prepayments (as previously discussed in the Long-Term Investments section beginning on page 39 of this report), and a $4.1 million unfavorable change in fair value hedge ineffectiveness, partially offset by a $1.3 million decrease in net price alignment expense.
For the nine months ended September 30, 2026, the Bank's net interest income after provision for credit losses was $505.0 million compared to $585.5 million for the comparable period in 2025. The $80.4 million decrease in net interest income after provision for credit losses for the nine months ended September 30, 2026, as compared to the corresponding period in 2025, was due largely to the $10.1 billion decrease in the average balances of the Bank's interest-earning assets (from $113.2 billion during the nine months ended September 30, 2025 to $103.1 billion during the comparable period in 2026), lower average capital balances, and lower rates of return on the Bank's invested capital. For the comparable nine-month periods, a $10.5 million decrease in net gains recorded in connection with GSE CMBS prepayments was more than offset by a $1.6 million favorable change in fair value hedge ineffectiveness and a $10.5 million decrease in net price alignment expense.
The Bank's net interest margin was 64 basis points and 65 basis points for the three and nine months ended September 30, 2026, respectively, compared to 73 basis points and 70 basis points for the three and nine months ended September 30, 2025, respectively. Net interest margin, or net interest income as a percentage of average earning assets, is a function of net interest spread and the rates of return on assets funded by the investment of the Bank's capital. Net interest spread is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. The Bank's net interest spread was 38 basis points and 42 basis points for the three months ended September 30, 2026 and 2025, respectively, and 40 basis points for both the nine months ended September 30, 2026 and 2025. The Bank's net interest margin and net interest spread are impacted positively or negatively, as the case may be, by the amount of fair value hedge ineffectiveness recorded in net interest income (including the price alignment amounts on cleared derivatives). In addition, the Bank's net interest margin and net interest spread are impacted positively by the amount of net prepayment fees on advances and net gains recorded on GSE CMBS prepayments which, for the three and nine months ended September 30, 2026, totaled $1.6 million and $6.2 million, respectively, compared to $8.1 million and $14.7 million for the corresponding periods in 2025.
U.S. GAAP requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness along with the changes in the fair value of the hedged item attributable to the hedged risk be presented in the same income statement line that is used to present the earnings effect of the hedged item. The following table presents the fair value hedge ineffectiveness and price alignment amounts that are recorded in net interest income for the three and nine months ended September 30, 2026 and 2025.
FAIR VALUE HEDGE INEFFECTIVENESS AND PRICE ALIGNMENT AMOUNT RECORDED IN NET INTEREST INCOME
(dollars in thousands)
| Advances | Investments | CO Bonds | CO Discount Notes | Total | ||||||||||||||||||||||||||||
| Three Months Ended September 30, 2026 | ||||||||||||||||||||||||||||||||
| Gains (losses) on designated fair value hedges | $ | 2,431 | $ | (1,936) | $ | 1,435 | $ | - | $ | 1,930 | ||||||||||||||||||||||
|
Price alignment expense (1)
|
(1,474) | (1,469) | (9) | (230) | (3,182) | |||||||||||||||||||||||||||
| $ | 957 | $ | (3,405) | $ | 1,426 | $ | (230) | $ | (1,252) | |||||||||||||||||||||||
| Three Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||
| Gains on designated fair value hedges | $ | 16 | $ | 1,951 | $ | 4,067 | $ | - | $ | 6,034 | ||||||||||||||||||||||
|
Price alignment expense (1)
|
(1,752) | (2,411) | (30) | (309) | (4,502) | |||||||||||||||||||||||||||
| $ | (1,736) | $ | (460) | $ | 4,037 | $ | (309) | $ | 1,532 | |||||||||||||||||||||||
| Nine Months Ended September 30, 2026 | ||||||||||||||||||||||||||||||||
| Gains on designated fair value hedges | $ | 1,508 | $ | 206 | $ | 125 | $ | - | $ | 1,839 | ||||||||||||||||||||||
|
Price alignment expense (1)
|
(3,567) | (4,165) | (112) | (608) | (8,452) | |||||||||||||||||||||||||||
| $ | (2,059) | $ | (3,959) | $ | 13 | $ | (608) | $ | (6,613) | |||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | ||||||||||||||||||||||||||||||||
| Gains (losses) on designated fair value hedges | $ | (997) | $ | 794 | $ | 393 | $ | - | $ | 190 | ||||||||||||||||||||||
|
Price alignment expense (1)
|
(7,855) | (9,505) | (345) | (1,228) | (18,933) | |||||||||||||||||||||||||||
| $ | (8,852) | $ | (8,711) | $ | 48 | $ | (1,228) | $ | (18,743) | |||||||||||||||||||||||
(1) Relates to derivatives for which variation margin payments are characterized as daily settlements.
The following table presents average balance sheet amounts together with the total dollar amounts of interest income and expense and the weighted average interest rates of major earning asset categories and the funding sources for those earning assets for the three months ended September 30, 2026 and 2025.
