Federal Home Loan Bank of Cincinnati
08/11/2026 | Press release | Distributed by Public on 08/11/2026 11:23
Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report contains forward-looking statements that describe the objectives, expectations, estimates, and assessments of the Federal Home Loan Bank of Cincinnati (the FHLB). These statements use words such as "anticipates," "expects," "believes," "could," "estimates," "may," "should," "will," their negatives, or other variations of these terms. By their nature, forward-looking statements relate to matters involving risks or uncertainties, including the risk factors set forth in Part I, Item 1A. "Risk Factors" in our 2025 Annual Report on Form 10-K, some of which we may not be able to know, control, or completely manage. Actual future results could differ materially from those expressed or implied in forward-looking statements or could affect the extent to which we are able to realize an objective, expectation, estimate, or assessment. These risks and uncertainties include, among others, the following:
▪the effects of economic, financial, credit, market, and member conditions on our financial condition and results of operations, including changes in economic growth, general liquidity conditions and liquidity within the banking sector, inflation and deflation, interest rates, interest rate spreads, interest rate volatility, mortgage originations, prepayment activity, housing prices, asset delinquencies, trade policies, and members' mergers and consolidations, deposit flows, liquidity needs, and loan demand;
▪national or world events, threatened or actual acts of war, civil unrest, terrorism, natural disasters, climate change, pandemics, or other unanticipated or catastrophic events;
▪executive, legislative, regulatory, and judicial events and actions that affect us, our members, counterparties, other Federal Home Loan Banks (FHLBanks) or investors in the Federal Home Loan Bank System's (FHLBank System or System) unsecured debt securities, which are called Consolidated Obligations (or Obligations), such as any government-sponsored enterprise (GSE) reforms, including the potential privatization of Fannie Mae and Freddie Mac, any actions taken by the Federal Housing Finance Agency (Finance Agency) related to the FHLBank System, changes in the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), changes in applicable sections of the
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or changes in other statutes or regulations applicable to the FHLBanks;
▪competitive forces, including those related to other sources of funding available to members, to purchases of mortgage loans, and to our issuance of Consolidated Obligations;
▪the financial results and actions of other FHLBanks that could affect our ability, in relation to the FHLBank System's joint and several liability for Consolidated Obligations, to access the capital markets on acceptable terms or preserve our profitability, or could alter the regulations and legislation to which we are subject;
▪changes in the credit ratings or outlook assigned to FHLBank System Obligations or the FHLB;
▪changes in investor demand for Consolidated Obligations;
▪the volatility of market prices, interest rates, credit quality, and other indices that could affect the value of investments and collateral we hold as security for member obligations and/or for counterparty obligations;
▪the ability to effectively use derivative instruments to reduce interest rate risk associated with certain assets and liabilities;
▪the ability to attract and retain skilled management and other key employees;
▪the ability to develop, secure and support technology and information systems that effectively manage the risks we face (including cybersecurity risks), and keep pace with technological changes and innovation such as artificial intelligence;
▪the risk of loss arising from failures or interruptions in our ongoing business operations, internal controls, information systems or other operating technologies;
▪the ability to successfully manage new products and services; and
▪the risk of loss arising from litigation filed against us or one or more other FHLBanks.
These forward-looking statements are representative only as of the date they are made, and except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any changes in our expectations or changes in events, conditions, circumstances on which any statement is based.
EXECUTIVE OVERVIEW
During the first six months of 2026, we delivered on our mission of providing access to ongoing liquidity funding to member financial institutions to support housing finance and affordable housing and community investment. We maintained strong profitability, which enabled us to bolster capital adequacy by increasing retained earnings, to pay a competitive dividend rate to stockholders, and to make meaningful contributions to affordable housing. We exceeded all minimum regulatory capital and liquidity requirements, and we were able to fund operations through the issuance of Consolidated Obligations at acceptable interest costs. Additionally, overall residual credit risk exposure from our Credit Services, mortgage loan portfolio, investments, and derivative transactions remained de minimis. Likewise, our market risk measures continued to be within our risk appetite.
Mission Assets and Activities
Primary Mission Assets (i.e., principal balances of Advances and mortgage loans held for portfolio) and Supplemental Mission Activities (i.e., Letters of Credit and Mandatory Delivery Contracts) are the principal business activities by which we fulfill our mission with direct connections to members and what we refer to as Mission Assets and Activities.
