Federal Home Loan Bank of Dallas

03/20/2026 | Press release | Distributed by Public on 03/20/2026 13:03

Annual Report for Fiscal Year Ending 12/31, 2025 (Form 10-K)

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 annual audited financial statements and notes thereto for the years ended December 31, 2025, 2024 and 2023 beginning on page F-1 of this Annual Report on Form 10-K.
Forward-Looking Information
This annual report contains forward-looking statements that reflect current beliefs and expectations of 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 future 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 such 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), credit and prepayment risks and changes in the financial health of the Bank's members or non-member borrowers. Among other things, political events could possibly lead to changes in the Bank's regulatory environment or its status as a 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. 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
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 and credit unions. Community Development Financial Institutions that are certified under the Community Development Banking and Financial Institutions Act of 1994 are also eligible for membership in the Bank. 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. Additionally, the
Bank holds interests in a portfolio of mortgage loans that have been acquired through the MPF Program administered by the FHLBank of Chicago. Substantially all of the loans were acquired during the period from 2016 to 2025 and all of those loans are conventional loans. 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 principal source of funds is debt issued in the capital markets. All 11 FHLBanks issue debt in the form of consolidated obligations through the Office of Finance as their agent and all 11 FHLBanks are jointly and severally liable for the repayment of all consolidated obligations.
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. For a discussion of the Bank's accounting policies for derivatives and hedging, see the sections below entitled "Financial Condition - Derivatives and Hedging Activities" and "Critical Accounting Estimates."
Financial Market Conditions
The gross domestic product increased at an annual rate of 2.1 percent during 2025 according to the second estimate reported by the Bureau of Economic Analysis, following increases of 2.8 percent in 2024 and 2.9 percent in 2023. In January 2026, the Bureau of Labor Statistics reported that the U.S. unemployment rate was 4.4 percent at the end of 2025 compared to 4.1 percent at the end of 2024 and 3.8 percent at the end of 2023. The Bureau of Labor Statistics also reported that the unadjusted U.S. consumer price index increased 2.7 percent in 2025, following increases of 2.9 percent in 2024 and 3.4 percent in 2023.
The Federal Open Market Committee ("FOMC") began raising interest rates in 2022 to combat inflation that had surged in 2021. The target for the federal funds rate reached a range between 5.25 percent and 5.50 percent by July 2023, which was then maintained until September 2024. Between September 2024 and December 2024, the FOMC, in a series of policy actions, lowered the target range for the federal funds rate to a range between 4.25 percent to 4.50 percent after gaining greater confidence that inflation was moving sustainably toward the FOMC's target rate of 2 percent. In 2025, continued economic slowing and labor market softening led to further cuts, bringing the target range to between 3.50 percent and 3.75 percent by December 2025. At its January 27/28, 2026 and March 17/18, 2026 meetings, the FOMC voted to maintain the target range at 3.50 percent to 3.75 percent. At the March 17/18, 2026 meeting, the FOMC noted that economic activity has been expanding at a solid pace, job gains have remained low, and inflation remains somewhat elevated. The FOMC emphasized that uncertainty about the economic outlook remains elevated, adding that the implications of developments in the Middle East for the U.S. economy are uncertain. The FOMC reiterated that it will carefully assess incoming data, the evolving outlook, and the balance of risks when considering future policy adjustments.
The FOMC also ended its balance sheet reduction program effective December 1, 2025. This program, which began in June 2022, initially allowed up to $60 billion in Treasury securities and $35 billion in agency debt and agency MBS to mature without reinvestment each month. The pace was gradually reduced in 2024 and 2025, before being discontinued entirely.
The following table presents information on various market interest rates at December 31, 2025 and 2024 and various average market interest rates for the years ended December 31, 2025, 2024 and 2023.
Ending Rate Average Rate
December 31, December 31, For the Year Ended December 31,
2025 2024 2025 2024 2023
Federal Funds Target (1)
3.75% 4.50% 4.37% 5.31% 5.20%
Average Effective Federal Funds Rate (2)
3.64% 4.33% 4.21% 5.14% 5.03%
Overnight SOFR (3)
3.87% 4.49% 4.24% 5.15% 5.01%
1-month SOFR (3)
3.79% 4.53% 4.28% 5.19% 4.97%
3-month SOFR (3)
4.01% 4.69% 4.35% 5.27% 4.86%
2-year SOFR (3)
3.31% 4.08% 3.61% 4.23% 4.53%
5-year SOFR (3)
3.46% 4.04% 3.58% 3.85% 3.83%
10-year SOFR (3)
3.80% 4.07% 3.80% 3.79% 3.66%
3-month U.S. Treasury (3)
3.67% 4.37% 4.21% 5.18% 5.28%
2-year U.S. Treasury (3)
3.47% 4.25% 3.81% 4.37% 4.58%
5-year U.S. Treasury (3)
3.73% 4.38% 3.92% 4.13% 4.06%
10-year U.S. Treasury (3)
4.18% 4.58% 4.29% 4.21% 3.96%
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(1)Source: Bloomberg (reflects upper end of target range)
(2)Source: Federal Reserve Statistical Release
(3)Source: Bloomberg
2025 In Summary
•The Bank ended 2025 with total assets of $108.5 billion compared with $127.7 billion at the end of 2024. The $19.2 billion decrease in total assets was attributable primarily to decreases in the Bank's advances ($16.9 billion) and short-term liquidity portfolio ($4.1 billion), partially offset by increases in its long-term securities portfolio ($1.0 billion) and mortgage loans held for portfolio ($0.8 billion).
•Total advances at December 31, 2025 were $50.8 billion, compared to $67.7 billion at the end of 2024.
•Mortgage loans held for portfolio increased from $5.8 billion at December 31, 2024 to $6.6 billion at December 31, 2025.
•The Bank's net income for 2025 was $582.6 million, which represented a return on average capital stock of 15.64 percent. In comparison, the Bank's net income for 2024 was $726.6 million, which represented a return on average capital stock of 16.17 percent for that year. For discussion and analysis of the decrease in net income, see the section entitled "Results of Operations" beginning on page 55 of this report.
•At all times during 2025, the Bank was in compliance with all of its regulatory capital requirements. In addition, the Bank's total retained earnings increased to $3.227 billion at December 31, 2025 from $2.849 billion at December 31, 2024. Retained earnings represented 3.0 percent and 2.2 percent of total assets at December 31, 2025 and 2024, respectively. At December 31, 2025, the balance of the Bank's restricted retained earnings account was $766.9 million, representing 0.78 percent of the carrying value of its consolidated obligations (excluding hedging adjustments) at that date.
•In 2025, the Bank paid dividends totaling $204.5 million which, based on the applicable average capital stock balances, equated to an overall blended rate of 5.22 percent for the year. Based on its net income for the year, the dividend payout ratio was 35.10 percent.
Selected Financial Data
SELECTED FINANCIAL DATA
(dollars in thousands)
Year Ended December 31,
2025 2024 2023 2022 2021
Balance sheet(at year end)
Advances $ 50,820,106 $ 67,743,248 $ 79,951,855 $ 68,921,869 $ 24,637,464
Investments (1)
50,656,003 53,740,886 42,631,192 40,613,512 34,653,202
Mortgage loans 6,563,685 5,771,240 5,096,410 4,400,040 3,494,389
Allowance for credit losses on mortgage loans
8,554 7,187 7,768 4,865 3,124
Total assets 108,512,015 127,725,048 128,264,612 114,348,556 63,488,376
Consolidated obligations - discount notes
40,185,289 21,637,276 8,598,022 46,270,265 11,003,026
Consolidated obligations - bonds 57,885,556 96,215,218 109,536,207 59,946,458 44,514,220
Total consolidated obligations (2)
98,070,845 117,852,494 118,134,229 106,216,723 55,517,246
Mandatorily redeemable capital stock (3)
7,967 181 506 7,453 6,657
Capital stock - putable 3,338,359 4,168,043 4,737,388 3,984,105 2,192,504
Unrestricted retained earnings 2,460,107 2,198,522 1,907,882 1,504,236 1,291,656
Restricted retained earnings 766,937 650,426 505,101 330,210 266,761
Total retained earnings 3,227,044 2,848,948 2,412,983 1,834,446 1,558,417
Accumulated other comprehensive income 204,468 178,670 108,849 182,526 182,770
Total capital 6,769,871 7,195,661 7,259,220 6,001,077 3,933,691
Dividends paid (3)
204,458 290,662 295,914 41,216 14,205
Income statement
Net interest income after provision/reversal for credit losses (4)
$ 762,234 $ 891,592 $ 1,017,913 $ 479,672 $ 277,547
Other income (loss) 59,751 63,803 91,718 (25,446) 10,243
Other expense
Operating expenses 115,131 111,902 113,372 86,889 89,518
Voluntary grants, subsidies, donations and AHP contributions 40,744 14,663 5,343 798 2,907
Other 18,794 21,461 19,259 14,026 12,722
Total other expenses 174,669 148,026 137,974 101,713 105,147
AHP assessment 64,762 80,742 97,206 35,268 18,266
Net income 582,554 726,627 874,451 317,245 164,377
Performance ratios
Net interest margin (4)(5)
0.69 % 0.72 % 0.66% 0.63 % 0.46 %
Net interest spread (4)(6)
0.39 % 0.35 % 0.33% 0.45 % 0.45 %
Return on average assets 0.52 % 0.58 % 0.57% 0.41 % 0.27 %
Return on average equity 8.35 % 9.88 % 10.94% 6.69 % 4.31 %
Return on average capital stock (7)
15.64 % 16.17 % 15.42% 11.02 % 7.72 %
Total average equity to average assets 6.22 % 5.89 % 5.17% 6.17 % 6.37 %
Regulatory capital ratio (8)
6.06 % 5.49 % 5.58% 5.09 % 5.92 %
Dividend payout ratio (3)(9)
35.10 % 40.00 % 33.84% 12.99 % 8.64 %
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(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 December 31, 2025, 2024, 2023, 2022 and 2021, the outstanding consolidated obligations (at par value) of all of the FHLBanks totaled approximately $1.152 trillion, $1.193 trillion, $1.204 trillion, $1.182 trillion and $0.653 trillion, respectively. As of those dates, the Bank's outstanding consolidated obligations (at par value) were $98.8 billion, $119.2 billion, $119.8 billion, $109.1 billion and $55.8 billion, respectively. The Bank records on its statement of condition only that portion of the consolidated obligations for which it has received the proceeds.
(3)Mandatorily redeemable capital stock represents capital stock that is classified as a liability under 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 $227 thousand, $55 thousand, $407 thousand, $167 thousand and $25 thousand for the years ended December 31, 2025, 2024, 2023, 2022 and 2021, 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 ($22.9 million), ($57.2 million), ($83.1 million), ($5.7 million) and $23.8 million for the years ended December 31, 2025, 2024, 2023, 2022 and 2021, respectively. Included in the fair value ineffectiveness amounts are price alignment amounts on cleared derivatives totaling ($22.1 million), ($60.2 million), ($73.7 million), ($15.8 million) and $0.4 million for the years ended December 31, 2025, 2024, 2023, 2022 and 2021, respectively. For additional discussion, see the section entitled "Results of Operations" beginning on page 55 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 year-end.
(9)Dividend payout ratio is computed by dividing dividends paid by net income for the year.
Financial Condition
The following table provides selected period-end balances as of December 31, 2025, 2024 and 2023, as well as selected average balances for the years ended December 31, 2025, 2024 and 2023. As shown in the table, the Bank's total assets decreased by 15.0 percent (or $19.2 billion) during the year ended December 31, 2025 after decreasing by 0.4 percent (or $0.6 billion) during the year ended December 31, 2024. The decrease in total assets during the year ended December 31, 2025 was attributable primarily to a decrease in the Bank's advances ($16.9 billion) and short-term liquidity portfolio ($4.1 billion), partially offset by increases in its long-term securities portfolio ($1.0 billion) and mortgage loans held for portfolio ($0.8 billion). As the Bank's assets decreased, the funding for those assets also decreased. During the year ended December 31, 2025, total consolidated obligations decreased by $19.8 billion, as consolidated obligation bonds decreased by $38.3 billion and consolidated obligation discount notes increased by $18.5 billion.