YIELD AND SPREAD ANALYSIS
(dollars in millions)
| For the Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
|
Average Balance |
Interest Income/ Expense |
Average
Rate(1)
|
Average Balance |
Interest Income/ Expense |
Average
Rate(1)
|
||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits (2)
|
$ | 3,511 | $ | 33 | 3.75 | % | $ | 3,404 | $ | 38 | 4.39 | % | |||||||||||||||||||||||
| Securities purchased under agreements to resell | 8,514 | 80 | 3.73 | % | 4,178 | 46 | 4.35 | % | |||||||||||||||||||||||||||
| Federal funds sold | 7,372 | 69 | 3.72 | % | 10,438 | 115 | 4.37 | % | |||||||||||||||||||||||||||
| Investments | |||||||||||||||||||||||||||||||||||
| Trading | 4,481 | 43 | 3.90 | % | 3,488 | 34 | 3.88 | % | |||||||||||||||||||||||||||
|
Available-for-sale (3)
|
17,031 | 203 | 4.77 | % | 18,700 | 254 | 5.43 | % | |||||||||||||||||||||||||||
|
Held-to-maturity (3)
|
2,064 | 20 | 3.90 | % | 1,125 | 15 | 5.41 | % | |||||||||||||||||||||||||||
|
Advances (4)
|
53,136 | 543 | 4.08 | % | 63,935 | 752 | 4.71 | % | |||||||||||||||||||||||||||
|
Mortgage loans held for portfolio (5)
|
6,988 | 83 | 4.74 | % | 6,276 | 72 | 4.59 | % | |||||||||||||||||||||||||||
| Total earning assets | 103,097 | 1,074 | 4.17 | % | 111,544 | 1,326 | 4.75 | % | |||||||||||||||||||||||||||
| Cash and due from banks | 13 | 15 | |||||||||||||||||||||||||||||||||
| Other assets | 890 | 610 | |||||||||||||||||||||||||||||||||
|
Derivatives netting adjustment (2)
|
(602) | (456) | |||||||||||||||||||||||||||||||||
|
Fair value adjustment on available-for-sale securities (3)
|
234 | 85 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 103,632 | 1,074 | 4.15 | % | $ | 111,798 | 1,326 | 4.74 | % | |||||||||||||||||||||||||
| Liabilities and Capital | |||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits (2)
|
$ | 2,977 | 27 | 3.57 | % | $ | 1,792 | 19 | 4.32 | % | |||||||||||||||||||||||||
| Consolidated obligations | |||||||||||||||||||||||||||||||||||
| Bonds | 52,982 | 504 | 3.81 | % | 75,674 | 831 | 4.39 | % | |||||||||||||||||||||||||||
| Discount notes | 40,005 | 377 | 3.77 | % | 26,059 | 272 | 4.16 | % | |||||||||||||||||||||||||||
|
Mandatorily redeemable capital stock and other borrowings
|
85 | 1 | 4.74 | % | 2 | - | 5.48 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 96,049 | 909 | 3.79 | % | 103,527 | 1,122 | 4.33 | % | |||||||||||||||||||||||||||
| Other liabilities | 1,308 | 1,728 | |||||||||||||||||||||||||||||||||
|
Derivatives netting adjustment (2)
|
(602) | (456) | |||||||||||||||||||||||||||||||||
| Total liabilities | 96,755 | 909 | 3.76 | % | 104,799 | 1,122 | 4.28 | % | |||||||||||||||||||||||||||
| Total capital | 6,877 | 6,999 | |||||||||||||||||||||||||||||||||
| Total liabilities and capital | $ | 103,632 | 3.51 | % | $ | 111,798 | 4.01 | % | |||||||||||||||||||||||||||
| Net interest income | $ | 165 | $ | 204 | |||||||||||||||||||||||||||||||
| Net interest margin | 0.64 | % | 0.73 | % | |||||||||||||||||||||||||||||||
| Net interest spread | 0.38 | % | 0.42 | % | |||||||||||||||||||||||||||||||
| Impact of non-interest bearing funds | 0.26 | % | 0.31 | % | |||||||||||||||||||||||||||||||
_____________________________
(1)Percentages are annualized figures. Amounts used to calculate average rates are based on whole dollars. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.
(2)The Bank offsets the fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against the fair value amounts recognized for derivative instruments transacted under a master netting agreement or other similar arrangement. The average balances of interest-bearing deposit assets for the three months ended September 30, 2026 and 2025 in the table above include $238 million and $378 million, respectively, which are classified as derivative assets/liabilities on the statements of condition. In addition, the average balances of interest-bearing deposit liabilities for the three months ended September 30, 2026 and 2025 in the table above include $363 million and $77 million, respectively, which are classified as derivative assets/liabilities on the statements of condition.
(3)Average balances for available-for-sale and held-to-maturity securities are calculated based upon amortized cost.
(4)Interest income and average rates include net prepayment fees on advances.
(5)The average balances for mortgage loans held for portfolio in the table above include $53 million and $35 million of non-accruing loans for the three months ended September 30, 2026 and 2025, respectively.
The following table presents average balance sheet amounts together with the total dollar amounts of interest income and expense and the weighted average interest rates of major earning asset categories and the funding sources for those earning assets for the nine months ended September 30, 2026 and 2025.