The following table summarizes our Mission Assets and Activities.
| Ending Balances | Average Balances | ||||||||||||||||||||||||||||||||||
| June 30, | December 31, | Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||||||||
| (In millions) | 2026 | 2025 | 2025 | 2026 | 2025 | 2025 | |||||||||||||||||||||||||||||
|
Primary Mission Assets (1):
|
|||||||||||||||||||||||||||||||||||
| Advances | $ | 93,878 | $ | 79,638 | $ | 70,104 | $ | 77,744 | $ | 82,437 | $ | 79,082 | |||||||||||||||||||||||
| Mortgage loans held for portfolio | 9,178 | 7,430 | 8,490 | 8,828 | 7,184 | 7,554 | |||||||||||||||||||||||||||||
| Total Primary Mission Assets | $ | 103,056 | $ | 87,068 | $ | 78,594 | $ | 86,572 | $ | 89,621 | $ | 86,636 | |||||||||||||||||||||||
|
Supplemental Mission Activities (2):
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| Letters of Credit (notional) | $ | 44,213 | $ | 45,371 | $ | 46,532 | $ | 45,346 | $ | 46,714 | $ | 46,389 | |||||||||||||||||||||||
| Mandatory Delivery Contracts (notional) | 292 | 182 | 159 | 233 | 124 | 207 | |||||||||||||||||||||||||||||
| Total Supplemental Mission Activities | $ | 44,505 | $ | 45,553 | $ | 46,691 | $ | 45,579 | $ | 46,838 | $ | 46,596 | |||||||||||||||||||||||
(1)Amounts represent principal balances.
(2)Amounts represent off-balance sheet commitments.
Advance principal balances at June 30, 2026 increased $23.8 billion (34 percent) from year-end 2025 primarily driven by higher Advance borrowings from a few large-asset members. However, average principal Advance balances for the first six months of 2026 decreased $4.7 billion (six percent) compared to the same period of 2025 because Advance balances remained below prior-year levels for much of the first half of 2026, with the increase in borrowings occurring primarily toward the end of the quarter.
A key benefit of membership comes from our business model as a wholesale lender GSE, which provides members a reliable and flexible source of funding in order to support their housing finance and asset-liability management needs. As such, Advance balances are often volatile given our members' ability to quickly, normally on the same day, increase or decrease the amount of their Advances. Our business model is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or general resource needs. A key reason for this scalability is that our Capital Plan provides for additional capital when Advances grow and the opportunity for us to retire capital when Advances decline, thereby acting to preserve competitive profitability.
Mortgage Purchase Program (MPP) principal balances increased $0.7 billion (eight percent) from the year-end 2025 balance. During the first six months of 2026, we purchased $1.3 billion of mortgage loans, while principal reductions were $0.6 billion. The higher MPP purchases reflected market conditions that supported members' greater utilization of the program. Principal reductions in the first six months of 2026 increased from 2025 levels, but continued to be constrained in part due to mortgage rates remaining above many borrowers' existing rates.
Letters of Credit decreased $2.3 billion (five percent) from year-end 2025. Letters of Credit balances are primarily used by members to secure public unit deposits. We normally earn fees on Letters of Credit based on the actual average amount of the Letters utilized, which generally is less than the notional amount issued.
Affordable Housing and Community Investment
In addition to providing readily-available, competitively-priced sources of funds to members, one of our core missions is to support affordable housing and community investment. We are statutorily required to set aside a portion of our profits to support affordable housing each year. These funds assist members in serving very low-, low-, and moderate-income households and community economic development. Our net income for the first six months of 2026 resulted in a statutory assessment of $26 million to the Affordable Housing Program (AHP) pool of funds available to members in 2027.
Beyond the statutory AHP assessment, the Board of Directors may elect to make voluntary contributions to the AHP or other housing and community investment activities. In 2026, we are committed to making voluntary contributions of $34 million, representing five percent of our 2025 earnings, to various voluntary housing and community investment programs. In the first six months of 2026, we partially fulfilled our commitment by contributing $19 million to our various voluntary housing and community investment programs. These contributions are recorded in non-interest expense on the Statements of Income, which reduces net income before assessments, and, in turn, reduces the statutory AHP assessment each year. As such, in 2026, we are committed to making a $4 million supplemental AHP contribution to ensure the amount of total AHP contributions equal to what the statutory AHP assessment would have been in the absence of these effects. Through the first six months of 2026, we made $2 million in supplemental voluntary AHP contributions.