The decrease in total assets during the year ended December 31, 2024 was attributable primarily to a decrease in the Bank's advances ($12.3 billion), partially offset by increases in its short-term liquidity portfolio ($9.8 billion), long-term securities portfolio ($1.2 billion) and mortgage loans held for portfolio ($0.7 billion). As the Bank's assets decreased, the funding for those assets also decreased. During the year ended December 31, 2024, total consolidated obligations decreased by $0.3 billion, as consolidated obligation bonds decreased by $13.3 billion and consolidated obligation discount notes increased by $13.0 billion.
The activity in each of the major balance sheet captions is discussed in the sections following the table. Activity for the year ended December 31, 2023 is discussed in the Bank's Annual Report on Form 10-K for the year ended December 31, 2024 which was filed with the SEC on March 21, 2025 (the "2024 10-K").
SUMMARY OF CHANGES IN FINANCIAL CONDITION
(dollars in millions)
December 31, 2025 December 31, 2024 Balance at
December 31, 2023
Increase (Decrease) Increase (Decrease)
Balance Amount Percentage Balance Amount Percentage
Advances $ 50,820 $ (16,923) (25.0) % $ 67,743 $ (12,209) (15.3) % $ 79,952
Short-term liquidity holdings
Interest-bearing deposits
2,726 207 8.2 2,519 222 9.7 2,297
Securities purchased under agreements to resell
16,650 (5,600) (25.2) 22,250 7,500 50.8 14,750
Federal funds sold 7,409 889 13.6 6,520 152 2.4 6,368
Trading securities
U.S. Treasury Notes
3,515 390 12.5 3,125 1,954 166.9 1,171
Total short-term liquidity holdings 30,300 (4,114) (12.0) 34,414 9,828 40.0 24,586
Long-term investments
Trading securities (U.S. Treasury Note) - (103) (100.0) 103 2 2.0 101
Available-for-sale securities 19,308 308 1.6 19,000 1,309 7.4 17,691
Held-to-maturity securities 1,048 824 367.9 224 (29) (11.5) 253
Total long-term investments 20,356 1,029 5.3 19,327 1,282 7.1 18,045
Mortgage loans held for portfolio, net 6,555 791 13.7 5,764 675 13.3 5,089
Total assets 108,512 (19,213) (15.0) 127,725 (540) (0.4) 128,265
Consolidated obligations
Consolidated obligations - bonds
57,886 (38,329) (39.8) 96,215 (13,321) (12.2) 109,536
Consolidated obligations - discount notes
40,185 18,548 85.7 21,637 13,039 151.7 8,598
Total consolidated obligations 98,071 (19,781) (16.8) 117,852 (282) (0.2) 118,134
Mandatorily redeemable capital stock 8 8 100.0 - (1) (100.0) 1
Capital stock 3,338 (830) (19.9) 4,168 (569) (12.0) 4,737
Retained earnings 3,227 378 13.3 2,849 436 18.1 2,413
Average total assets 112,105 (12,739) (10.2) 124,844 (29,595) (19.2) 154,439
Average capital stock 3,725 (768) (17.1) 4,493 (1,179) (20.8) 5,672
Advances
The following table presents advances outstanding, by type of institution, as of December 31, 2025, 2024 and 2023.
ADVANCES OUTSTANDING BY BORROWER TYPE
(par value, dollars in millions)
December 31,
2025 2024 2023
Amount Percent Amount Percent Amount Percent
Commercial banks $ 19,966 39 % $ 22,814 34 % $ 26,654 33 %
Savings institutions 12,141 24 26,962 40 36,893 46
Credit unions 9,388 19 9,172 13 7,599 10
Insurance companies 9,228 18 9,000 13 8,952 11
Community Development Financial Institutions
32 - 28 - 28 -
Total member advances 50,755 100 67,976 100 80,126 100
Housing associates 85 - 126 - 117 -
Non-member borrowers - - 6 - 18 -
Total par value of advances $ 50,840 100 % $ 68,108 100 % $ 80,261 100 %
Total par value of advances outstanding to CFIs (1)
$ 4,176 8 % $ 4,614 7 % $ 5,675 7 %
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(1)The figures presented above reflect the advances outstanding to CFIs as of December 31, 2025, 2024 and 2023 based upon the definitions of CFIs that applied as of those dates.
Advances balances declined in 2024 after a period of extraordinary demand in early 2023 followed by a declining trend in the last nine months of 2023. The Bank's advances balances (at par value) decreased by $12.2 billion (15 percent) during the year ended December 31, 2024. The largest reductions in advances during 2024 were attributable to Charles Schwab Bank, SSB ($7.5 billion), Comerica Bank ($3.6 billion) and Charles Schwab Premier Bank, SSB, an affiliate of Charles Schwab Bank, SSB ($2.2 billion).
Advances balances continued to decline in 2025. The Bank's advances balances (at par value) decreased by $17.3 billion (25 percent) during the year ended December 31, 2025. The largest reductions in advances during 2025 were attributable to Charles Schwab Bank, SSB ($14.6 billion), Prosperity Bank ($1.3 billion) and Comerica Bank (1.0 billion).
At December 31, 2025, advances outstanding to the Bank's five largest borrowers totaled $19.0 billion, representing 37.4 percent of the Bank's total outstanding advances as of that date.
The following table presents the Bank's five largest borrowers as of December 31, 2025.
FIVE LARGEST BORROWERS AS OF DECEMBER 31, 2025
(par value, dollars in millions)
Name Par Value of
Advances 		Percent of
Total Par Value
of Advances
USAA Federal Savings Bank $ 6,000 11.8 %
American General Life Insurance Company 4,423 8.7
Beal Bank USA 3,400 6.7
Comerica Bank 3,000 5.9
Cadence Bank 2,166 4.3
$ 18,989 37.4 %
In addition, Monet Bank (which was previously known as Beal Bank SSB and is an affiliate of Beal Bank USA) and the Variable Life Insurance Company (an affiliate of American General Life Insurance Company) had outstanding advances of $1.0 billion and $0.9 billion, respectively, as of December 31, 2025 (representing 2.0 percent and 1.8 percent, respectively, of the Bank's total outstanding advances as of that date).
As of December 31, 2024 and 2023, advances outstanding to the Bank's five largest borrowers comprised $34.3 billion (50.4 percent) and $45.4 billion (56.6 percent), respectively, of the total advances portfolio at those dates.
As of December 31, 2025, Comerica Bank was the Bank's fourth largest borrower and third largest shareholder. 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.
As of December 31, 2025, Cadence Bank was the Bank's fifth largest borrower and sixth largest shareholder. 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 outstanding advances.
The following table presents information regarding the composition of the Bank's advances by product type as of December 31, 2025 and 2024.
ADVANCES OUTSTANDING BY PRODUCT TYPE
(par value, dollars in millions)
December 31, 2025 December 31, 2024
Balance Percentage
of Total 		Balance Percentage
of Total
Fixed-rate $ 43,783 86.1 % $ 61,009 89.6 %
Adjustable/variable-rate indexed 6,191 12.2 6,163 9.0
Amortizing 866 1.7 936 1.4
Total par value $ 50,840 100.0 % $ 68,108 100.0 %
While advances demand is difficult to predict, the Bank currently expects that advances will likely continue to decline in 2026.
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 Item 1. Business. 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 and other extensions of credit.
In addition, as described in Item 1. Business, 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 losses on advances.
Short-Term Liquidity Holdings
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, $2.7 billion of overnight interest-bearing deposits and $3.5 billion of U.S. Treasury Notes. At December 31, 2024, the Bank's short-term liquidity holdings were comprised of $22.3 billion of overnight reverse repurchase agreements (of which $19.6 billion was transacted with the Federal Reserve Bank of New York), $6.5 billion of overnight federal funds sold, $2.5 billion of overnight interest-bearing deposits and $3.1 billion of U.S. Treasury Notes. All of the Bank's federal funds sold during 2025 and 2024 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. During 2025 and 2024, all of the Bank's interest-bearing deposits were transacted on an overnight basis with domestic bank counterparties.
As of December 31, 2025, the Bank's overnight federal funds sold consisted of $3.3 billion of funds sold to counterparties rated double-A and $4.1 billion of funds sold to counterparties rated single-A. At that same date, $0.9 billion of the Bank's overnight interest-bearing deposits were held in a double-A rated bank, while substantially all of the Bank's remaining overnight 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 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 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 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 guidance regarding core mission achievement, see Item 1. Business (specifically, the section entitled Core Mission Achievement beginning on page 11 of this report).
Finance Agency regulations and Bank policies govern the Bank's investments in unsecured money market instruments, such as overnight and term federal funds and commercial paper. Those regulations and policies establish limits on the amount of unsecured credit that may be extended to borrowers or to affiliated groups of borrowers, and require the Bank to base its investment limits on the creditworthiness of its counterparties.
Long-Term Investments
The composition of the Bank's long-term investment portfolio at December 31, 2025 and 2024 is set forth in the table below.
COMPOSITION OF LONG-TERM INVESTMENT PORTFOLIO
(in millions)
Balance Sheet Classification Total Long-Term Investments
(at carrying value)
December 31, 2025 Held-to-Maturity
(at amortized cost) 		Available-for-Sale
(at fair value) 		Trading
(at fair value) 		Held-to-Maturity
(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
Balance Sheet Classification Total Long-Term Investments
(at carrying value)
Held-to-Maturity
(at amortized cost) 		Available-for-Sale
(at fair value) 		Trading
(at fair value) 		Held-to-Maturity
(at fair value)
December 31, 2024
Debentures
U.S. government-guaranteed obligations
$ - $ 86 $ 103 $ 189 $ -
GSE obligations
- 2,062 - 2,062 -
Total debentures - 2,148 103 2,251 -
MBS portfolio
GSE residential MBS 224 - - 224 221
GSE commercial MBS - 16,852 - 16,852 -
Total MBS 224 16,852 - 17,076 221
Total long-term investments $ 224 $ 19,000 $ 103 $ 19,327 $ 221
The following table presents supplemental information regarding the maturities and yields of the Bank's investments (at carrying value) as of December 31, 2025. Maturities are based on the contractual maturities of the securities. All of the Bank's available-for-sale securities are fixed rate securities, substantially all of which have been swapped to a variable rate. The yields presented in the table for available-for-sale securities reflect their contractual fixed rates. The weighted average yields are calculated as the sum of each debt security using the period end balances multiplied by the coupon rate adjusted by the effect of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable portfolio.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES MATURITIES AND YIELDS
(dollars in millions)
Due In One
Year Or Less 		Due After One Year
Through Five Years 		Due After Five Years
Through Ten Years 		Due After
Ten Years 		Total
Maturities
Available-for-sale securities
GSE debentures $ 1,038 $ 447 $ 14 $ - $ 1,499
GSE commercial MBS 930 6,520 10,241 118 17,809
Total available-for-sale securities $ 1,968 $ 6,967 $ 10,255 $ 118 $ 19,308
Held-to-maturity securities
GSE residential MBS $ - $ - $ 2 $ 1,046 $ 1,048
Total held-to-maturity securities $ - $ - $ 2 $ 1,046 $ 1,048
Weighted average yields
Available-for-sale securities
GSE debentures 2.29 % 2.84 % 2.98 % - % 2.46 %
GSE commercial MBS 2.61 3.53 4.37 4.50 3.97
Yield on available-for-sale securities 2.44 % 3.49 % 4.37 % 4.50 % 3.85 %
Held-to-maturity securities
GSE residential MBS - % - % 5.82 % 5.26 % 5.26 %
Yield on held-to-maturity securities - % - % 5.82 % 5.26 % 5.26 %
During the years ended December 31, 2025 and 2024, proceeds from maturities, prepayments and paydowns of held-to-maturity securities totaled approximately $143 million and $29 million, respectively. Proceeds from maturities, prepayments and paydowns of available-for-sale securities totaled $2.793 billion and $1.830 billion during the years ended December 31, 2025 and 2024, respectively. The Bank did not sell any available-for-sale securities during the years ended December 31, 2025 or 2024.
During the year ended December 31, 2025, 29 GSE commercial MBS ("CMBS") with an aggregate par value of $1.3 billion were prepaid. In connection with four of the GSE CMBS prepayments, the Bank received yield maintenance fees of $4.7 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. In aggregate, the unamortized purchase premiums or discounts and hedge basis adjustments on the prepaid securities totaled $8.2 million for the year ended December 31, 2025, and were recorded as an increase in interest income on available-for-sale securities.