YIELD AND SPREAD ANALYSIS
(dollars in millions)
| For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
|
Average Balance |
Interest Income/ Expense |
Average
Rate(1)
|
Average Balance |
Interest Income/ Expense |
Average
Rate(1)
|
||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits (2)
|
$ | 3,298 | $ | 92 | 3.74 | % | $ | 3,263 | $ | 108 | 4.41 | % | |||||||||||||||||||||||
| Securities purchased under agreements to resell | 7,527 | 209 | 3.71 | % | 3,553 | 116 | 4.37 | % | |||||||||||||||||||||||||||
| Federal funds sold | 7,781 | 215 | 3.70 | % | 11,780 | 387 | 4.39 | % | |||||||||||||||||||||||||||
| Investments | |||||||||||||||||||||||||||||||||||
| Trading | 5,241 | 146 | 3.72 | % | 3,140 | 91 | 3.87 | % | |||||||||||||||||||||||||||
|
Available-for-sale (3)
|
17,950 | 628 | 4.67 | % | 18,699 | 757 | 5.40 | % | |||||||||||||||||||||||||||
|
Held-to-maturity (3)
|
1,352 | 43 | 4.28 | % | 999 | 38 | 5.15 | % | |||||||||||||||||||||||||||
|
Advances (4)
|
53,094 | 1,604 | 4.03 | % | 65,770 | 2,312 | 4.69 | % | |||||||||||||||||||||||||||
|
Mortgage loans held for portfolio (5)
|
6,820 | 241 | 4.71 | % | 6,045 | 205 | 4.52 | % | |||||||||||||||||||||||||||
| Total earning assets | 103,063 | 3,178 | 4.11 | % | 113,249 | 4,014 | 4.73 | % | |||||||||||||||||||||||||||
| Cash and due from banks | 19 | 29 | |||||||||||||||||||||||||||||||||
| Other assets | 676 | 629 | |||||||||||||||||||||||||||||||||
|
Derivatives netting adjustment (2)
|
(439) | (542) | |||||||||||||||||||||||||||||||||
|
Fair value adjustment on available-for-sale securities (3)
|
228 | 99 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 103,547 | 3,178 | 4.09 | % | $ | 113,464 | 4,014 | 4.72 | % | |||||||||||||||||||||||||
| Liabilities and Capital | |||||||||||||||||||||||||||||||||||
|
Interest-bearing deposits (2)
|
$ | 2,634 | 70 | 3.54 | % | $ | 2,055 | 66 | 4.30 | % | |||||||||||||||||||||||||
| Consolidated obligations | |||||||||||||||||||||||||||||||||||
| Bonds | 57,175 | 1,604 | 3.74 | % | 83,185 | 2,726 | 4.37 | % | |||||||||||||||||||||||||||
| Discount notes | 36,110 | 994 | 3.67 | % | 20,243 | 632 | 4.16 | % | |||||||||||||||||||||||||||
|
Mandatorily redeemable capital stock and other borrowings
|
98 | 4 | 4.95 | % | 7 | - | 4.47 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 96,017 | 2,672 | 3.71 | % | 105,490 | 3,424 | 4.33 | % | |||||||||||||||||||||||||||
| Other liabilities | 1,188 | 1,500 | |||||||||||||||||||||||||||||||||
|
Derivatives netting adjustment (2)
|
(439) | (542) | |||||||||||||||||||||||||||||||||
| Total liabilities | 96,766 | 2,672 | 3.68 | % | 106,448 | 3,424 | 4.29 | % | |||||||||||||||||||||||||||
| Total capital | 6,781 | 7,016 | |||||||||||||||||||||||||||||||||
| Total liabilities and capital | $ | 103,547 | 3.44 | % | $ | 113,464 | 4.02 | % | |||||||||||||||||||||||||||
| Net interest income | $ | 506 | $ | 590 | |||||||||||||||||||||||||||||||
| Net interest margin | 0.65 | % | 0.70 | % | |||||||||||||||||||||||||||||||
| Net interest spread | 0.40 | % | 0.40 | % | |||||||||||||||||||||||||||||||
| Impact of non-interest bearing funds | 0.25 | % | 0.30 | % | |||||||||||||||||||||||||||||||
_____________________________
(1)Percentages are annualized figures. Amounts used to calculate average rates are based on whole dollars. Accordingly, recalculations based upon the disclosed amounts (millions) may not produce the same results.
(2)The Bank offsets the fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against the fair value amounts recognized for derivative instruments transacted under a master netting agreement or other similar arrangement. The average balances of interest-bearing deposit assets for the nine months ended September 30, 2026 and 2025 in the
table above include $245 million and $433 million, respectively, which are classified as derivative assets/liabilities on the statements of condition. In addition, the average balances of interest-bearing deposit liabilities for the nine months ended September 30, 2026 and 2025 in the table above include $194 million and $108 million, respectively, which are classified as derivative assets/liabilities on the statements of condition.
(3)Average balances for available-for-sale and held-to-maturity securities are calculated based upon amortized cost.
(4)Interest income and average rates include net prepayment fees on advances.
(5)The average balances for mortgage loans held for portfolio in the table above include $51 million and $38 million of non-accruing loans for the nine months ended September 30, 2026 and 2025, respectively.
Changes in both volume (i.e., average balances) and interest rates influence changes in net interest income and net interest margin. The following table summarizes changes in interest income and interest expense between the three- and nine-month periods ended September 30, 2026 and 2025. Changes in interest income and interest expense that cannot be attributed to either volume or rate have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.
RATE AND VOLUME ANALYSIS
(in millions)
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||
| September 30, 2026 vs. 2025 | September 30, 2026 vs. 2025 | ||||||||||||||||||||||||||||||||||
| Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 1 | $ | (6) | $ | (5) | $ | 1 | $ | (17) | $ | (16) | |||||||||||||||||||||||
| Securities purchased under agreements to resell | 41 | (7) | 34 | 113 | (20) | 93 | |||||||||||||||||||||||||||||
| Federal funds sold | (31) | (15) | (46) | (118) | (54) | (172) | |||||||||||||||||||||||||||||
| Investments | |||||||||||||||||||||||||||||||||||
| Trading | 9 | - | 9 | 59 | (4) | 55 | |||||||||||||||||||||||||||||
| Available-for-sale | (21) | (30) | (51) | (29) | (100) | (129) | |||||||||||||||||||||||||||||
| Held-to-maturity | 10 | (5) | 5 | 12 | (7) | 5 | |||||||||||||||||||||||||||||
| Advances | (117) | (92) | (209) | (409) | (299) | (708) | |||||||||||||||||||||||||||||
| Mortgage loans held for portfolio | 9 | 2 | 11 | 27 | 9 | 36 | |||||||||||||||||||||||||||||
| Total interest income | (99) | (153) | (252) | (344) | (492) | (836) | |||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | 11 | (3) | 8 | 17 | (13) | 4 | |||||||||||||||||||||||||||||
| Consolidated obligations | |||||||||||||||||||||||||||||||||||
| Bonds | (227) | (100) | (327) | (769) | (353) | (1,122) | |||||||||||||||||||||||||||||
| Discount notes | 133 | (28) | 105 | 444 | (82) | 362 | |||||||||||||||||||||||||||||
| Mandatorily redeemable capital stock and other borrowings | 1 | - | 1 | 4 | - | 4 | |||||||||||||||||||||||||||||
| Total interest expense | (82) | (131) | (213) | (304) | (448) | (752) | |||||||||||||||||||||||||||||
| Changes in net interest income | $ | (17) | $ | (22) | $ | (39) | $ | (40) | $ | (44) | $ | (84) | |||||||||||||||||||||||
Other Income (Loss)
The following table presents the various components of other income (loss) for the three and nine months ended September 30, 2026 and 2025.