Results of Operations
Our earnings over time reflect the combination of a stable business model and conservative management of risk. Key market driven factors that can cause significant periodic volatility in our profitability include changes in Mission Assets and Activities, the level of interest rates, changes in spreads between benchmark interest rates and our short-term funding costs, recognition of net amortization from accelerated prepayments of mortgage assets, fair value adjustments related to the use of derivatives and the associated hedged items, and general economic conditions. The table below summarizes our results of operations.
| Three Months Ended June 30, | Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | 2026 | 2025 | 2025 | ||||||||||||||||||||||||
| Net income | $ | 128 | $ | 149 | $ | 228 | $ | 294 | $ | 575 | |||||||||||||||||||
| Return on average equity (ROE) | 7.16 | % | 8.49 | % | 6.64 | % | 8.62 | % | 8.45 | % | |||||||||||||||||||
| Return on average assets | 0.35 | 0.42 | 0.33 | 0.43 | 0.42 | ||||||||||||||||||||||||
| Weighted average dividend rate | 7.50 | 8.75 | 7.50 | 8.87 | 8.62 | ||||||||||||||||||||||||
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Dividend payout ratio (1)
|
67.2 | 70.1 | 76.6 | 71.1 | 72.9 | ||||||||||||||||||||||||
| Average Secured Overnight Financing Rate (SOFR) | 3.62 | 4.32 | 3.64 | 4.33 | 4.24 | ||||||||||||||||||||||||
|
ROE spread to average SOFR
|
3.54 | 4.17 | 3.00 | 4.29 | 4.21 | ||||||||||||||||||||||||
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Dividend rate spread to average SOFR
|
3.88 | 4.43 | 3.86 | 4.54 | 4.38 | ||||||||||||||||||||||||
(1)Dividend payout ratio is dividends declared in the period as a percentage of net income.
Our profitability was strong in the first six months of 2026, which enabled us to pay a competitive return to stockholders, make meaningful contributions to support affordable housing and community investment and strengthen capital by increasing retained earnings. Net income decreased $21 million in the three-months comparison period and $66 million in the six-months comparison period. The decreases in net income in both comparison periods were primarily due to lower average interest rates, which decreased the earnings generated from investing our capital in interest-earning assets, and lower spreads earned on Advances and mortgage loans held for portfolio. The factors decreasing net income in the quarter-to-date comparison period were partially offset by net gains on interest rate swaps and related financial instruments carried at fair value in the second quarter of 2026 compared to net losses in the same period of 2025.
We strive to provide a competitive return on members' capital investment in our company through quarterly dividend payments. In June 2026, we paid stockholders a quarterly dividend at a 7.50 percent annualized rate on their capital investment in our company, which was 3.88 percentage points above the second quarter average SOFR. After we paid our dividends, retained earnings totaled $2.0 billion on June 30, 2026, an increase of three percent from year-end 2025. We believe the amount of retained earnings is sufficient to protect against members' impairment risk of their capital stock investment in the FHLB and to provide the opportunity to stabilize future dividends.
Effect of Interest Rate Environment
Trends in market interest rates and the resulting shapes of the market yield curves strongly influence our results of operations and profitability because of how they affect members' demand for Mission Assets and Activities, spreads on assets, funding costs and decisions in managing the tradeoffs in our market risk/return profile. The following table presents key market interest rates (obtained from Bloomberg L.P.).
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| Quarter 2 2026 | Quarter 1 2026 | 2026 | 2025 | Year 2025 | |||||||||||||||||||||||||||||||||||||||||||
| Ending | Average | Ending | Average | Average | Average | Ending | Average | ||||||||||||||||||||||||||||||||||||||||
|
Federal funds effective
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3.63 | % | 3.63 | % | 3.64 | % | 3.64 | % | 3.64 | % | 4.33 | % | 3.64 | % | 4.21 | % | |||||||||||||||||||||||||||||||
| SOFR | 3.68 | 3.62 | 3.68 | 3.66 | 3.64 | 4.33 | 3.87 | 4.24 | |||||||||||||||||||||||||||||||||||||||
| 2-year U.S. Treasury | 4.18 | 3.97 | 3.80 | 3.58 | 3.78 | 4.02 | 3.48 | 3.82 | |||||||||||||||||||||||||||||||||||||||
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10-year U.S. Treasury
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4.47 | 4.42 | 4.32 | 4.19 | 4.31 | 4.41 | 4.17 | 4.29 | |||||||||||||||||||||||||||||||||||||||
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15-year mortgage current coupon (1)
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4.84 | 4.77 | 4.72 | 4.45 | 4.61 | 4.94 | 4.40 | 4.74 | |||||||||||||||||||||||||||||||||||||||
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30-year mortgage current coupon (1)
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5.41 | 5.38 | 5.38 | 5.06 | 5.22 | 5.71 | 5.04 | 5.48 | |||||||||||||||||||||||||||||||||||||||
(1) Current coupon rate of par uniform mortgage-backed securities (UMBS) indications.