During the year ended December 31, 2024, 10 GSE CMBS with an aggregate par value of $241.5 million were prepaid. In connection with one of the GSE CMBS prepayments, the Bank received a yield maintenance fee of $1.0 million. In aggregate, the unamortized purchase premiums or discounts and hedge basis adjustments on the prepaid securities totaled $7.2 million for the year ended December 31, 2024, and were recorded as an increase in interest income on available-for-sale securities.
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 $18.9 billion as of December 31, 2025, which represented287 percent of its total regulatory capital at that date. With capacity to purchase MBS and its CMA ratio above 70 percent, the Bank acquired $968 million (par value) of GSE residential MBS ("RMBS") all of which were collateralized mortgage obligations ("CMOs") designated as held-to-maturity during the year ended December 31, 2025. The Bank acquired (based on trade date) $2.5 billion (par value) and $3.2 billion (par value) of GSE CMBS during the years ended December 31, 2025 and 2024, respectively. 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 and provided its CMA ratio is at or above 70 percent and it is reasonably confident (at the time of purchase) that it can maintain its CMA ratio at or above 70 percent.
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. For a discussion of the regulatory limits on the Bank's ability to purchase non-MBS investments, see Item 1. Business - Investment Activities.
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 December 31, 2025, 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 the audited financial statements included in this report (specifically, Note 9 beginning on page F-22 of this report).
As of December 31, 2025, the U.S. government and 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 ($1.049 billion par value at December 31, 2025). 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 December 31, 2025, one-month SOFR was 3.79 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 5.69 percent to 8.44 percent. The largest concentration of embedded effective caps ($1.044 billion) was below 6.50 percent. As of December 31, 2025, one-month SOFR rates were approximately 190 basis points below the lowest effective interest rate cap embedded in the CMO floaters.
Mortgage Loans Held For Portfolio
As of December 31, 2025 and 2024, mortgage loans held for portfolio (net of allowance for credit losses) were $6.6 billion and $5.8 billion, respectively, representing approximately 6.0 percent and 4.5 percent, respectively, of the Bank's total assets at each of those dates. Through the MPF program, the Bank invests in conventional residential mortgage loans originated by its PFIs. During the years ended December 31, 2025 and 2024, the Bank acquired mortgage loans totaling $1.360 billion ($1.335 billion unpaid principal balance) and $1.119 billion ($1.102 billion unpaid principal balance), respectively. Mortgage loan prepayments during the years ended December 31, 2025 and 2024 totaled $362 million and $277 million, respectively.
The following table presents the Bank's mortgage loans held for portfolio, by contractual maturity, as of December 31, 2025 and 2024. All of the Bank's mortgage loans held for portfolio are fixed-rate loans.
MORTGAGE LOANS HELD FOR PORTFOLIO
(dollars in millions)
Redemption Term December 31, 2025 December 31, 2024
Due in one year or less $ 120 $ 110
Due after one year through five years 578 520
Due after five years through fifteen years 1,962 1,731
Thereafter 3,824 3,346
Total unpaid principal balance 6,484 5,707
Net premiums, discounts and deferred net derivative gains associated with mortgage delivery commitments 80 64
Total mortgage loans held for portfolio 6,564 5,771
Allowance for credit losses on mortgage loans (9) (7)
Mortgage loans held for portfolio, net $ 6,555 $ 5,764
As more fully discussed in Item 1. Business, the Bank manages the liquidity, interest rate and prepayment risk of the MPF loans, while the PFIs or their designees retain the servicing activities. The Bank and the PFIs share in the credit risk of the loans
with the Bank assuming a limited first loss obligation defined as the FLA, and the PFIs assuming credit losses in excess of the FLA, up to the amount of the required CE Obligation specified in the master agreement ("Second Loss Credit Enhancement").
PFIs are paid a CE fee by the Bank as an incentive to minimize credit losses. CE fees are paid monthly and are determined based on the remaining unpaid principal balance of the MPF loans. During the years ended December 31, 2025 and 2024, mortgage loan interest income was reduced by CE fees totaling $2.7 million and $2.6 million, respectively. The required CE Obligation may vary depending on the MPF product alternatives selected. The Bank also pays performance-based CE fees that are based on the actual performance of the pool of MPF loans under each individual master commitment. To the extent that losses incurred by the Bank as part of its first loss obligation in the current month exceed accrued performance-based CE fees, the remaining losses may be recovered from future performance-based CE fees payable to the PFI. During the years ended December 31, 2025 and 2024, performance-based CE fees that were foregone and not paid to the Bank's PFIs were insignificant.
If a PFI fails to comply with any of the requirements of the PFI agreement, MPF guides, applicable law or the terms of mortgage documents, it may be required to repurchase the MPF loans that are impacted by such failure. During the years ended December 31, 2025 and 2024, the principal amount of mortgage loans held by the Bank that were repurchased by the Bank's PFIs totaled $2.3 million and $3.3 million, respectively.
On October 20, 2025, Huntington Bancshares, Incorporated announced that it had closed its merger with Veritex Holdings, Inc., the holding company of Veritex Community Bank, the largest seller of mortgage loans to the Bank during the year ended December 31, 2025. Veritex Community Bank's Ninth District Charter was dissolved effective October 20, 2025. Prior to the merger closing, the Bank had acquired mortgage loans from Veritex Community Bank with an unpaid principal balance totaling $177.3 million, which ultimately represented 13 percent of the mortgage loans that were acquired by the Bank (based on unpaid principal balance) during the full year. At December 31, 2025, The Huntington National Bank, which assumed Veritex Community Bank's obligations, had approximately $460 million of outstanding letters of credit.
The following table presents the geographic concentration of the Bank's mortgage loan portfolio as of December 31, 2025.
GEOGRAPHIC CONCENTRATION OF MORTGAGE LOANS
Southwest (AR, AZ, CO, KS, LA, MO, NM, OK, TX, and UT) 77.3 %
Southeast (AL, DC, FL, GA, KY, MD, MS, NC, SC, TN, VA, and WV) 13.9
West (AK, CA, GU, HI, ID, MT, NV, OR, WA, and WY) 3.8
Midwest (IA, IL, IN, MI, MN, ND, NE, OH, SD, and WI) 3.4
Northeast (CT, DE, MA, ME, NH, NJ, NY, PA, PR, RI, VI, and VT) 1.6
100.0 %
The following table presents various ratios pertaining to the allowance for credit losses on mortgage loans as of December 31, 2025 and 2024.
MORTGAGE LOANS HELD FOR PORTFOLIO - RISK ELEMENTS AND CREDIT LOSSES
(dollars in millions)
December 31,
2025 2024
Net charge-offs during the year $ - $ -
Average loans outstanding during the year (before allowance for credit losses) 6,157 5,428
Allowance for credit losses at the end of the year 9 7
Mortgage loans held for portfolio at the end of the year (before allowance for credit losses) 6,564 5,771
Non-accrual loans at the end of the year 44 39
Ratio of net charge-offs to average loans outstanding during the period - % - %
Ratio of allowance for credit losses to mortgage loans held for portfolio 0.13 % 0.12 %
Ratio of non-accrual loans to mortgage loans held for portfolio 0.67 % 0.67 %
Ratio of allowance for credit losses to non-accrual loans 19.58 % 18.62 %
Consolidated Obligations and Deposits
During the year ended December 31, 2025, the Bank's consolidated obligation bonds (at par value) decreased by $39.0 billion and its consolidated obligation discount notes (at par value) increased by $18.6 billion. The following table presents the composition of the Bank's outstanding bonds at December 31, 2025 and 2024.
COMPOSITION OF CONSOLIDATED OBLIGATION BONDS OUTSTANDING
(par value, dollars in millions)
December 31, 2025 December 31, 2024
Balance Percentage
of Total 		Balance Percentage
of Total
Fixed-rate
Callable $ 23,387 40.1 % $ 34,735 35.7 %
Non-callable 8,568 14.7 11,316 11.7
Variable-rate SOFR-indexed
Non-callable 21,099 36.2 45,968 47.2
Callable 750 1.3 - -
Step-up
Callable 2,412 4.1 3,317 3.4
Non-callable 2,110 3.6 1,940 2.0
Callable step-down 15 - 15 -
Total par value $ 58,341 100.0 % $ 97,291 100.0 %
Variable-rate bonds have variable-rate coupons that reset based on SOFR. Fixed-rate bonds have coupons that are fixed over the life of the bond. Some fixed-rate and variable-rate bonds contain provisions that enable the Bank to call the bonds at its option on predetermined call dates. Step-up bonds pay interest at increasing fixed rates for specified intervals over the life of the bond and, if callable, contain provisions enabling the Bank to call the bonds at its option on predetermined dates. Callable step-down bonds pay interest at decreasing fixed rates for specified intervals over the life of the bond and contain provisions enabling the Bank to call the bonds at its option on predetermined dates.
The FHLBanks rely extensively on the underwriters of their securities, including investment banks, money center banks and large commercial banks, to source investors for consolidated obligations. Investors may be located in the United States or overseas. The features of consolidated obligations are structured to meet the requirements of investors. The various types of consolidated obligations included in the table above reflect the features of the Bank's outstanding bonds as of December 31, 2025 and 2024 and do not represent all of the various types and styles of consolidated obligation bonds that may be issued by the Bank or the other FHLBanks.
Consistent with its risk management philosophy, the Bank uses interest rate exchange agreements (i.e., interest rate swaps) to convert many of the fixed-rate consolidated obligation bonds that it issues to variable-rate instruments that reset based on SOFR or, to a far lesser extent, the overnight index swap ("OIS") rate. Generally, the Bank receives a coupon on the interest rate swap that is identical to the coupon it pays on the consolidated obligation bond while paying a variable-rate coupon on the interest rate swap that resets based on SOFR or OIS. Typically, the formula for the variable-rate coupon also includes a spread to the index; for instance, the Bank may pay a coupon on the interest rate swap equal to SOFR plus 5 basis points.
During the years ended December 31, 2025 and 2024, the Bank issued $88.6 billion and $136.5 billion, respectively, of consolidated obligation bonds. The proceeds from these issuances were generally used to replace maturing or called consolidated obligations. During the year ended December 31, 2025, the Bank's consolidated obligation bond issuance (based on par value) consisted of approximately 58 percent variable-rate bonds, 40 percent swapped fixed-rate callable bonds (including step-up bonds) and 2 percent fixed-rate non-callable bonds (most of which were swapped). During the year ended December 31, 2024, the Bank's consolidated obligation bond issuance (based on par value) consisted of approximately 69 percent variable-rate bonds, 27 percent swapped fixed-rate callable bonds (including step-up bonds) and 4 percent fixed-rate non-callable bonds (most of which were swapped).
At December 31, 2025 and 2024, discount notes comprised approximately 41 percent and 18 percent, respectively, of the Bank's total outstanding consolidated obligations. During 2025, the Bank issued approximately $86 billion of consolidated obligation discount notes (excluding those with overnight terms), the proceeds of which were used primarily to replace maturing or called consolidated obligation bonds and maturing consolidated obligation discount notes.
The primary benchmark that the Bank uses to analyze the effectiveness of its debt issuance efforts and trends in its debt issuance costs is the spread to overnight SOFR that the Bank pays on variable-rate consolidated obligations and interest rate swaps used to convert its fixed-rate consolidated obligations to SOFR. During the years ended December 31, 2025 and 2024, the weighted average SOFR-equivalent cost of swapped and variable-rate consolidated obligation bonds issued by the Bank approximated SOFR minus 1 basis point and SOFR flat, respectively.
Demand and term deposits were approximately $2.2 billion and $1.7 billion at December 31, 2025 and 2024, 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.
Time deposits totaled $45.2 million at December 31, 2025. These deposits mature as follows: $28.2 million in three months or less and $17.0 million in over six months through twelve months.
All of the Bank's deposits are uninsured.
Capital Stock
The Bank's outstanding capital stock (excluding mandatorily redeemable capital stock) was $3.3 billion and $4.2 billion at December 31, 2025 and 2024, respectively, while the Bank's average outstanding capital stock (excluding mandatorily redeemable capital stock) was $3.7 billion and $4.5 billion for the years ended December 31, 2025 and 2024, respectively.