OTHER INCOME (LOSS)
(in thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Net interest income (expense) associated with: | |||||||||||||||||||||||
| Member/offsetting derivatives | $ | - | $ | 2 | $ | 2 | $ | 4 | |||||||||||||||
| Economic hedge derivatives related to advances | (207) | 668 | (543) | (2,279) | |||||||||||||||||||
| Economic hedge derivatives related to trading securities | (44) | 4,854 | 2,157 | 12,022 | |||||||||||||||||||
| Economic hedge derivatives related to available-for-sale securities | 398 | 173 | 1,868 | 960 | |||||||||||||||||||
| Economic hedge derivatives related to consolidated obligation bonds | 12 | (165) | (62) | 284 | |||||||||||||||||||
| Economic hedge derivatives related to consolidated obligation discount notes | 3,529 | (4,475) | 5,241 | (4,781) | |||||||||||||||||||
| Economic hedge derivatives related to mortgage loans held for portfolio | 3,507 | 4,075 | 10,298 | 11,709 | |||||||||||||||||||
| Other stand-alone economic hedge derivatives | (566) | (2,802) | (2,965) | (8,252) | |||||||||||||||||||
| Total net interest income associated with economic hedge derivatives | 6,629 | 2,330 | 15,996 | 9,667 | |||||||||||||||||||
| Gains (losses) related to economic hedge derivatives | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Advances | 51 | (976) | 375 | 2,578 | |||||||||||||||||||
| Available-for-sale securities | 5 | (46) | (852) | (48) | |||||||||||||||||||
| Trading securities | 1,578 | (3,597) | 9,806 | (11,789) | |||||||||||||||||||
| Mortgage loans held for portfolio | 4,804 | (4,017) | 3,161 | (17,007) | |||||||||||||||||||
| Consolidated obligation bonds | (2,175) | 624 | (2,659) | 2,378 | |||||||||||||||||||
| Consolidated obligation discount notes | (4,239) | 3,781 | (10,683) | 677 | |||||||||||||||||||
| Other stand-alone economic hedge derivatives | (263) | 2,511 | 742 | 9,118 | |||||||||||||||||||
| Interest rate swaptions | |||||||||||||||||||||||
| Available-for-sale securities | (75) | (735) | (302) | (203) | |||||||||||||||||||
| Mortgage loans held for portfolio | - | (802) | - | (4,062) | |||||||||||||||||||
| Mortgage delivery commitments | (662) | (236) | (1,642) | 878 | |||||||||||||||||||
| Member/offsetting swaps | - | (2) | (2) | (4) | |||||||||||||||||||
| Total fair value losses related to economic hedge derivatives | (976) | (3,495) | (2,056) | (17,484) | |||||||||||||||||||
| Price alignment amount on daily settled derivative contracts | 331 | 982 | 1,210 | 4,330 | |||||||||||||||||||
| Total net gains (losses) on derivatives and hedging activities | 5,984 | (183) | 15,150 | (3,487) | |||||||||||||||||||
| Net gains (losses) on trading securities | (11,423) | 7,126 | (26,236) | 23,335 | |||||||||||||||||||
| Net gains (losses) on other assets carried at fair value | (123) | 1,160 | 1,756 | 2,312 | |||||||||||||||||||
| Service fees | 809 | 808 | 2,371 | 2,253 | |||||||||||||||||||
| Letter of credit fees | 5,429 | 5,729 | 16,999 | 17,584 | |||||||||||||||||||
| Standby bond purchase agreement fees | 459 | 491 | 1,388 | 1,358 | |||||||||||||||||||
| Other, net | 270 | 93 | 841 | 389 | |||||||||||||||||||
| Total other | (4,579) | 15,407 | (2,881) | 47,231 | |||||||||||||||||||
| Total other income | $ | 1,405 | $ | 15,224 | $ | 12,269 | $ | 43,744 | |||||||||||||||
Net Interest Settlements
Net interest income (expense) associated with economic hedge derivatives including, but not limited to, those associated with non-qualifying fair value hedging relationships is recorded in net gains (losses) on derivatives and hedging activities. Net interest income (expense) associated with derivatives in qualifying fair value hedging relationships is recorded in net interest income in the same income statement line that is used to present the earnings effect of the hedged item.
Fair Value Hedge Ineffectiveness
The Bank uses interest rate swaps to hedge the risk of changes in the fair value of some of its advances and consolidated obligation bonds and substantially all of its available-for-sale securities. These hedging relationships are designated as fair value hedges. To the extent these relationships qualify for hedge accounting, changes in the fair values of both the derivative (the interest rate swap) and the hedged item (limited to changes attributable to the hedged risk) are recorded in net interest income in the same income statement line that is used to present the earnings effect of the hedged item. To the extent that the Bank's fair value hedging relationships do not qualify for hedge accounting, or cease to qualify because they are determined to be ineffective, only the change in fair value of the derivative is recorded in earnings as net gains (losses) on derivatives and hedging activities (in this case, there is no offsetting change in fair value of the hedged item). The net gains (losses) on derivatives associated with specific advances, available-for-sale securities and consolidated obligation bonds that did not qualify for hedge accounting, or ceased to qualify because they were determined to be ineffective, totaled $(2.1) million and $(0.4) million for the three months ended September 30, 2026 and 2025, respectively, and totaled $(3.1) million and $4.9 million for the nine months ended September 30, 2026 and 2025, respectively.