Average overnight rates were approximately 70 basis points lower in the first six months of 2026 compared to the same period of 2025 due to several rate cuts by the Federal Reserve in the second half of 2025. Our earnings from capital decreased $25 million in the first six months of 2026 compared to the same period of 2025 because of the lower average short-term rates.
During the first six months of 2026 and throughout 2025, the market risk exposure to changing interest rates was low and within policy limits. We believe that longer-term profitability will be competitive, unless interest rates were to increase significantly for a sustained period of time.
Legislative and Regulatory Developments
Certain significant regulatory actions and developments not previously reported are summarized below.
We are subject to various legal and regulatory requirements and priorities. Certain actions, regulatory priorities, and areas of focus, such as deregulation, by the current administration have changed and continue to change the regulatory environment in which we operate. These changes have affected, and likely will continue to affect, certain aspects of our business operations, and could affect our financial condition, results of operations, and our reputation. For example, the Finance Agency rescinded certain supervisory guidance related to establishing our target ratio of primary mission assets (including Advances and mortgage loans) to Consolidated Obligations, providing us more discretion to develop our strategic business plan with respect to core mission assets and activities. Additionally, the Finance Agency proposed to repeal the new business activity rule, which currently requires the Finance Agency's non-objection before we undertake certain new business activities.
Prudential Banking Regulators' Proposed Capital Rules. On March 27, 2026, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System published in the Federal Register two joint notices of proposed rulemakings, and the Board of Governors of the Federal Reserve System separately published a third proposed rulemaking applicable only to global systemically important banking organizations (GSIBs), that would revise the regulatory capital requirements for certain depository and banking institutions, generally consistent with the final global recommendations by the Basel Committee on Banking Supervision adopted in December 2017, known as the "Basel III Endgame." Among other changes, the proposed rules revise risk-based capital calculations, reducing capital requirements for certain mortgage assets, and collateral eligible to be pledged as security for FHLBank Advances. Conversely, the proposed rules would modify the standardized approach for risk-based capital treatment with respect to collateralized transactions by modifying the market price volatility haircuts assigned to collateral in such transactions, including by reducing haircuts to certain forms of collateral relative to GSE debt (including our debt), which may adversely affect market liquidity and demand for our debt and result in increased funding costs for us. Finally, the proposed rules would revise the capital surcharge calculation for GSIBs and make material changes to the GSIB short-term wholesale funding reliance methodology, which may increase the capital surcharge attributable to a GSIB's use of Advances and may discourage GSIBs' use of Advances. We continue to evaluate the potential impact of these proposed rules on our financial condition and results of operations.
21st Century ROAD to Housing Act. On July 11, 2026, the 21st Century ROAD to Housing Act (the "Act") became law. The Act contains a series of provisions designed to promote affordable housing, which include a statutory prohibition barring large institutional investors from purchasing single-family homes, subject to certain specific exceptions, allowing community banks with under $10 billion in assets to exempt custodial deposits of up to 20 percent of total liabilities from brokered deposits regulations, and exempting a higher portion of reciprocal deposits of such community banks from the brokered deposit classification. We are reviewing how the various reforms brought by the Act could impact collateral held by large institutional investors that is eligible to be pledged to us, demand for and use of our Advances due to more relaxed regulation around brokered deposits applicable to community banks, and our business, operations and financial condition overall.
Considering the changes in the regulatory environment, there is uncertainty with respect to the ultimate result of current and future legislative and regulatory actions and their impact on the housing market, our FHLB and the FHLBank System. We continue to monitor these actions as they evolve and to evaluate their potential impact on us. For a discussion of related risks, please refer to Item 1A. "Risk Factors" in our 2025 Annual Report on Form 10-K.