At December 31, 2025, the Bank's five largest shareholders held $898.5 million of capital stock, which represented 26.9 percent of the Bank's total outstanding capital stock (including mandatorily redeemable capital stock) as of that date. The following table presents the Bank's five largest shareholders as of December 31, 2025.
FIVE LARGEST SHAREHOLDERS AS OF DECEMBER 31, 2025
(par value, dollars in thousands)
Name Par Value of
Capital Stock 		Percent of
Total Par Value
of Capital Stock
USAA Federal Savings Bank $ 296,253 8.9 %
American General Life Insurance Company 219,698 6.6
Comerica Bank 130,000 3.9
American Airlines Federal Credit Union 127,621 3.8
Beal Bank USA 124,886 3.7
$ 898,458 26.9 %
As of December 31, 2025, all of the stock held by the five institutions shown in the table above was classified as capital in the statement of condition. Effective February 2, 2026, all of the capital stock held by Comerica Bank was reclassified to mandatorily redeemable capital stock. For additional discussion, see the sub-section above entitled "Advances."
Six affiliates of USAA Federal Savings Bank held a combined total of $31,995,000 of the Bank's capital stock as of December 31, 2025. In addition, as of that date, the Variable Annuity Life Insurance Company, an affiliate of American General Life Insurance Company, held $54,513,000 of the Bank's capital stock. Further, Monet Bank (which was previously known as Beal Bank SSB), an affiliate of Beal Bank USA, held $43,648,000 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 $328,248,000, $274,211,000 and $168,534,000, respectively, of the Bank's capital stock as of December 31, 2025, representing 9.8 percent, 8.2 percent and 5.0 percent, respectively, of the Bank's total outstanding capital stock (including mandatorily redeemable capital stock) as of that date.
As discussed above in the sub-section entitled "Advances," Cadence Bank, the Bank's sixth largest shareholder as of December 31, 2025, was acquired by an out-of-district institution on February 2, 2026. As of December 31, 2025, Cadence Bank held $121,798,200 of the Bank's capital stock. Following the prepayment of the outstanding advances previously held by Cadence Bank, the Bank repurchased $114,735,900 of this capital stock on February 13, 2026.
As described in Item 1. Business, members are required to maintain an investment in Class B stock equal to the sum of a membership investment requirement and an activity-based investment requirement. Currently, the membership investment requirement is 0.04 percent of each member's total assets as of the previous calendar year end, subject to a minimum of $1,000 and a maximum of $7,000,000. The activity-based investment requirement is currently 4.10 percent of outstanding advances,
except for advances that were funded under the special reduced stock advances offerings discussed below, and 0.10 percent of letters of credit (the "LC Percentage"). The LC Percentage is applied to the issued amount of the letter of credit rather than, if applicable, the amount of the letter of credit that is used from time to time during the term of the letter of credit. The Bank's Board of Directors reviews these requirements at least annually and has the authority to adjust them periodically within ranges established in the Bank's Capital Plan, as amended from time to time, to ensure that the Bank remains adequately capitalized. Any changes to either the membership or activity-based investment requirements require at least 30 days advance notice to the Bank's members. There were no changes to the investment requirements during the years ended December 31, 2025 and 2024.
The Bank has two sub-classes of Class B Stock. Class B-1 Stock is used to meet the membership investment requirement and Class B-2 Stock is used to meet the activity-based investment requirement. Daily, subject to the limitations in the Capital Plan, the Bank converts shares of one sub-class of Class B Stock to the other sub-class of Class B Stock under the following circumstances: (i) shares of Class B-2 Stock held by a shareholder in excess of its activity-based investment requirement are converted into Class B-1 Stock, if necessary, to meet that shareholder's membership investment requirement and (ii) shares of Class B-1 Stock held by a shareholder in excess of the amount required to meet its membership investment requirement are converted into Class B-2 Stock as needed in order to satisfy that shareholder's activity-based investment requirement. All excess stock is held as Class B-1 Stock at all times.
The Bank's Board of Directors may declare dividends at the same rate for all shares of Class B Stock, or at different rates for Class B-1 Stock and Class B-2 Stock, provided that in no event can the dividend rate on Class B-2 Stock be lower than the dividend rate on Class B-1 Stock. Dividend payments may be made in the form of cash, additional shares of either, or both, sub-classes of Class B Stock, or a combination thereof as determined by the Bank's Board of Directors. For additional information, see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The permissible range for the advances-based component of the activity-based investment requirement is currently a range of 2.0 percent to 5.0 percent of members' advances outstanding. The Bank's Board of Directors may establish one or more separate advances investment requirement percentages (each an "advance type specific percentage") within this range to be applied to a specific category of advances in lieu of the generally applicable advances-related investment requirement percentage in effect at the time. Such category of advances may be defined as a particular advances product offering, advances with particular maturities or other features, advances that represent an increase in member borrowing, or such other criteria as the Bank's Board of Directors may determine. Any advance type specific percentage may be established for an indefinite period of time, or for a specific time period, at the discretion of the Bank's Board of Directors.
On September 21, 2015, the Bank announced a Board-authorized reduction in the activity-based stock investment requirement from 4.1 percent to 2.0 percent for certain advances that were funded during the period from October 21, 2015 through December 31, 2015. The standard activity-based stock investment requirement of 4.1 percent continued to apply to all other advances that were funded during the period from October 21, 2015 through December 31, 2015. All other minimum investment requirements also continued to apply during that period. At December 31, 2025, the remaining balance of advances funded under this special reduced stock advances offering totaled approximately $0.4 million.
On February 28, 2020, the Bank announced another Board-authorized reduction in the activity-based stock investment requirement from 4.1 percent to 2.0 percent for up to $5.0 billion of advances that were funded during the period from April 1, 2020 through December 31, 2020 and that had a maturity of one year or greater. Pursuant to several Board-authorized extensions and modifications to this program, the Bank's activity-based capital stock investment requirement was reduced from 4.1 percent to 2.0 percent for (1) advances that were funded during the period from August 1, 2020 through April 18, 2021 and that had a maturity of 28 days or greater and (2) advances that were funded during the period from April 19, 2021 through December 31, 2022 and that had a maturity of 32 days or greater. Under the special advances offering described in this paragraph, the maximum balance of advances to which the reduced activity-based stock investment requirement could be applied was $5.0 billion. Except as described in this paragraph, the standard activity-based stock investment requirement of 4.1 percent continued to apply to all other advances that were funded during the period from April 1, 2020 through December 31, 2022. At December 31, 2025, advances outstanding under this program totaled approximately $1.8 billion.
The permissible range for the letter of credit-based component of the activity-based investment requirement is currently a range of 0.1 percent to 2.0 percent of members' outstanding letters of credit, as specified from time to time by the Bank's Board of Directors.
Quarterly, the Bank typically repurchases a portion of members' excess capital stock. Excess stock is defined as the amount of stock held by a member (or former member) in excess of that institution's minimum investment requirement. The portion of members' excess capital stock subject to repurchase is known as surplus stock. For the repurchases that occurred during 2025, surplus stock was defined as the amount of stock held by a shareholder in excess of 120 percent of the shareholder's minimum investment requirement. For the repurchases that occurred during 2024, surplus stock was defined as the amount of stock held by a shareholder in excess of 125 percent of the shareholder's minimum investment requirement. A shareholder's surplus stock was not repurchased if: (1) the amount of that shareholder's surplus stock was $1,000,000 or less in 2025 and $2,000,000 or less
in 2024, (2) the shareholder was on restricted collateral status (subject to certain exceptions), or (3) for the repurchases that occurred during the first and second quarters of 2024, the shareholder elected to opt out of the repurchase. Shareholders were not permitted to opt out of the repurchases that occurred during 2025 or the third and fourth quarters of 2024. During the years ended December 31, 2025 and 2024, the Bank repurchased surplus stock totaling $956.9 million and $717.1 million, respectively, none of which was classified as mandatorily redeemable capital stock at the time of repurchase. From time to time, the Bank may modify the definition of surplus stock or the timing and/or frequency of surplus stock repurchases.
Concurrent with the quarterly repurchases of surplus stock that occurred in 2025 and 2024, the Bank also repurchased all excess stock held by non-member shareholders as of the repurchase dates. This excess stock, all of which was classified as mandatorily redeemable capital stock at those dates, totaled $13.7 million and $0.4 million, respectively.
At December 31, 2025, excess stock held by the Bank's members and former members totaled $749 million, which represented 0.69 percent of the Bank's total assets as of that date.
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.
The following table sets forth the repurchases of excess stock that have occurred under the quarterly repurchase program since January 1, 2024.
EXCESS STOCK REPURCHASED UNDER QUARTERLY REPURCHASE PROGRAM
(dollars in thousands)
Date of Repurchase
by the Bank 		Shares
Repurchased 		Amount of Surplus Stock
Repurchased from
Member Shareholders 		Amount of Excess Stock
Repurchased from
Non-Member Shareholders
March 26, 2024 1,666,547 $ 166,651 $ 4
June 25, 2024 1,305,247 130,259 266
September 25, 2024 2,620,859 261,974 112
December 26, 2024 1,582,647 158,262 2
March 24, 2025 3,586,208 353,916 4,705
June 23, 2025 1,464,773 139,358 7,119
September 22, 2025 2,247,455 224,746 -
December 22, 2025 2,407,932 238,916 1,877
U.S. GAAP requires issuers to classify as liabilities certain financial instruments that embody obligations for the issuer (hereinafter referred to as "mandatorily redeemable financial instruments"). Pursuant to these requirements, the Bank reclassifies shares of capital stock from the capital section to the liability section of its balance sheet at the point in time when either a written redemption or withdrawal notice is received from a member or a membership withdrawal or termination is otherwise initiated, because the shares of capital stock then meet the definition of a mandatorily redeemable financial instrument. Shares of capital stock meeting this definition are reclassified to liabilities at fair value. Following reclassification of the stock, any dividends paid or accrued on such shares are recorded as interest expense in the statements of income. As the repurchases presented in the table above are made at the sole discretion of the Bank, the repurchase, in and of itself, does not cause the shares underlying these repurchases to meet the definition of mandatorily redeemable financial instruments.
Stock dividends paid on capital stock that is classified as mandatorily redeemable capital stock are reported as either an issuance of capital stock or as an increase in the mandatorily redeemable capital stock liability depending upon the event that caused the stock on which the dividend is being paid to be classified as a liability. Stock dividends paid on stock subject to a written redemption notice are reported as an issuance of capital stock as such dividends are not covered by the original redemption notice. Stock dividends paid on stock that is subject to a withdrawal notice (or its equivalent) are reported as an increase in the mandatorily redeemable capital stock liability. During the years ended December 31, 2025 and 2024, the Bank did not receive any stock redemption notices.
Mandatorily redeemable capital stock outstanding at December 31, 2025 and 2024 was $8.0 million and $0.2 million, respectively. For the years ended December 31, 2025 and 2024, average mandatorily redeemable capital stock was $7.0 million and $0.5 million, respectively. Although mandatorily redeemable capital stock is excluded from capital for financial reporting purposes, this stock is considered capital for regulatory purposes (see the section below entitled "Risk-Based Capital Rules and Other Capital Requirements" for further information).
The following table presents capital stock outstanding, by type of institution, as of December 31, 2025 and 2024.
CAPITAL STOCK OUTSTANDING BY INSTITUTION TYPE
(dollars in millions)
December 31, 2025 December 31, 2024
Amount Percent Amount Percent
Commercial banks $ 1,399 42 % $ 1,669 40 %
Credit unions 812 25 786 19
Savings institutions 580 17 1,189 28
Insurance companies 545 16 522 13
Community Development Financial Institutions 2 - 2 -
Total capital stock classified as capital 3,338 100 4,168 100
Mandatorily redeemable capital stock 8 - - -
Total regulatory capital stock $ 3,346 100 % $ 4,168 100 %
Derivatives and Hedging Activities
The Bank functions as a financial intermediary by channeling funds provided by investors in its consolidated obligations to member institutions. During the course of a business day, all member institutions may obtain advances through a variety of product types that include features as diverse as variable and fixed coupons, overnight to 20-year maturities, and bullet (principal due at maturity) or amortizing redemption schedules. The Bank funds advances primarily through the issuance of consolidated obligation bonds and discount notes. The terms and amounts of these consolidated obligation bonds and discount notes and the timing of their issuance is determined by the Bank and is subject to investor demand as well as FHLBank System debt issuance policies.