Economic Hedge Derivatives
Notwithstanding the transitory nature of ineffectiveness-related gains and losses associated with the Bank's available-for-sale securities portfolio, the Bank has entered into several derivative transactions in an effort to mitigate a portion of the periodic earnings variability that can result from those fair value hedging relationships. At September 30, 2026 and December 31, 2025, the notional balances of these derivatives totaled $100 million and $400 million, respectively. For the three months ended September 30, 2026 and 2025, the gains (losses) associated with these stand-alone economic hedge derivatives were $(0.3) million and $2.5 million, respectively. The gains associated with these stand-alone economic hedge derivatives were $0.7 million and $9.1 million for the nine months ended September 30, 2026 and 2025, respectively.
The Bank has invested in residential mortgage loans. A portion of the interest rate and prepayment risk associated with the Bank's mortgage loan portfolio is managed through the use of interest rate swaps and swaptions. The gains (losses) on these interest rate swaps and swaptions were $4.8 million and $(4.8) million for the three months ended September 30, 2026 and 2025, respectively, and $3.2 million and $(21.1) million for the nine months ended September 30, 2026 and 2025, respectively. In addition, in some but not all cases, the Bank enters into delivery commitments associated with the purchase of the mortgage loans. The fair value changes associated with mortgage delivery commitments (representing net unrealized gains/losses from the commitment date to the settlement date) were $(0.7) million and $(0.2) million for the three months ended September 30, 2026 and 2025, respectively, and $(1.6) million and $0.9 million for the nine months ended September 30, 2026 and 2025, respectively.
The Bank has invested in GSE CMBS. To hedge a portion of the prepayment risk that exists during the open period (i.e., the period during which the securities can be prepaid without a yield maintenance fee), the Bank has entered into swaptions. At September 30, 2026 and December 31, 2025, the notional balances of these swaptions totaled $500 million and $1.15 billion, respectively. For the three months ended September 30, 2026 and 2025, the losses associated with these stand-alone economic hedge derivatives were $0.1 million and $0.7 million, respectively. For the nine months ended September 30, 2026 and 2025, the losses associated with these stand-alone economic hedge derivatives were $0.3 million and $0.2 million, respectively.
From time to time, the Bank hedges the risk of changes in the fair value of some of its longer-term consolidated obligation discount notes using fixed-for-floating swaps. For the three months ended September 30, 2026 and 2025, the gains (losses) associated with these stand-alone economic hedge derivatives were $(4.2) million and $3.8 million, respectively. For the nine months ended September 30, 2026 and 2025, the gains (losses) associated with these stand-alone economic hedge derivatives were $(10.7) million and $0.7 million, respectively.
As discussed previously in the section entitled "Financial Condition - Derivatives and Hedging Activities," the Bank previously offered interest rate exchange agreements to its members to assist them in meeting their risk management objectives. In derivative transactions with its members, the Bank acts as an intermediary by entering into an interest rate exchange agreement with the member and then entering into an offsetting interest rate exchange agreement with one of the Bank's non-member derivative counterparties. The net change in the fair values of derivatives transacted with members and the offsetting derivatives was insignificant for the three and nine months ended September 30, 2026 and 2025.
Price Alignment Amount
Pursuant to their rulebooks, the Bank's two clearinghouse counterparties legally characterize variation margin payments on cleared derivatives as settlements on the contracts. The Bank receives or pays a price alignment amount on the cumulative variation margin payments associated with these contracts. The price alignment amount approximates the amount of interest the Bank would receive or pay if the variation margin payments were characterized as collateral pledged to secure outstanding credit exposure on the derivative contracts. The price alignment amount associated with derivatives in qualifying fair value
hedging relationships is recorded in net interest income in the same income statement line that is used to present the earnings effect of the hedged item. The price alignment amount associated with economic hedge derivatives including, but not limited to, those associated with non-qualifying fair value hedging relationships, is recorded in net gains (losses) on derivatives and hedging activities.
Other
During the nine months ended September 30, 2026 and 2025, the Bank held U.S. Treasury Notes and, during the nine months ended September 30, 2026, the Bank also held U.S Treasury Bills. All of these securities were classified as trading securities. Due to fluctuations in interest rates, the aggregate gains (losses) on these investments were $(11.4) million and $7.1 million for the three months ended September 30, 2026 and 2025, respectively, and $(26.2) million and $23.3 million for the nine months ended September 30, 2026 and 2025, respectively. The Bank occasionally hedges the risk of changes in the fair value of some of the U.S. Treasury Notes and U.S Treasury Bills held in its short-term liquidity portfolio. The gains (losses) associated with these stand-alone derivatives were $1.6 million and $(3.6) million for the three months ended September 30, 2026 and 2025, respectively, and $9.8 million and $(11.8) million for the nine months ended September 30, 2026 and 2025, respectively.
The Bank has a small balance of marketable equity securities consisting solely of mutual fund investments associated with its non-qualified deferred compensation plans. These securities are carried at fair value and included in other assets on the statements of condition. The fair value gains (losses) on these securities totaled $(0.1) million and $1.2 million for the three months ended September 30, 2026 and 2025, respectively, and $1.8 million and $2.3 million for the nine months ended September 30, 2026 and 2025, respectively. The gains (losses) on the securities are offset by a corresponding increase (decrease) in amounts owed to participants in the deferred compensation plans, the expense (or credit) for which is recorded in compensation and benefits expense (in the case of employees) or other operating expenses (in the case of directors).