ANALYSIS OF FINANCIAL CONDITION
Credit Services
Credit Activity and Advance Composition
The table below shows trends in Advance balances by major programs and in the notional amount of Letters of Credit.
| (Dollars in millions) | June 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Balance |
Percent (1)
|
Balance |
Percent (1)
|
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Adjustable/Variable-Rate Indexed:
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| SOFR | $ | 24,939 | 27 | % | $ | 26,112 | 37 | % | |||||||||||||||
| Other | 24,934 | 26 | 1,653 | 3 | |||||||||||||||||||
| Total | 49,873 | 53 | 27,765 | 40 | |||||||||||||||||||
| Fixed-Rate: | |||||||||||||||||||||||
| Repurchase based (REPO) | 12,594 | 13 | 6,060 | 9 | |||||||||||||||||||
| Regular Fixed-Rate | 28,593 | 30 | 33,188 | 47 | |||||||||||||||||||
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Putable (2)
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508 | 1 | 623 | 1 | |||||||||||||||||||
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Amortizing/Mortgage Matched
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707 | 1 | 799 | 1 | |||||||||||||||||||
| Other | 1,063 | 1 | 1,669 | 2 | |||||||||||||||||||
| Total | 43,465 | 46 | 42,339 | 60 | |||||||||||||||||||
| Other Advances | 540 | 1 | - | - | |||||||||||||||||||
| Total Advances Principal | $ | 93,878 | 100 | % | $ | 70,104 | 100 | % | |||||||||||||||
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Letters of Credit (notional) (3)
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$ | 44,213 | $ | 46,532 | |||||||||||||||||||
(1)As a percentage of total Advances principal.
(2)Excludes Putable Advances where the related put options have expired or where the Advance is indexed to a variable-rate. These Advances are classified based on their current terms.
(3)Represents the amount of an off-balance sheet commitment.
The Advance principal balance as of June 30, 2026 increased $23.8 billion (34 percent) compared to year-end 2025, primarily driven by higher Advance borrowings from a few large-asset members. The future levels of Advance balances are difficult to predict and depend on many factors, including changes in the level of liquidity in the financial markets, changes in our members' deposit levels compared to loan growth and the general health of the economy.
Letters of Credit are issued on behalf of members to support certain obligations of members (or members' customers) to third-party beneficiaries. Letters of Credit decreased $2.3 billion (five percent) in the first six months of 2026. Letters of Credit
usually expire without being drawn upon.
Mortgage Loans Held for Portfolio (Mortgage Purchase Program, or MPP)
MPP balances are influenced by conditions in the housing and mortgage markets, the competitiveness of prices we offer to purchase loans, as well as program features and activity from our largest sellers. We manage purchases and balances at a prudent level relative to capital and total assets to effectively manage market and credit risks consistent with our risk appetite.
The table below shows principal purchases and collections of loans in the MPP for the first six months of 2026. All loans acquired in the first six months of 2026 were conventional loans.
| (In millions) | MPP Principal | ||||
| Balance, December 31, 2025 | $ | 8,490 | |||
| Principal purchases | 1,277 | ||||
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Principal collections
|
(589) | ||||
| Balance, June 30, 2026 | $ | 9,178 | |||
We closely model and analyze the refinancing incentives of our mortgage assets (including loans in the MPP and mortgage-backed securities (MBS)) because the option for homeowners to change their principal payments normally represents the largest portion of our market risk exposure and can affect MPP balances. MPP principal paydowns in the first six months of 2026 equated to a 10 percent annual constant prepayment rate, which was an increase from the seven percent rate during 2025. Mortgage prepayment activity increased in 2026, but remains constrained compared to historical levels, in part due to current mortgage rates remaining above many borrowers' existing rates.
Investments
The table below presents the ending and average balances of our investment portfolio.
| Six Months Ended | Year Ended | ||||||||||||||||||||||
| (In millions) | June 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Ending Balance | Average Balance | Ending Balance | Average Balance | ||||||||||||||||||||
| Liquidity investments | $ | 27,434 | $ | 33,229 | $ | 30,065 | $ | 28,554 | |||||||||||||||
| MBS | 22,311 | 20,528 | 20,014 | 20,121 | |||||||||||||||||||
|
Other investments (1)
|
- | 3 | - | 23 | |||||||||||||||||||
| Total investments | $ | 49,745 | $ | 53,760 | $ | 50,079 | $ | 48,698 | |||||||||||||||
(1)The average balance includes the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
Investments that are either short-term (primarily overnight), or longer-term that consist of U.S. Treasury and GSE obligations are considered liquidity investments. These investments are primarily held to help meet the funding needs of members. Longer-term liquidity investments may be pledged or sold and converted to cash. Liquidity investment levels can vary significantly on a daily basis based on changes in the amount of actual Advances, anticipated demand for Advances, regulatory liquidity requirements, the availability of acceptable net spreads, and the number of eligible counterparties that meet our unsecured credit risk criteria.