The intermediation of the timing, structure, and amount of Bank members' credit needs with the investment requirements of the Bank's creditors is made possible by the extensive use of interest rate exchange agreements. The Bank's general practice has been to contemporaneously execute interest rate exchange agreements when acquiring longer maturity fixed-rate assets and/or issuing longer maturity fixed-rate liabilities in order to convert the instruments' cash flows to a variable rate that is tied to a short-term index. By doing so, the Bank reduces its interest rate risk exposure and preserves the value of, and earns more stable returns on, its members' capital investment.
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. Management has put in place a risk management framework that outlines the permitted uses of interest rate derivatives and that requires frequent reporting of their values and impact on the Bank's financial statements. All interest rate derivatives employed by the Bank hedge identifiable risks and none are used for speculative purposes. As of December 31, 2025, substantially all of the Bank's derivative instruments that were designated in hedging relationships were either hedging fair value risk attributable to changes in SOFR (the designated benchmark interest rate) or hedging the variability of cash flows associated with forecasted transactions.
U.S. GAAP requires that all derivative instruments be recorded in the statements of condition at their fair values. Changes in the fair values of the Bank's derivatives, other than those designated in cash flow hedging relationships, are recorded each period in current earnings. U.S. GAAP also sets forth conditions that must exist in order for balance sheet items to qualify for fair value hedge accounting. If an asset or liability qualifies for fair value hedge accounting, changes in the fair value of the hedged item that are attributable to the hedged risk are also recorded in earnings. As a result, the net effect is that only the "ineffective" portion of a qualifying fair value hedge has an impact on current earnings. Changes in the fair values of the Bank's derivatives designated in cash flow hedging relationships are recorded each period in other comprehensive income.
Under U.S. GAAP, periodic earnings variability for fair value hedges occurs in the form of the net difference between changes in the fair values of the derivative (the hedging instrument) and the hedged item (the asset or liability), if any, for accounting purposes. For the Bank, two types of hedging relationships are primarily responsible for creating earnings volatility.
The first type involves transactions in which the Bank enters into interest rate swaps with coupon cash flows identical or nearly identical to the cash flows of the hedged item (e.g., an advance, investment security or consolidated obligation). In some cases involving hedges of this type, an assumption of "no ineffectiveness" can be made and the changes in the fair values of the derivative and the hedged item are considered identical and offsetting (hereinafter referred to as the shortcut method). However, if the derivative or the hedged item do not have certain characteristics defined in U.S. GAAP, the assumption of "no
ineffectiveness" cannot be made, and the derivative and the hedged item must be marked to fair value independently (hereinafter referred to as the long-haul method). Under the long-haul method, the two components of the hedging relationship are marked to fair value using different discount rates, and the resulting changes in fair value are generally slightly different from one another. Even though these differences are generally relatively small when expressed as prices, their impact can become more significant when multiplied by the principal amount of the transaction and then evaluated in the context of the Bank's net income.
The second type involves transactions in which the Bank enters into interest rate exchange agreements to hedge identifiable portfolio risks that either do not qualify for fair value hedge accounting under U.S. GAAP or are not designated in a qualifying fair value hedging relationship (hereinafter referred to as an "economic hedge"). For instance, from time to time, the Bank uses fixed-for-floating interest rate swaps to hedge its fair value risk exposure associated with some of its longer-term discount notes. The changes in fair value of the interest rate swaps flow through current earnings without an offsetting change in the fair value of the hedged items (i.e., the discount notes), which increases the volatility of the Bank's earnings. Excluding net interest settlements, the impact of the changes in fair value of these stand-alone interest rate swaps on earnings over the life of the transactions will be zero if these instruments are held until their maturity. The Bank generally holds its discount note swaps to maturity.
Because the use of interest rate derivatives enables the Bank to better manage its economic risks, and thus run its business more effectively and efficiently, the Bank will continue to use them during the normal course of its balance sheet management. The Bank views the accounting consequences of using interest rate derivatives as being an important, but secondary, consideration.
As a result of using interest rate exchange agreements extensively to fulfill its role as a financial intermediary, the Bank has a large notional amount of interest rate exchange agreements relative to its size. As of December 31, 2025, 2024 and 2023, the Bank's notional balance of interest rate exchange agreements was $125.2 billion, $143.9 billion and $164.1 billion, respectively, while its total assets were $108.5 billion, $127.7 billion and $128.3 billion, respectively. The notional amount of interest rate exchange agreements does not reflect the Bank's credit risk exposure which, as discussed below, is much less than the notional amount.
The following table provides the notional balances of the Bank's derivative instruments, by balance sheet category and accounting designation, as of December 31, 2025, 2024 and 2023.
COMPOSITION OF DERIVATIVES BY BALANCE SHEET CATEGORY AND ACCOUNTING DESIGNATION
(in millions)
Fair Value Hedges
Shortcut
Method 		Long-Haul
Method 		Cash Flow
Hedges 		Economic
Hedges 		Total
December 31, 2025
Advances $ 25,703 $ 2,862 $ - $ 850 $ 29,415
Investments - 19,288 - 5,000 24,288
Mortgage loans held for portfolio - - - 739 739
Consolidated obligation bonds - 31,258 - 106 31,364
Consolidated obligation discount notes - - 966 28,021 28,987
Intermediary positions - - - 19 19
Counterparty exposures - - - 10,000 10,000
Other - - - 400 400
Total notional balance $ 25,703 $ 53,408 $ 966 $ 45,135 $ 125,212
December 31, 2024
Advances $ 35,301 $ 2,699 $ - $ 5,000 $ 43,000
Investments - 19,594 - 3,309 22,903
Mortgage loans held for portfolio - - - 1,642 1,642
Consolidated obligation bonds - 46,587 - 436 47,023
Consolidated obligation discount notes - - 1,066 12,561 13,627
Intermediary positions - - - 19 19
Counterparty exposures - - - 15,300 15,300
Other - - - 400 400
Total notional balance $ 35,301 $ 68,880 $ 1,066 $ 38,667 $ 143,914
December 31, 2023
Advances $ 50,880 $ 1,660 $ - $ 1,109 $ 53,649
Investments - 17,987 - 1,552 19,539
Mortgage loans held for portfolio - - - 1,377 1,377
Consolidated obligation bonds - 70,233 - 1,021 71,254
Consolidated obligation discount notes - - 1,066 1,521 2,587
Intermediary positions - - - 19 19
Counterparty exposures - - - 15,300 15,300
Other - - - 400 400
Total notional balance $ 50,880 $ 89,880 $ 1,066 $ 22,299 $ 164,125
The following table provides the notional balances of the Bank's derivative instruments, by hedging strategy, as of December 31, 2025 and 2024.
HEDGING STRATEGIES
(in millions)
Hedge
Accounting
Designation 		Notional Amount
at December 31,
Hedged Item / Hedging Instrument Hedging Objective 2025 2024
Advances
Pay fixed, receive floating interest rate swap (without options) Converts the advance's fixed rate to a variable-rate index. Fair Value $ 23,741 $ 33,363
Economic 850 5,000
Pay fixed, receive floating interest rate swap (with options) Converts the advance's fixed rate to a variable-rate index and offsets option risk in the advance. Fair Value 4,824 4,637
Investments
Pay fixed, receive floating interest rate swap Converts the investment security's fixed rate to a variable-rate index. Fair Value 19,288 19,594
Economic 3,850 2,159
Receive fixed interest rate swaption Provides the option to enter into an interest rate swap to offset prepayment risk associated with the CMBS portfolio. Economic 1,150 1,150
Mortgage Loans
Pay fixed, receive floating interest rate swap, or receive fixed, pay floating interest rate swap To hedge risks to the Bank's earnings associated with the mortgage loan portfolio. Economic 713 851
Pay or receive fixed interest rate swaption Provides the option to enter into an interest rate swap to offset interest rate risk associated with the mortgage loan portfolio. Economic - 775
Consolidated Obligation Bonds
Receive fixed, pay floating interest rate swap (without options) Converts the bond's fixed rate to a variable-rate index. Fair Value 1,508 4,810
Economic 76 76
Receive fixed, pay floating interest rate swap (with options) Converts the bond's fixed rate to a variable-rate index and offsets option risk in the bond. Fair Value 29,750 41,777
Economic 30 360
Consolidated Obligation Discount Notes
Receive floating, pay fixed interest rate swap Reduces cash flow variability by converting the variable cash flows of rolling three-month discount notes to fixed cash flows. Cash Flow 966 1,066
Receive fixed, pay floating interest rate swap Converts the discount note's fixed rate to a variable-rate index. Economic 28,021 12,561
Intermediary Positions
Pay fixed, receive floating interest rate swap, and receive fixed, pay floating interest rate swap To provide interest rate swaps to members and to offset these interest rate swaps by executing interest rate swaps with the Bank's derivative counterparties. Economic 19 19
Counterparty Exposure
Pay floating, receive fixed or pay fixed, receive floating interest rate swaps To reduce net derivatives exposure to bilateral and clearinghouse counterparties by executing offsetting swaps Economic 10,000 15,300
Other
Receive fixed, pay floating interest rate swaps To hedge risks to the Bank's earnings that are not directly linked to specific assets, liabilities or forecasted transactions Economic 400 400
Total derivatives used to hedge risk 125,186 143,898
Mortgage delivery commitments 26 16
Total notional amount of derivatives $ 125,212 $ 143,914
As a result of statutory and regulatory requirements emanating from the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), certain derivative transactions that the Bank enters into are required to be cleared through a third-party central clearinghouse. As of December 31, 2025, the Bank had cleared trades outstanding with notional amounts totaling $71.1 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 transacted some of its 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 amounts 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 December 31, 2025, the notional balance of outstanding interest rate exchange agreements transacted with non-member bilateral counterparties totaled $54.1 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.
The Dodd-Frank Act also changed the regulatory framework for derivative transactions that are not subject to mandatory clearing requirements (uncleared trades). 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.
The notional amount of interest rate exchange agreements does not reflect the Bank's credit risk exposure, which is much less than the notional amount. The Bank's net credit risk exposure is based on the current estimated cost, on a present value basis, of replacing at current market rates all interest rate exchange agreements with individual counterparties, if those counterparties were to default, after taking into account the value of any cash and/or securities collateral held or remitted by the Bank. For counterparties with which the Bank is in a net gain position, the Bank has credit exposure when the collateral it is holding (if any) has a value less than the amount of the gain. For counterparties with which the Bank is in a net loss position, the Bank has credit exposure when it has delivered collateral with a value greater than the amount of the loss position.
As of December 31, 2025, cash collateral totaling $336 million had been delivered by the Bank to its non-member bilateral derivative counterparties under the terms of the collateral exchange agreements. At that date, the Bank had pledged securities with a carrying value (and fair value) of $172 million to four bilateral derivative counterparties to meet its initial margin requirements. Further, as of December 31, 2025, the Bank had pledged $304 million (carrying value and fair value) of securities to satisfy initial margin requirements associated with its cleared derivatives. In addition, as of December 31, 2025, the Bank had received $233 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 December 31, 2025.
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)
3 $ 8,591.2 $ 19.6 $ (11.3) $ (0.2) $ 8.1
Cleared derivatives(3)
- 70,068.2 10.2 - 291.6 301.8
Liability positions with credit exposure
Single-A 7 35,321.9 (169.9) 189.2 8.0 27.3
Cleared derivatives(3)
- 1,010.5 - - 11.9 11.9
Total derivative positions with non-member counterparties to which the Bank had credit exposure
10 114,991.8 (140.1) 177.9 311.3 349.1
Asset positions without credit exposure 5 3,275.6 17.8 (19.0) - -
Liability positions without credit exposure 4 6,909.2 (150.8) 147.7 - -
Total derivative positions with non-member counterparties to which the Bank did not have credit exposure
9 10,184.8 (133.0) 128.7 - -
Total non-member counterparties 19 125,176.6 (273.1) $ 306.6 $ 311.3 $ 349.1
Member institutions
Interest rate exchange agreements (5)
Asset positions 1 9.3 0.1
Mortgage delivery commitments - 26.0 -
Total member institutions 1 35.3 0.1
Total 20 $ 125,211.9 $ (273.0)
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(1)Credit ratings shown in the table reflect the lowest rating from Moody's or S&P and are as of December 31, 2025.