Letter of credit fees totaled $5.4 million and $17.0 million for the three and nine months ended September 30, 2026, respectively, compared to $5.7 million and $17.5 million, respectively, for the corresponding periods in 2025. At both September 30, 2026 and 2025, outstanding letters of credit totaled $29.8 billion.
Standby bond purchase agreement fees totaled $0.5 million for both the three months ended September 30, 2026 and 2025, and $1.4 million for both the nine months ended September 30, 2026 and 2025. At September 30, 2026 and 2025, outstanding standby bond purchase agreements totaled $897 million and $962 million, respectively.
Other Expense
Total other expense includes the Bank's compensation and benefits; other operating expenses; voluntary grants, subsidies, donations and AHP contributions; derivative clearing fees and its proportionate share of the costs of operating the Finance Agency and the Office of Finance. For the three and nine months ended September 30, 2026, these expenses totaled $42.8 million and $121.1 million, respectively, compared to $44.8 million and $122.1 million for the corresponding periods in 2025.
Compensation and benefits were $15.7 million and $50.6 million for the three and nine months ended September 30, 2026, respectively, compared to $16.9 million and $49.0 million for the corresponding periods in 2025. The decrease in compensation and benefits for the three months ended September 30, 2026, as compared to the corresponding period in 2025, totaled $1.2 million and was due primarily to a decrease in fair value-related expenses associated with the Bank's nonqualified deferred compensation plans. The increase in compensation and benefits for the nine months ended September 30, 2026, as compared to the corresponding period in 2025, totaled $1.6 million and was due in large part to cost-of-living and merit increases and higher medical insurance costs, partially offset by a decrease in fair value-related expenses associated with the Bank's nonqualified deferred compensation plans. The Bank's average headcount was 223 and 224 employees for the nine months ended September 30, 2026 and 2025, respectively. At September 30, 2026, the Bank employed 225 people, a decrease of 2 employees from December 31, 2025.
Other operating expenses for the three and nine months ended September 30, 2026 were $13.1 million and $39.7 million, respectively, compared to $13.2 million and $38.0 million for the corresponding periods in 2025, representing a decrease of $0.1 million and an increase of $1.7 million, respectively. The increase in other operating expenses for the nine months ended September 30, 2026, as compared to the corresponding period in 2025, was due in large part to increases in software costs and professional services.
The Bank, together with the other FHLBanks, is assessed for the costs of operating the Office of Finance and a portion of the costs of operating the Finance Agency. The Bank's allocated share of these expenses totaled approximately $3.5 million and $10.9 million for the three and nine months ended September 30, 2026, respectively, as compared to $4.5 million and $13.5 million for the corresponding periods in 2025.
Voluntary grants, subsidies, donations and AHP contributions totaled $10.3 million and $19.4 million for the three and nine months ended September 30, 2026, respectively, as compared to $10.0 million and $20.9 million for the three and nine months
ended September 30, 2025. The amounts funded under the Bank's voluntary community investment programs during the nine months ended September 30, 2026 are presented in the section below entitled "Voluntary Community Investment Programs."
Derivative clearing fees were $0.1 million and $0.5 million for the three and nine months ended September 30, 2026, respectively, compared to $0.2 million and $0.8 million for the corresponding periods in 2025. The decline in derivative clearing fees was due largely to a decline in the volume of cleared derivatives that were transacted during the nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025.
AHP Assessments
While the Bank is exempt from all federal, state and local income taxes, it is obligated to set aside amounts for its AHP.
As required by statute, each year the Bank contributes 10 percent of its earnings (as adjusted for interest expense on mandatorily redeemable capital stock) to its AHP. The AHP provides grants that members can use to support affordable housing projects in their communities. Generally, the Bank's AHP assessment is derived by adding interest expense on mandatorily redeemable capital stock to income before assessments; the result of this calculation is then multiplied by 10 percent. The Bank's AHP assessments totaled $12.4 million and $17.4 million for the three months ended September 30, 2026 and 2025, respectively, and $40.0 million and $50.7 million for the nine months ended September 30, 2026 and 2025, respectively.
Voluntary Community Investment Programs
The Bank offers a number of voluntary loan and grant programs that are designed to meet specific community investment needs in its district, all but one of which are discussed in the 2025 10-K.
On April 28, 2026, the Bank announced the 2026 Support for Housing Affordability Resource Enhancement ("SHARE 2026") advance program, which supports (1) new construction, renovation or the financing of single-family or multifamily affordable housing for households earning 80 percent or less of the area median income where the property is located and (2) the purchase of low-income housing tax credits that support the development or preservation of affordable housing. Under SHARE 2026, the Bank has made available $250 million in advances at rates that are either 100 or 200 basis points below standard advance rates, depending upon the term of the advance. At September 30, 2026, $149 million of advances were outstanding under the SHARE 2026 program.
The Bank has, in the absence of changes to its statutory AHP obligation and/or the imposition of any new statutory or regulatory assessments, committed to annually make available for its voluntary loan and grant programs an amount that equals or exceeds five percent of its prior year income before assessments as adjusted for interest expense on mandatorily redeemable capital stock and the income statement effects of voluntary programs and AHP make-whole contributions ("Adjusted Income Before Assessments"). The income statement effects of voluntary programs are comprised of grants, subsidies, donations, and interest income and the provision (reversal) for credit losses on the Bank's voluntary program loans. Make-whole contributions to the Bank's AHP are disclosed in Note 11 to the Bank's financial statements and are more fully discussed in the paragraph immediately following the table below. By adjusting for these items, the amount to be made available for the Bank's voluntary loan and grant programs in the following year is not negatively impacted by interest expense on mandatorily redeemable capital stock, the income statement effects of voluntary programs or AHP make-whole contributions that are recorded in the Bank's current year earnings. Annually, the Bank also makes available for its voluntary loan and grant programs any receipts of principal and interest on voluntary program loans from the prior year. If, after using its best efforts to award or loan the funds that have been made available, there are unused funds at the end of a calendar year, such funds are carried forward to the succeeding year to support the programs(s) for which the funds were initially designated or, alternatively, reallocated to other voluntary programs.