Our overarching strategy for balances of MBS is to keep holdings as close as possible to the regulatory maximum. Finance Agency regulations prohibit us from purchasing MBS if our investment in these securities exceeds three times regulatory capital on the day we intend to purchase the securities. The ratio of MBS to regulatory capital was 2.94 on June 30, 2026. The balance of MBS at June 30, 2026 consisted of $21.5 billion of securities issued by Fannie Mae or Freddie Mac (of which $11.8 billion were floating-rate securities), and $0.8 billion of securities issued by Ginnie Mae (which are fixed rate).
Consolidated Obligations
We generally fund variable-rate assets with Discount Notes (a portion of which may be swapped), adjustable-rate Bonds, and fixed-rate Bonds that have been swapped to a variable rate because they give us the ability to effectively match the underlying rate reset periods embedded in these assets. Total Consolidated Obligations on June 30, 2026 were $143.1 billion, an increase of $22.3 billion (19 percent) compared to the balance at year-end 2025. The balances and composition of our Consolidated Obligations tend to fluctuate with changes in the balances and composition of our assets. In addition, changes in the amount and composition of our funding may be necessary from time to time to meet the days of positive liquidity and asset/liability maturity funding gap requirements discussed in the "Liquidity Risk" section of "Quantitative and Qualitative Disclosures About Risk Management."
Deposits
Total deposits with us are normally a relatively minor source of funding. Deposits with us are not insured, but are subject to statutory deposit reserve requirements. Total interest-bearing deposits on June 30, 2026 were $1.3 billion, an increase of 27 percent compared to year-end 2025. Interest-bearing deposits may have overnight or shorter-term maturities.
Capital Resources
The following tables present capital amounts and capital-to-assets ratios, on both a GAAP and regulatory basis. We consider the regulatory ratio to be a better representation of financial leverage than the GAAP ratio because, although the GAAP ratio treats mandatorily redeemable capital stock as a liability, it protects investors in our debt in the same manner as GAAP capital stock and retained earnings.
| Six Months Ended | Year Ended | ||||||||||||||||||||||
| (In millions) | June 30, 2026 | December 31, 2025 | |||||||||||||||||||||
| Period End | Average | Period End | Average | ||||||||||||||||||||
| GAAP and Regulatory Capital | |||||||||||||||||||||||
| GAAP Capital Stock | $ | 5,508 | $ | 4,865 | $ | 4,539 | $ | 4,887 | |||||||||||||||
| Mandatorily Redeemable Capital Stock | 92 | 93 | 20 | 25 | |||||||||||||||||||
| Regulatory Capital Stock | 5,600 | 4,958 | 4,559 | 4,912 | |||||||||||||||||||
| Retained Earnings | 2,048 | 2,048 | 1,995 | 1,960 | |||||||||||||||||||
| Regulatory Capital | $ | 7,648 | $ | 7,006 | $ | 6,554 | $ | 6,872 | |||||||||||||||
| Six Months Ended | Year Ended | ||||||||||||||||||||||
| June 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| Period End | Average | Period End | Average | ||||||||||||||||||||
| GAAP and Regulatory Capital-to-Assets Ratio | |||||||||||||||||||||||
| GAAP | 4.95 | % | 4.92 | % | 5.05 | % | 5.00 | % | |||||||||||||||
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Regulatory (1)
|
4.99 | 4.97 | 5.06 | 5.05 | |||||||||||||||||||
(1) At all times, the FHLB must maintain at least a four percent minimum regulatory capital-to-assets ratio.
Our business model is structured to be able to absorb sharp changes in assets because we can execute commensurate changes in liability and capital stock balances. For example, in the first six months of 2026, we issued $5.3 billion of capital stock to members primarily in support of Advance borrowings, while repurchasing $4.3 billion of excess capital stock no longer supporting Mission Assets and Activities. Excess capital stock is the amount of stock held by a member (or former member) in excess of that institution's minimum stock ownership requirement.
See the "Capital Adequacy" section in "Quantitative and Qualitative Disclosures About Risk Management" for discussion of our retained earnings.