(2)Includes amounts that had not settled as of December 31, 2025.
(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 $8.4 billion and a net credit exposure of $8.0 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 two remaining interest rate exchange agreements with one of its members, 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 transactions with the Bank (if the value is positive to the Bank) plus a percentage of the notional amount of the interest rate swaps, with market values determined on at least a monthly basis. Eligible collateral for these derivative transactions consists of collateral that is eligible to secure advances and other obligations under the member's Advances and Security Agreement with the Bank (for a description of eligible collateral, see Item 1. Business - Products and Services - Advances).
Market Value of Equity
The ratio of the Bank's estimated market value of equity to its book value of equity was 100 percent at both December 31, 2025 and 2024. For additional discussion, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Results of Operations
Net Income
Net income for 2025, 2024 and 2023 was $582.6 million, $726.6 million and $874.5 million, respectively. The Bank's net income for 2025 represented a return on average capital stock ("ROCS") of 15.64 percent. In comparison, the Bank's ROCS was 16.17 percent in 2024 and 15.42 percent in 2023. 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 years ended December 31, 2025, 2024 and 2023. The factors contributing to the changes in the Bank's net income from 2024 to 2025 are discussed below. The factors contributing to the changes in the Bank's net income from 2023 to 2024 are discussed in the 2024 10-K.
SUMMARY OF CHANGES IN NET INCOME
(dollars in thousands)
Year Ended December 31, 2025 Year Ended December 31, 2024 Year Ended
December 31, 2023
Increase (Decrease) Increase (Decrease)
Amount Amount Percentage Amount Amount Percentage
Net interest income after provision for credit losses $ 762,234 $ (129,358) (14.5) % $ 891,592 $ (126,321) (12.4) % $ 1,017,913
Other income 59,751 (4,052) (6.4) 63,803 (27,915) (30.4) 91,718
Other expense 174,669 26,643 18.0 148,026 10,052 7.3 137,974
Income before assessments 647,316 (160,053) (19.8) 807,369 (164,288) (16.9) 971,657
AHP assessment 64,762 (15,980) (19.8) 80,742 (16,464) (16.9) 97,206
Net income $ 582,554 $ (144,073) (19.8) % $ 726,627 $ (147,824) (16.9) % $ 874,451
While the Bank is exempt from all federal, state and local income taxes, it is obligated to set aside 10 percent of its income before assessments (adjusted for interest expense on mandatorily redeemable capital stock) for 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. For the years ended December 31, 2025 and 2024, the Bank's AHP assessments totaled $64.8 million and $80.7 million, respectively. In each of these years, the effective assessment rate closely approximated 10 percent. Because interest expense on mandatorily redeemable capital stock is not deductible for purposes of computing the Bank's AHP assessment, the effective assessment rate could exceed 10 percent in future periods.
Income Before Assessments
During 2025 and 2024, the Bank's income before assessments was $647.3 million and $807.4 million, respectively. The $160.1 million decrease in income before assessments for 2025 as compared to 2024 was attributable to a $129.4 million decrease in net interest income after provision for credit losses, a $4.1 million decrease in other income and a $26.6 million increase in other expenses. The components of income before assessments (net interest income after provision for credit losses, other income and other expense) are discussed in more detail in the following sections.
Net Interest Income After Provision for Credit Losses
In 2025 and 2024, the Bank's net interest income after provision for credit losses was $762.2 million and $891.6 million, respectively. The $129.4 million decrease in net interest income after provision for credit losses from 2024 to 2025 was due primarily to a decrease in the average balances of the Bank's interest-earning assets, lower average capital balances and lower rates of return on the Bank's invested capital, partially offset by a $38.1 million decrease in net price alignment expense on cleared derivatives.
The average balances of the Bank's interest-earning assets decreased by $13.2 billion, from $125.0 billion in 2024 to $111.8 billion in 2025. The Bank's net interest margin decreased from 72 basis points in 2024 to 69 basis points in 2025. 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 increased from 35 basis points in 2024 to 39 basis points in 2025. Due to the decrease in average short-term interest rates in 2025 relative to 2024, the
contribution of the Bank's invested capital to the net interest margin (the impact of non-interest bearing funds) decreased from 37 basis points in 2024 to 30 basis points in 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), as further discussed below. 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 yield maintenance fees on GSE CMBS which, for 2025 and 2024, totaled $15.8 million and $12.5 million, respectively.
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. As a result, 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 that is recorded in net interest income. The following table presents the fair value hedge ineffectiveness and price alignment amount that are recorded in net interest income for the years ended December 31, 2025 and 2024.
FAIR VALUE HEDGE INEFFECTIVENESS AND PRICE ALIGNMENT AMOUNT IN NET INTEREST INCOME
(dollars in thousands)
Advances Investments CO Bonds CO
Discount Notes 		Total
Year Ended December 31, 2025
Gains (losses) on designated fair value hedges $ (875) $ 368 $ (275) $ - $ (782)
Price alignment interest (1)
(9,027) (11,257) (375) (1,457) (22,116)
Year Ended December 31, 2024
Gains (losses) on designated fair value hedges $ 1,668 $ (286) $ 1,639 $ - $ 3,021
Price alignment interest (1)
(27,858) (27,312) (1,804) (3,201) (60,175)
_______________________
(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 2025, 2024 and 2023.
YIELD AND SPREAD ANALYSIS
(dollars in millions)
For the year ended December 31,
2025 2024 2023
Average
Balance 		Interest
Income/
Expense
Average
Rate(a)
Average
Balance 		Interest
Income/
Expense
Average
Rate(a)
Average
Balance 		Interest
Income/
Expense
Average
Rate(a)
Assets
Interest-bearing deposits (b)
$ 3,264 $ 140 4.30 % $ 3,893 $ 206 5.29 % $ 5,619 $ 289 5.14 %
Securities purchased under agreements to resell
4,776 201 4.20 % 4,268 224 5.26 % 7,399 385 5.20 %
Federal funds sold (c)
10,458 452 4.32 % 12,404 645 5.20 % 13,939 709 5.09 %
Investments
Trading 3,871 149 3.85 % 2,670 120 4.51 % 364 12 3.18 %
Available-for-sale (d)
18,764 990 5.28 % 18,560 1,142 6.15 % 16,362 993 6.07 %
Held-to-maturity (d)
1,020 52 5.15 % 239 14 5.75 % 281 15 5.49 %
Advances (e)
63,542 2,936 4.62 % 77,546 4,327 5.58 % 106,415 5,742 5.40 %
Mortgage loans held for portfolio (f)
6,149 280 4.55 % 5,421 228 4.20 % 4,770 177 3.72 %
Total earning assets 111,844 5,200 4.65 % 125,001 6,906 5.53 % 155,149 8,322 5.36 %
Cash and due from banks 25 64 41
Other assets 639 511 703
Derivatives netting adjustment (b)
(513) (862) (1,522)
Fair value adjustment on available-for-sale securities (d)
110 130 69
Adjustment for net non-credit portion of other-than-temporary impairments on held-to-maturity securities (d)
- - (1)
Total assets $ 112,105 5,200 4.64 % $ 124,844 6,906 5.53 % $ 154,439 8,322 5.39 %
Liabilities and Capital
Interest-bearing deposits (b) (g)
$ 1,999 84 4.19 % $ 1,597 82 5.11 % $ 1,424 71 5.00 %
Consolidated obligations
Bonds 77,984 3,366 4.32 % 97,369 5,088 5.23 % 106,161 5,453 5.14 %
Discount notes 24,126 982 4.07 % 17,180 842 4.90 % 37,423 1,776 4.75 %
Mandatorily redeemable capital stock and other borrowings
7 - 4.36 % 1 - 6.13 % 17 1 5.62 %
Total interest-bearing liabilities 104,116 4,432 4.26 % 116,147 6,012 5.18 % 145,025 7,301 5.03 %
Other liabilities 1,525 2,202 2,946
Derivatives netting adjustment (b)
(513) (862) (1,522)
Total liabilities 105,128 4,432 4.22 % 117,487 6,012 5.12 % 146,449 7,301 4.99 %
Total capital 6,977 7,357 7,990
Total liabilities and capital $ 112,105 3.95 % $ 124,844 4.81 % $ 154,439 4.73 %
Net interest income $ 768 $ 894 $ 1,021
Net interest margin 0.69 % 0.72 % 0.66 %
Net interest spread 0.39 % 0.35 % 0.33 %
Impact of non-interest bearing funds
0.30 % 0.37 % 0.33 %
____________________________________
(a)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.
(b)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 years ended December 31, 2025, 2024 and 2023 in the table above include $0.425 billion, $0.809 billion and $1.462 billion, 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 years ended December 31, 2025, 2024 and 2023 in the table above include $87 million, $52 million and $57 million, respectively, which are classified as derivative assets/liabilities on the statements of condition.
(c)Includes overnight federal funds sold to other FHLBanks.
(d)Average balances for available-for-sale and held-to-maturity securities are calculated based upon amortized cost.
(e)Interest income and average rates include net prepayment fees on advances.
(f)The average balances for mortgage loans held for portfolio in the table above include $38 million, $28 million and $20 million of non-accruing loans for the years ended December 31, 2025, 2024 and 2023, respectively.
(g)Average balances of deposits for the years ended December 31, 2025, 2024 and 2023 include time deposits of $237 million, $24 million and $44 million, respectively. The remaining balances are substantially comprised of interest-bearing demand deposits. During the years ended December 31, 2025, 2024 and 2023, interest was paid on demand deposits at average rates of 4.2 percent, 5.1 percent and 5.0 percent, respectively, and on time deposits at average rates of 3.8 percent, 4.5 percent and 4.6 percent, respectively.
Rate and Volume Analysis
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 2025 and 2024 and between 2024 and 2023. 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)
2025 vs. 2024
Increase (Decrease) Due To 		2024 vs. 2023
Increase (Decrease) Due To
Volume Rate Total Volume Rate Total
Interest income
Interest-bearing deposits $ (30) $ (36) $ (66) $ (91) $ 8 $ (83)
Securities purchased under agreements to resell 25 (48) (23) (165) 4 (161)
Federal funds sold (93) (100) (193) (80) 16 (64)
Investments
Trading 48 (19) 29 102 6 108
Available-for-sale 12 (164) (152) 135 14 149
Held-to-maturity 40 (2) 38 (2) 1 (1)
Advances (713) (678) (1,391) (1,605) 190 (1,415)
Mortgage loans held for portfolio 32 20 52 26 25 51
Total interest income (679) (1,027) (1,706) (1,680) 264 (1,416)
Interest expense
Interest-bearing deposits 18 (16) 2 9 2 11
Consolidated obligations
Bonds (918) (804) (1,722) (458) 93 (365)
Discount notes 299 (159) 140 (990) 56 (934)
Mandatorily redeemable capital stock and other borrowings
- - - (1) - (1)
Total interest expense (601) (979) (1,580) (1,440) 151 (1,289)
Changes in net interest income $ (78) $ (48) $ (126) $ (240) $ 113 $ (127)
Other Income
The following table presents the various components of other income for the years ended December 31, 2025, 2024 and 2023.