For the year ended December 31, 2025, the Bank's Adjusted Income Before Assessments was $691,251,000, which resulted in a target minimum allocation of $34,563,000 to its voluntary loan and grant programs for 2026. The following table sets forth a summary of the amounts that the Bank has made available for its voluntary loan and grant programs in 2026 and the loans that were funded and the grants/subsidies that were expensed during the nine months ended September 30, 2026.
VOLUNTARY COMMUNITY INVESTMENT PROGRAMS
(in thousands)
|
Amount Carried Forward From 2025 |
Amount from 2025 Made Available in 2026 |
Receipts of Principal and Interest from 2025 |
Reallocations and Additional Funds Made Available in 2026 |
Total Available in 2026 |
Loans/Grants/ Subsidies Funded/Expensed During the Nine Months Ended September 30, 2026 |
Amount Remaining |
||||||||||||||||||||||||||||||||||||||
| Loan Programs | ||||||||||||||||||||||||||||||||||||||||||||
| CANOPY Fund | $ | - | $ | - | $ | 731 | $ | (731) | $ | - | $ | - | $ | - | ||||||||||||||||||||||||||||||
| Small Business Boost | 3,007 | 1,963 | 1,671 | (207) | 6,434 | 3,013 | 3,421 | |||||||||||||||||||||||||||||||||||||
| Total Loan Programs | 3,007 | 1,963 | 2,402 | (938) | 6,434 | 3,013 | 3,421 | |||||||||||||||||||||||||||||||||||||
| Grant Programs | ||||||||||||||||||||||||||||||||||||||||||||
| FORTIFIED Fund (Owner Property) | 194 | 10,000 | - | 179 | 10,373 | 10,111 | 262 | |||||||||||||||||||||||||||||||||||||
| Pathway Fund | - | 3,000 | - | 631 | 3,631 | - | 3,631 | |||||||||||||||||||||||||||||||||||||
| Partnership Grant Program | - | 1,500 | - | 28 | 1,528 | 1,528 | - | |||||||||||||||||||||||||||||||||||||
| Native American Housing Opportunities Fund | - | 1,500 | - | - | 1,500 | 1,300 | 200 | |||||||||||||||||||||||||||||||||||||
| Housing Assistance for Veterans | 3 | 1,000 | - | 200 | 1,203 | 1,168 | 35 | |||||||||||||||||||||||||||||||||||||
| FORTIFIED Fund (Rental Property) | - | 10,000 | - | - | 10,000 | - | 10,000 | |||||||||||||||||||||||||||||||||||||
| SHFA - Home Ownership/Financial Education Support | - | 600 | - | (100) | 500 | 500 | - | |||||||||||||||||||||||||||||||||||||
| Homebuyer Equity Leverage Partnership | 763 | - | - | - | 763 | - | 763 | |||||||||||||||||||||||||||||||||||||
| Total Grant Programs | 960 | 27,600 | - | 938 | 29,498 | 14,607 | 14,891 | |||||||||||||||||||||||||||||||||||||
| Other Contributions | ||||||||||||||||||||||||||||||||||||||||||||
| SHARE 2026 Subsidized Advances | - | 5,000 | - | - | 5,000 | 2,948 | 2,052 | |||||||||||||||||||||||||||||||||||||
| SHARE 2025 Subsidized Advances | - | - | - | 8 | 8 | 8 | - | |||||||||||||||||||||||||||||||||||||
| Total Other Contributions | - | 5,000 | - | 8 | 5,008 | 2,956 | 2,052 | |||||||||||||||||||||||||||||||||||||
| Total Voluntary Community Investment Programs | $ | 3,967 | $ | 34,563 | $ | 2,402 | $ | 8 | $ | 40,940 | $ | 20,576 | $ | 20,364 | ||||||||||||||||||||||||||||||
Overall, the income statement effects of the voluntary programs discussed above reduce the Bank's reported income before assessments which, in turn, reduces the Bank's statutory AHP assessment. To fully restore the Bank's total AHP contribution to the dollar amount it would be in the absence of these effects, the Bank contributes a make-whole amount to its AHP. During the nine months ended September 30, 2026, the AHP make-whole amount was $1,845,000. This amount, which is recorded in "Voluntary grants, subsidies, donations and Affordable Housing Program contributions" in the Bank's Statement of Income, was derived by aggregating the income statement effects of the voluntary programs which, in total, reduced the Bank's reported income before assessments for the nine months ended September 30, 2026 by $16,607,000, and then multiplying the total by the percentage needed to fully restore the Bank's AHP contribution.
Critical Accounting Estimates
A discussion of the Bank's critical accounting estimates is provided in the 2025 10-K. During the nine months ended September 30, 2026, there were no substantive changes to the methods used by the Bank to calculate its critical accounting estimates.