RESULTS OF OPERATIONS
Net Interest Income
Components of Net Interest Income
The following table shows selected components of net interest income.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Earning Assets | Amount | % of Earning Assets | Amount | % of Earning Assets | Amount | % of Earning Assets | ||||||||||||||||||||||||||||||||||||||||
|
Components of net interest rate spread:
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Net (amortization)/accretion (1) (2)
|
$ | (10) | (0.03) | % | $ | (7) | (0.02) | % | $ | (23) | (0.03) | % | $ | (15) | (0.02) | % | |||||||||||||||||||||||||||||||
|
Prepayment fees on Advances, net (2)
|
1 | - | - | - | 3 | - | - | - | |||||||||||||||||||||||||||||||||||||||
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Other components of net interest rate spread
|
103 | 0.28 | 122 | 0.35 | 204 | 0.29 | 237 | 0.35 | |||||||||||||||||||||||||||||||||||||||
| Total net interest rate spread | 94 | 0.25 | 115 | 0.33 | 184 | 0.26 | 222 | 0.33 | |||||||||||||||||||||||||||||||||||||||
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Earnings from funding assets with interest-free capital
|
74 | 0.21 | 86 | 0.24 | 142 | 0.21 | 167 | 0.24 | |||||||||||||||||||||||||||||||||||||||
|
Total net interest income/net interest margin (3)
|
$ | 168 | 0.46 | % | $ | 201 | 0.57 | % | $ | 326 | 0.47 | % | $ | 389 | 0.57 | % | |||||||||||||||||||||||||||||||
(1)Includes monthly recognition of premiums and discounts paid on purchases of mortgage assets, premiums, discounts and concessions paid on Consolidated Obligations and other hedging basis adjustments.
(2)This component of net interest rate spread has been segregated to display its relative impact.
(3)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Net Amortization/Accretion (generally referred to as amortization): Net amortization can become substantial and volatile with changes in interest rates, especially for mortgage assets. For example, when mortgage rates decrease, premium amortization of mortgage assets generally increases, which reduces net interest income. Average mortgage rates were approximately 30 to 50 basis points lower in the first six months of 2026 compared to the same period of 2025, which increased prepayment speeds slightly and accelerated premium amortization.
Other Components of Net Interest Rate Spread: The total other components of net interest rate spread decreased $19 million and $33 million in the three- and six-months comparison periods, respectively. The net decreases were primarily due to the factors below.
Six-Months Comparison
▪Lower net interest rate spreads earned on Advances-Unfavorable: Lower spreads earned on Advances decreased net interest income by an estimated $21 million. Advance spreads decreased as the portfolio composition shifted to a higher concentration of shorter-term and certain variable-rate Advances.
▪Lower net interest rate spreads earned on mortgage loans held for portfolio-Unfavorable: Lower spreads on mortgage loans held for portfolio decreased net interest income by an estimated $17 million. Spreads declined due to the maturity of lower-cost debt and the issuance of longer-term debt aimed at reducing market risk exposure.
Three-Months Comparison
The same factors described above for the six-months comparison generally affected the other components of net interest rate spread and by approximately the same relative magnitude.
Earnings from Capital: Earnings from capital decreased $12 million and $25 million in the three- and six-months comparison periods, respectively, because of lower average short-term interest rates.
Average Balance Sheet and Rates
The following tables provide average balances and rates for major balance sheet accounts, which determine the changes in net interest rate spreads. Interest amounts and average rates are affected by our use of derivatives and the related accounting elections we make. Interest amounts reported for Advances, MBS, Other investments and Swapped Bonds include gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships.
In addition, the net interest settlements of interest receivables or payables and the price alignment amount associated with derivatives in a fair value hedge relationship are included in net interest income and interest rate spread. The price alignment amount approximates the amount of interest that we would receive or pay if the variation margin payments were characterized as collateral pledged to secure outstanding credit exposure on the derivative contracts. However, if the derivatives do not qualify for fair value hedge accounting, the related net interest settlements of interest receivables or payables and the price alignment amount are recorded in "Non-interest income (loss)" as "Net gains (losses) on derivatives" and therefore are excluded from the calculation of net interest rate spread. Amortization associated with some hedging-related basis adjustments is also reflected in net interest income, which affects interest rate spread.