OTHER INCOME
(in thousands)
2025 2024 2023
Net interest income (expense) associated with:
Economic hedge derivatives related to consolidated obligation bonds $ 158 $ (1,416) $ 872
Economic hedge derivatives related to consolidated obligation discount notes (6,343) (1,175) (12,416)
Member/offsetting derivatives 5 7 10
Economic hedge derivatives related to advances (2,250) 3,008 8,292
Economic hedge derivatives related to trading securities 15,370 10,326 152
Economic hedge derivatives related to available-for-sale securities 2,324 509 31
Economic hedge derivatives related to mortgage loans held for portfolio 15,572 16,887 17,752
Other stand-alone economic hedge derivatives (10,710) (14,473) (13,862)
Total net interest income associated with economic hedge derivatives 14,126 13,673 831
Gains (losses) related to economic hedge derivatives
Interest rate swaps
Advances 2,589 (6,100) 1,523
Available-for-sale securities 787 637 (77)
Trading securities (14,025) 12,667 (2,193)
Mortgage loans held for portfolio (18,724) 769 (6,503)
Consolidated obligation bonds 2,643 375 1,763
Consolidated obligation discount notes 794 2,630 9,616
Other stand-alone economic hedge derivatives 11,355 6,143 11,024
Interest rate swaptions
Available-for-sale securities (349) (2,401) (1,398)
Mortgage loans held for portfolio (4,062) (2,145) (2,290)
Mortgage delivery commitments 655 898 3,338
Member/offsetting derivatives (5) (5) (8)
Total fair value gains (losses) related to economic hedge derivatives (18,342) 13,468 14,795
Price alignment amount on daily settled derivative contracts 4,834 14,596 15,068
Total net gains on derivatives and hedging activities 618 41,737 30,694
Net gains (losses) on trading securities 27,801 (7,550) 12,009
Gains on early extinguishment of debt - - 23,396
Net gains on other assets carried at fair value 2,657 2,346 2,075
Realized gains on sales of held-to-maturity securities - - 1,081
Service fees 3,100 2,012 3,191
Letter of credit fees 23,208 23,195 18,011
Standby bond purchase agreement fees 1,845 1,561 1,674
Other, net 522 502 (413)
Total other 59,133 22,066 61,024
Total other income $ 59,751 $ 63,803 $ 91,718
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 $6.0 million and $(5.1) million in 2025 and 2024, respectively.
Economic Hedge Derivatives
Notwithstanding the transitory nature of the 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 both December 31, 2025 and 2024, the notional balance of these derivatives totaled $400 million. For the years ended December 31, 2025 and 2024, the gains associated with these stand-alone economic hedge derivatives were $11.4 million and $6.2 million, 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 net change in the fair values of these interest rate swaps and swaptions was $(22.8) million and $(1.4) million for the years ended December 31, 2025 and 2024, 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 or losses from the commitment date to the settlement date) were $0.7 million and $0.9 million for the years ended December 31, 2025 and 2024, 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 with a notional balance of $1.15 billion. For the years ended December 31, 2025 and 2024, the losses associated with these stand-alone economic hedge derivatives were $0.3 million and $2.4 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 years ended December 31, 2025 and 2024, the gains associated with these stand-alone economic hedge derivatives were $0.8 million and $2.6 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 years ended December 31, 2025 and 2024, respectively.
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 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 years ended December 31, 2025 and 2024, the Bank held from time to time U.S. Treasury Bills and U.S. Treasury Notes, all of which were classified as trading securities. Due to fluctuations in interest rates, the aggregate gains (losses) on these securities were $27.8 million and $(7.6) million for the years ended December 31, 2025 and 2024, respectively. The Bank occasionally hedges the risk of changes in the fair value of some of its U.S. Treasury Notes and U.S. Treasury Bills. For the years ended December 31, 2025 and 2024, the gains (losses) associated with these stand-alone derivatives were $(14.0) million and $12.7 million, 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 on these securities totaled $2.7 million and $2.3 million for the years ended December 31, 2025 and 2024, respectively. The gains on the securities are offset by a corresponding increase in amounts owed to participants in the deferred compensation plans, the expense 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 $23.2 million in each of the years ended December 31, 2025 and 2024. During the years ended December 31, 2025 and 2024, average outstanding letters of credit totaled $31.8 billion and $32.3 billion, respectively.
Standby bond purchase agreement fees totaled $1.8 million and $1.6 million for the years ended December 31, 2025 and 2024, respectively. At December 31, 2025 and 2024, outstanding standby bond purchase agreements totaled $930 million and $742 million, respectively.
Other Expense
Total other expense includes the Bank's compensation and benefits; other operating expenses; voluntary grants, subsidies, donations and Affordable Housing Program contributions; derivative clearing fees; and its proportionate share of the costs of operating the Finance Agency and the Office of Finance. For the years ended December 31, 2025 and 2024, these expenses totaled $174.7 million and $148.0 million, respectively.
Compensation and benefits totaled $64.1 million for 2025, compared to $61.5 million for 2024. The $2.6 million increase in compensation and benefits for the year ended December 31, 2025, as compared to the year ended December 31, 2024, was due largely to cost-of-living and merit increases and higher average headcount, as well as an increase in expenses related to the Bank's supplemental executive retirement plan ("SERP"), partially offset by a reduction in discretionary bonuses paid to non-executive employees. In 2025 and 2024, the Bank made contributions of $1.8 million and $1.0 million, respectively, to its SERP. The Bank's average headcount in 2025 and 2024 was 225 and 214 employees, respectively. At December 31, 2025 and 2024, the Bank employed 227 and 223 people, respectively.
Other operating expenses for the years ended December 31, 2025 and 2024 were $51.1 million and $50.4 million, respectively. The $0.7 million increase in other operating expenses resulted primarily from increases in safekeeping fees and low-dollar office furniture and equipment, partially offset by lower usage of independent contractors to support information technology initiatives at the Bank.
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 the Office of Finance's expenses totaled $7.2 million and $7.4 million in 2025 and 2024, respectively, representing a year-over-year decrease of $0.2 million. In these years, the Bank's allocated share of the Finance Agency's expenses totaled $10.5 million and $12.7 million, respectively, representing a year-over-year decrease of $2.2 million.
Voluntary grants, subsidies, donations and Affordable Housing Program expenses were $40.7 million and $14.7 million for the years ended December 31, 2025 and 2024, respectively. The amounts expensed under the Bank's voluntary community investment programs during the year ended December 31, 2025 are presented below in the section entitled "Voluntary Community Investment Programs."
Derivative clearing fees were $1.0 million and $1.4 million for the years ended December 31, 2025 and 2024, respectively. The decline in derivative clearing fees was due to a decline in the volume of cleared derivatives that were transacted during the year ended December 31, 2025, as compared to the year ended December 31, 2024.
Unaudited Quarterly Financial Data
The following is a summary of the Bank's unaudited quarterly operating results for the year ended December 31, 2025.
SELECTED QUARTERLY FINANCIAL DATA
(unaudited, in thousands)
First
Quarter 		Second
Quarter 		Third
Quarter 		Fourth
Quarter 		Total
Interest income $ 1,331,352 $ 1,356,947 $ 1,326,141 $ 1,185,361 $ 5,199,801
Net interest income after provision for credit losses 187,700 194,080 203,687 176,767 762,234
Other income (loss)
Net gains on trading securities 12,524 3,685 7,126 4,466 27,801
Net gains (losses) on derivatives and hedging activities (4,267) 963 (183) 4,105 618
Net gains (losses) on other assets carried at fair value (651) 1,803 1,160 345 2,657
Letter of credit fees
5,946 5,909 5,729 5,624 23,208
Service fees and other, net
1,151 1,457 1,392 1,467 5,467
Other expense
Voluntary grants, subsidies, donations and AHP contributions 2,134 8,785 9,964 19,861 40,744
Other 32,895 33,552 34,814 32,664 133,925
AHP assessment 16,750 16,564 17,415 14,033 64,762
Net income 150,624 148,996 156,718 126,216 582,554
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 of which are discussed in Item 1. Business - Products and Services - Voluntary Community Investment Programs.
Beginning in 2024, 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 12 to the Bank's audited 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, 2024, the Bank's Adjusted Income Before Assessments was $824,812,000, which resulted in a target minimum allocation of $41,241,000 to its voluntary loan and grant programs for 2025. The following table sets forth a summary of the amounts that the Bank made available for its voluntary loan and grant programs in 2025 and the loans that were funded and the grants/subsidies/donations that were expensed during the year.
VOLUNTARY COMMUNITY INVESTMENT PROGRAMS AND DONATIONS
(in thousands)
Amount Carried Forward
From 2024 		Amount
from 2024
Made Available in 2025 		Receipts of
Principal
and Interest
from 2024 		Reallocations and Additional
Funds Made Available in 2025 		Total
Available
in 2025 		Loans/Grants/Subsidies/Donations
Funded/Expensed During the Year Ended
December 31, 2025 		Amount Carried Forward
to 2026
Loan Programs
CANOPY Fund $ 20,149 $ 1,944 $ - $ 9 $ 22,102 $ 22,102 $ -
Small Business Boost 190 4,750 2,035 - 6,975 3,968 3,007
Total Loan Programs 20,339 6,694 2,035 9 29,077 26,070 3,007
Grant Programs
FORTIFIED Fund (Owner Property) 83 10,000 - - 10,083 9,889 194
Pathway Fund (formerly Heirs' Property Program) - 3,000 - 1,339 4,339 4,339 -
Partnership Grant Program - 1,000 - - 1,000 1,000 -
Native American Housing Opportunities Fund - 2,500 - 247 2,747 2,747 -
Housing Assistance for Veterans - 1,000 - - 1,000 997 3
Small Business Recovery Grant - 1,385 - - 1,385 1,385 -
FORTIFIED Fund (Rental Property) - 10,000 - (1,339) 8,661 8,661 -
Native American Down Payment Assistance - 1,000 - (1,000) - - -
SHFA - Home Ownership/Financial Education Support - 600 - 600 600 -
Homebuyer Equity Leverage Partnership * - 4,062 - 938 5,000 4,237 763
Total Grant Programs 83 34,547 - 185 34,815 33,855 960
Donations and Other Contributions
SHARE 2025 Subsidized Advances - - - 2,387 2,387 2,387 -
Disaster Relief Donations (Texas Hill Country Flooding) - - - 139 139 139 -
Total Donations and Other Contributions - - - 2,526 2,526 2,526 -
Total Voluntary Community Investment Programs $ 20,422 $ 41,241 $ 2,035 $ 2,720 $ 66,418 $ 62,451 $ 3,967
* These funds are in addition to the set-aside amount from the Bank's 2024 statutory AHP assessment, which totals $17.0 million.
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. By resolution of the Bank's Board of Directors, this obligation became effective on January 1, 2024. During the year ended December 31, 2025, the AHP make-whole amount was $4,363,000. 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 year ended December 31, 2025 by $39,266,000 and then multiplying the total by the percentage needed to fully restore the Bank's AHP contribution.
Relative to its 2025 target minimum allocation of $41,241,000, the Bank made available $6,703,000 for its voluntary loan programs (inclusive of reallocations and excluding amounts carried forward and receipts of principal and interest from 2024) and it expensed voluntary grants, subsidies and donations of $33,855,000, $2,387,000 and $139,000, respectively. These amounts, totaling $43,084,000, exceeded the Bank's 2025 target minimum allocation by $1,843,000 and represented 5.22 percent of its 2024 Adjusted Income Before Assessments. As shown in the table above, the Bank will carry forward to 2026 $3,967,000 for its voluntary community investment programs.
The following table presents the components of voluntary grants, subsidies, donations and Affordable Housing Program contributions that are reported in the Bank's Statement of Income for the years ended December 31, 2025, 2024 and 2023.
VOLUNTARY GRANTS, SUBSIDIES, DONATIONS AND AFFORDABLE HOUSING CONTRIBUTIONS
(in thousands)
2025 2024 2023
Total grant programs $ 33,855 $ 11,616 $ 1,956
Disaster relief donations 139 250 3,387
SHARE 2025 subsidized advances 2,387 - -
Conditional FORTIFIED Fund grants made in 2023/funded in 2024 - 1,058 -
AHP make-whole amount 4,363 1,739 -
Voluntary grants, subsidies, donations and Affordable Housing Program contributions $ 40,744 $ 14,663 $ 5,343
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.
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 December 31, 2025, the Bank's short-term liquidity portfolio was comprised of $16.7 billion of overnight reverse repurchase agreements, $7.4 billion of overnight federal funds sold, $2.7 billion of overnight interest-bearing deposits and $3.5 billion of U.S. Treasury Notes.
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 MBS and/or agency debentures). Furthermore, the Bank has access to borrowings (typically short-term) from the other FHLBanks.
The 11 FHLBanks and the Office of Finance are parties to the Federal Home Loan Banks P&I Funding and Contingency Plan Agreement, as amended and restated effective January 1, 2017 (the "Contingency Agreement"). The Contingency Agreement and related procedures are designed to facilitate the timely funding of principal and interest payments on FHLBank System consolidated obligations in the event that a FHLBank is not able to meet its funding obligations in a timely manner. The Contingency Agreement and related procedures provide for the issuance of overnight consolidated obligations ("Plan COs") directly to one or more FHLBanks that provide funds to avoid a shortfall in the timely payment of principal and interest on any consolidated obligations for which another FHLBank is the primary obligor. The direct placement by a FHLBank of consolidated obligations with another FHLBank is permitted only in those instances when direct placement of consolidated obligations is necessary to ensure that sufficient funds are available to timely pay all principal and interest on FHLBank System consolidated obligations due on a particular day. Through the date of this report, no Plan COs have ever been issued pursuant to the terms of the Contingency Agreement.