Liquidity and Capital Resources
In order to meet members' credit needs and the Bank's financial obligations, the Bank maintains a portfolio of money market instruments typically consisting of overnight federal funds, overnight reverse repurchase agreements, overnight interest-bearing deposits, U.S. Treasury Bills and U.S. Treasury Notes. Beyond those amounts that are required to meet members' credit needs and its own obligations, the Bank typically holds additional balances of short-term investments that fluctuate as the Bank invests the proceeds of debt issued to replace maturing and called liabilities, as the balance of deposits changes, and as the level of liquidity needed to satisfy Finance Agency requirements changes. At September 30, 2026, the Bank's short-term liquidity holdings were comprised of $13.7 billion of overnight reverse repurchase agreements, $11.9 billion of overnight federal funds sold, $2.6 billion of overnight interest-bearing deposits, $1.4 billion of U.S. Treasury Notes and $1.0 billion of U.S. Treasury Bills.
The Bank's primary source of funds is the proceeds it receives from the issuance of consolidated obligation bonds and discount notes in the capital markets. Historically, the FHLBanks have issued debt throughout the business day in the form of discount notes and bonds with a wide variety of maturities and structures. Generally, the Bank has access to the capital markets as needed during the business day to acquire funds to meet its needs.
In addition to the liquidity provided from the proceeds of the issuance of consolidated obligations, the Bank also maintains access to wholesale funding sources such as federal funds purchased and securities sold under agreements to repurchase (e.g., borrowings secured by its investments in U.S. Treasury securities, MBS and/or agency debentures). Furthermore, the Bank has access to borrowings (typically short-term) from the other FHLBanks.
The Finance Agency's expectations with respect to the maintenance of sufficient liquidity to enable the FHLBanks to provide advances and fund letters of credit during a sustained capital markets disruption are set forth in an Advisory Bulletin and accompanying supervisory letter. More specifically, the Advisory Bulletin (hereinafter referred to as the "Liquidity AB") sets forth the Finance Agency's expectations with respect to base case liquidity and funding gaps, among other things. The Liquidity AB sets forth ranges for the prescribed base case liquidity and funding gap measures and the supervisory letter identified the initial thresholds within those ranges that the Finance Agency believed were appropriate in light of then existing market conditions. The Liquidity AB does not preclude a FHLBank from temporarily reducing its liquidity position, in a safe and sound manner, below the prescribed levels, as necessary to provide unanticipated advances to members or to fund draws on standby letters of credit.
With respect to base case liquidity, the Bank is required to maintain a positive cash balance during a prescribed period of time ranging from 10 to 30 calendar days assuming no access to the market for consolidated obligations or other unsecured funding sources and the renewal of all advances that are scheduled to mature during the measurement period. The supervisory letter and subsequent guidance set forth the cash flow assumptions to be used by the FHLBanks which include, among other things, a reserve for potential draws on standby letters of credit and the inclusion of uncommitted/unencumbered U.S. Treasury securities with a remaining maturity no greater than 10 years which are classified as trading or available-for-sale securities as a cash inflow three business days after measurement.
Funding gaps measure the difference between a FHLBank's assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of the FHLBank's total assets. Depending on conditions in the financial markets, the Finance Agency believes (as stated in the Liquidity AB) that the FHLBanks should operate so as not to exceed a funding gap ratio between negative 10 percent and negative 20 percent for a three-month time horizon and between negative 25 percent and negative 35 percent for a one-year time horizon. These limits are designed to reduce the liquidity risks associated with a mismatch in a FHLBank's asset and liability maturities, including an undue reliance on short-term debt funding, which may increase a FHLBank's debt rollover risk. For purposes of calculating the funding gap ratios, the FHLBanks may include estimates of expected cash inflows, including anticipated prepayments, for mortgage loans and MBS. In addition, uncommitted/unencumbered U.S. Treasury securities with a remaining maturity no greater than 10 years which are classified as trading securities are treated as maturing assets in the three-month time horizon regardless of maturity.
The Finance Agency considers a FHLBank to have adequate reserves of liquid assets if the FHLBank maintains 20 calendar days of positive daily cash balances. Further, the Finance Agency considers a FHLBank to have adequate liquidity to address funding gap risks if the FHLBank's funding gap ratios for the three-month and one-year time horizons do not exceed negative 15 percent and negative 30 percent, respectively. The Bank was in compliance with these liquidity requirements at all times during the nine months ended September 30, 2026.
The Bank's access to the capital markets has never been interrupted to an extent that the Bank's ability to meet its obligations was compromised and the Bank does not currently believe that its ability to issue consolidated obligations will be impeded to that extent in the future. If, however, the Bank were unable to issue consolidated obligations for an extended period of time, the Bank would eventually exhaust the availability of purchased federal funds (including borrowings from other FHLBanks) and repurchase agreements as sources of funds. It is also possible that an event (such as a natural disaster or a pandemic) that might impede the Bank's ability to raise funds by issuing consolidated obligations would also limit the Bank's ability to access the markets for federal funds purchased and/or repurchase agreements.
Under those circumstances, to the extent that the balance of principal and interest that came due on the Bank's debt obligations and the funds needed to pay its operating expenses exceeded the cash inflows from its interest-earning assets and proceeds from maturing assets, and if access to the market for consolidated obligations was not again available, the Bank would seek to access funding under the Federal Home Loan Banks P&I Funding and Contingency Plan Agreement (the "Contingency Agreement") to repay any principal and interest due on its consolidated obligations. However, if the Bank were unable to raise funds by issuing consolidated obligations, it is likely that the other FHLBanks would have similar difficulties issuing debt. If funds were not available under the Contingency Agreement, the Bank's ability to conduct its operations would be compromised even earlier than if this funding source was available. For a discussion of the Contingency Agreement, see the Liquidity and Capital Resources section of the Bank's 2025 10-K.
Recently Issued Accounting Guidance
For a discussion of recently issued accounting guidance, see "Item 1. Financial Statements" (specifically, Note 2 beginning on page 8 of this report).
Federal Home Loan Bank of Dallas published this content on November 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 12, 2026 at 20:50 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]