On occasion, and as an alternative to issuing new debt, the Bank may assume the outstanding consolidated obligations for which other FHLBanks are the original primary obligors. This occurs in cases where the original primary obligor may have participated in a large consolidated obligation issue to an extent that exceeded its immediate funding needs in order to facilitate better market execution for the issue. The original primary obligor might then warehouse the funds until they were needed or make the funds available to other FHLBanks. Transfers may also occur when the original primary obligor's funding needs change, and that FHLBank offers to transfer debt that is no longer needed to other FHLBanks. Transferred debt may be in the form of discount notes or bonds. The Bank did not assume any debt from other FHLBanks during the years ended December 31, 2025 or 2024.
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.
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 it 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 years ended December 31, 2025 and 2024.
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 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.
Risk-Based Capital Rules and Other Capital Requirements
The Bank is required to maintain at all times permanent capital in an amount at least equal to its risk-based capital requirement, which is the sum of its credit risk capital requirement, its market risk capital requirement, and its operations risk capital requirement, as further described below. Permanent capital is defined under the Finance Agency's rules as retained earnings and amounts paid in for Class B Stock (which, for the Bank, includes both Class B-1 Stock and Class B-2 Stock), regardless of its classification as equity or liabilities for financial reporting purposes, as further described above in the section entitled "Financial Condition - Capital Stock." For reasons of safety and soundness, the Finance Agency may require the Bank, or any other FHLBank, to maintain a greater amount of permanent capital than is required by the risk-based capital requirements as defined.
The Bank's credit risk capital requirement is determined by adding together the credit risk capital charges for advances, investments, mortgage loans, derivatives, other assets and off-balance-sheet commitment positions (e.g., outstanding letters of credit and commitments to fund advances). Among other things, these charges are computed based upon the credit risk percentages assigned to each item as required by Finance Agency rules, taking into account the time to maturity and credit ratings of certain of the items. These percentages are applied to the book value of assets or, in the case of off-balance-sheet commitments, to their balance sheet equivalents.
The Bank's market risk capital requirement is determined by estimating the potential loss in market value of equity under a wide variety of market conditions. Simulations of over 300 historical market interest rate scenarios dating back to January 1998 (using changes in interest rates and volatilities over each six-month period since that date) are generated and, under each scenario, the hypothetical impact on the Bank's current market value of equity is determined. The hypothetical impact associated with each historical scenario is calculated by simulating the effect of each set of rate and volatility conditions upon the Bank's current risk position, each of which reflects actual assets, liabilities, derivatives and off-balance-sheet commitment positions as of the measurement date. From the complete set of resulting simulated scenarios, the average of the five scenarios resulting in the worst estimated deteriorations in market value of equity is identified as the market risk component of the Bank's regulatory risk-based capital requirement which, in conjunction with the credit risk and operations risk components, determines the Bank's overall risk-based capital requirement.
The Bank's operations risk capital requirement is equal to 30 percent of the sum of its credit risk capital requirement and its market risk capital requirement.
At December 31, 2025, the Bank's credit risk, market risk and operations risk capital requirements were $462 million, $485 million and $284 million, respectively. These requirements were $471 million, $437 million and $272 million, respectively, at December 31, 2024.
In addition to the risk-based capital requirement, the Bank is subject to three other capital requirements. First, the Bank must, at all times, maintain a minimum total capital-to-assets ratio of 4.0 percent. For this purpose, total capital is defined by Finance Agency rules and regulations as the Bank's permanent capital and the amount of any general allowance for losses (i.e., those reserves that are not held against specific assets). Second, the Bank is required to maintain at all times a minimum leverage capital-to-assets ratio in an amount at least equal to 5.0 percent of its total assets. In applying this requirement to the Bank, leverage capital includes the Bank's permanent capital multiplied by a factor of 1.5 plus the amount of any general allowance for losses. The Bank did not have any general reserves at December 31, 2025 or December 31, 2024. Under the regulatory definitions, total capital and permanent capital exclude accumulated other comprehensive income (loss). Third, the Bank is required to maintain a capital stock-to-assets ratio of at least 2.0 percent, as measured on a daily average basis at each month end. The Bank is required to submit monthly capital compliance reports to the Finance Agency. At all times during the years ended December 31, 2025 and 2024, the Bank was in compliance with all of its regulatory capital requirements. For a summary of the Bank's compliance with the Finance Agency's capital requirements as of December 31, 2025 and 2024, see the audited financial statements included in this report (specifically, Note 15 beginning on page F-38).
A final regulation adopted by the Finance Agency in 2009 (the "Capital Classification Regulation") establishes criteria for four capital classifications for the FHLBanks: adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An adequately capitalized FHLBank meets all existing risk-based and minimum capital requirements. An undercapitalized FHLBank does not meet one or more of its risk-based or minimum capital requirements, but nevertheless has total capital equal to or greater than 75 percent of all capital requirements. A significantly undercapitalized FHLBank does not have total capital equal to or greater than 75 percent of all capital requirements, but the FHLBank does have total capital greater than 2 percent of its total assets. A critically undercapitalized FHLBank has total capital that is less than or equal to 2 percent of its total assets.
The Director of the Finance Agency determines each FHLBank's capital classification no less often than once a quarter; the Director may make a determination more often than quarterly. The Director may reclassify a FHLBank one category below the otherwise applicable capital classification (e.g., from adequately capitalized to undercapitalized) if the Director determines that (i) the FHLBank is engaging in conduct that could result in the rapid depletion of permanent or total capital, (ii) the value of collateral pledged to the FHLBank has decreased significantly, (iii) the value of property subject to mortgages owned by the
FHLBank has decreased significantly, (iv) after notice to the FHLBank and opportunity for an informal hearing before the Director, the FHLBank is in an unsafe and unsound condition, or (v) the FHLBank is engaging in an unsafe and unsound practice because the FHLBank's asset quality, management, earnings or liquidity were found to be less than satisfactory during the most recent examination, and any deficiency has not been corrected. Before classifying or reclassifying a FHLBank, the Director must notify the FHLBank in writing and give the FHLBank an opportunity to submit information relative to the proposed classification or reclassification. Since the adoption of the Capital Classification Regulation, the Bank has been classified as adequately capitalized for each quarterly period for which the Director has made a final determination.
In addition to restrictions on capital distributions by a FHLBank that does not meet all of its risk-based and minimum capital requirements, a FHLBank that is classified as undercapitalized, significantly undercapitalized or critically undercapitalized is required to take certain actions, such as submitting a capital restoration plan to the Director of the Finance Agency for approval. Additionally, with respect to a FHLBank that is less than adequately capitalized, the Director of the Finance Agency may take other actions that he or she determines will help ensure the safe and sound operation of the FHLBank and its compliance with its risk-based and minimum capital requirements in a reasonable period of time.
The Director may appoint the Finance Agency as conservator or receiver for any FHLBank that is classified as critically undercapitalized. The Director may also appoint the Finance Agency as conservator or receiver of any FHLBank that is classified as undercapitalized or significantly undercapitalized if the FHLBank fails to submit a capital restoration plan acceptable to the Director within the time frames established by the Capital Classification Regulation or materially fails to implement any capital restoration plan that has been approved by the Director. At least once in each 30-day period following classification of a FHLBank as critically undercapitalized, the Director must determine whether during the prior 60 days the FHLBank had assets less than its obligations to its creditors and others or if the FHLBank was not paying its debts on a regular basis as such debts became due. If either of these conditions apply, then the Director must appoint the Finance Agency as receiver for the FHLBank.
A FHLBank for which the Director appoints the Finance Agency as conservator or receiver may bring an action in the United States District Court for the judicial district in which the FHLBank is located or in the United States District Court for the District of Columbia for an order requiring the Finance Agency to remove itself as conservator or receiver. A FHLBank that is not critically undercapitalized may also seek judicial review of any final capital classification decision or of any final decision to take supervisory action made by the Director under the Capital Classification Regulation.
Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Management bases its judgments and estimates on current market conditions and industry practices, historical experience, changes in the business environment and other factors that it believes to be reasonable under the circumstances. Although management believes its judgments, estimates, and assumptions are reasonable, actual results may differ and other parties could arrive at different conclusions. Given the assumptions used and judgment involved, management has identified the fair value measurement of interest rate derivatives and associated hedged items as the Bank's critical accounting estimate. The Bank's financial condition and results of operations could be materially affected under different conditions or different assumptions related to this accounting estimate. For additional discussion regarding the fair value measurement of interest rate derivatives, see Note 17 to the Bank's audited financial statements included in this report.
As discussed in the section entitled Financial Condition - Derivatives and Hedging Activities, all interest rate derivatives employed by the Bank hedge identifiable risks and none are used for speculative purposes. As of December 31, 2025, substantially all of the Bank's derivative instruments that were designated in hedging relationships were either hedging fair value risk attributable to changes in SOFR (the designated benchmark interest rate) or hedging the variability of cash flows associated with forecasted transactions. U.S. GAAP requires that all derivative instruments be recorded in the statements of condition at their fair values. Changes in the fair values of the Bank's derivatives, other than those designated in cash flow hedging relationships, are recorded each period in current earnings. If an asset or liability qualifies for fair value hedge accounting, changes in the fair value of the hedged item that are attributable to the hedged risk are also recorded in earnings. As a result, the net effect is that only the "ineffective" portion of a qualifying fair value hedge has an impact on current earnings. Changes in the fair values of the Bank's derivatives that are designated in cash flow hedging relationships are recorded each period in other comprehensive income until earnings are affected by the variability of the cash flows of the hedged transaction, at which time these amounts are reclassified from accumulated other comprehensive income to earnings.
As of December 31, 2025, the Bank's derivatives portfolio included $79.1 billion (notional amount) that was designated in fair value hedging relationships, $1.0 billion (notional amount) that was designated in cash flow hedging relationships and $45.1 billion (notional amount) that either did not qualify for hedge accounting or were not designated in hedge relationships for accounting purposes. By comparison, at December 31, 2024, the Bank's derivatives portfolio included $104.1 billion (notional
amount) that was designated in fair value hedging relationships, $1.1 billion (notional amount) that was designated in cash flow hedging relationships and $38.7 billion (notional amount) that either did not qualify for hedge accounting or were not designated in hedge relationships for accounting purposes.
The fair values of the Bank's derivatives are estimated using a pricing model and inputs that are observable for the asset or liability, either directly or indirectly. For its derivatives, the Bank compares the fair values obtained from its pricing model to clearinghouse valuations (in the case of cleared derivatives) and non-binding dealer estimates (in the case of bilateral derivatives) and may also compare its fair values to those of similar instruments to ensure such fair values are reasonable. The assumptions and inputs used have a significant effect on the reported carrying values of derivative assets and liabilities and the related income and expense. The use of different assumptions/inputs could result in materially different earnings and reported carrying values.
In applying hedge accounting, the Bank calculates the periodic changes in the fair values of hedged items (e.g., certain advances, available-for-sale securities and consolidated obligations) that are attributable solely to changes in the designated benchmark interest rate ("the benchmark fair values") and the periodic changes in the fair values of hypothetical derivatives associated with cash flow hedges. Such values are estimated using a pricing model that employs discounted cash flows or other similar pricing techniques. Significant inputs to the pricing model (e.g., yield curves and volatilities) are based on current observable market data. The inputs to the pricing model have a significant effect on the benchmark fair values of assets and liabilities and the related income and expense; the use of different inputs could result in materially different earnings.
The Bank's pricing model is subject to an independent validation every three years. In those years when a validation is not performed, the pricing model is subject to an annual review. The Bank periodically reviews and refines, as appropriate, its assumptions and valuation methodologies to reflect market indications as closely as possible. The Bank believes it has the appropriate personnel, technology, and policies and procedures in place to enable it to value its derivatives and associated hedged items in a reasonable and consistent manner.
Recently Issued Accounting Guidance
For a discussion of recently issued accounting guidance, see the audited financial statements accompanying this report (specifically, Note 2 on page F-16).
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