| (Dollars in millions) | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||||||
| June 30, 2026 | June 30, 2025 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest |
Average Rate (1)
|
Average Balance | Interest |
Average Rate (1)
|
||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
|
Advances (2)
|
$ | 81,243 | $ | 805 | 3.97 | % | $ | 85,533 | $ | 1,008 | 4.73 | % | |||||||||||||||||||||||
|
Mortgage loans held for portfolio (3)
|
9,188 | 90 | 3.94 | 7,411 | 65 | 3.54 | |||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 4,028 | 36 | 3.65 | 2,629 | 29 | 4.37 | |||||||||||||||||||||||||||||
| Federal funds sold | 20,167 | 185 | 3.68 | 14,806 | 162 | 4.39 | |||||||||||||||||||||||||||||
|
Interest-bearing deposits in banks (4)
|
2,573 | 24 | 3.71 | 2,551 | 28 | 4.42 | |||||||||||||||||||||||||||||
|
MBS (5)
|
21,029 | 222 | 4.23 | 20,244 | 241 | 4.77 | |||||||||||||||||||||||||||||
|
Other investments (5)
|
9,123 | 92 | 4.04 | 8,559 | 97 | 4.53 | |||||||||||||||||||||||||||||
| Loans to other FHLBanks | 33 | - | 3.65 | 17 | - | 4.38 | |||||||||||||||||||||||||||||
| Total interest-earning assets | 147,384 | 1,454 | 3.96 | 141,750 | 1,630 | 4.61 | |||||||||||||||||||||||||||||
| Other assets | 568 | 470 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 147,952 | $ | 142,220 | |||||||||||||||||||||||||||||||
| Liabilities and Capital: | |||||||||||||||||||||||||||||||||||
| Term deposits | $ | 111 | 1 | 3.77 | $ | 136 | 1 | 4.55 | |||||||||||||||||||||||||||
|
Other interest bearing deposits (4)
|
932 | 7 | 3.08 | 872 | 8 | 3.86 | |||||||||||||||||||||||||||||
| Discount Notes | 37,914 | 347 | 3.67 | 20,312 | 217 | 4.28 | |||||||||||||||||||||||||||||
| Unswapped fixed-rate Bonds | 13,669 | 129 | 3.77 | 12,405 | 99 | 3.20 | |||||||||||||||||||||||||||||
| Unswapped adjustable-rate Bonds | 72,057 | 666 | 3.71 | 89,518 | 992 | 4.45 | |||||||||||||||||||||||||||||
| Swapped Bonds | 14,528 | 134 | 3.71 | 10,415 | 111 | 4.27 | |||||||||||||||||||||||||||||
| Mandatorily redeemable capital stock | 96 | 2 | 7.51 | 34 | 1 | 8.59 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 139,307 | 1,286 | 3.71 | 133,692 | 1,429 | 4.28 | |||||||||||||||||||||||||||||
| Other liabilities | 1,484 | 1,481 | |||||||||||||||||||||||||||||||||
| Total capital | 7,161 | 7,047 | |||||||||||||||||||||||||||||||||
| Total liabilities and capital | $ | 147,952 | $ | 142,220 | |||||||||||||||||||||||||||||||
| Net interest rate spread | 0.25 | % | 0.33 | % | |||||||||||||||||||||||||||||||
|
Net interest income and net interest margin (6)
|
$ | 168 | 0.46 | % | $ | 201 | 0.57 | % | |||||||||||||||||||||||||||
|
Average interest-earning assets to interest-bearing liabilities
|
105.80 | % | 106.03 | % | |||||||||||||||||||||||||||||||
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Interest on Advances includes prepayment fees of $1 million for the three months ended June 30, 2026. Advance prepayment fees for the three months ended June 30, 2025 totaled less than $1 million.
(3)Non-accrual loans are included in average balances used to determine average rate.
(4)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(5)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
| (Dollars in millions) | Six Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
| June 30, 2026 | June 30, 2025 | ||||||||||||||||||||||||||||||||||
| Average Balance | Interest |
Average Rate (1)
|
Average Balance | Interest |
Average Rate (1)
|
||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
|
Advances (2)
|
$ | 77,707 | $ | 1,543 | 4.00 | % | $ | 82,373 | $ | 1,939 | 4.75 | % | |||||||||||||||||||||||
|
Mortgage loans held for portfolio (3)
|
9,025 | 176 | 3.93 | 7,339 | 129 | 3.54 | |||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 3,868 | 71 | 3.67 | 2,810 | 61 | 4.37 | |||||||||||||||||||||||||||||
| Federal funds sold | 17,915 | 327 | 3.68 | 13,782 | 300 | 4.39 | |||||||||||||||||||||||||||||
|
Interest-bearing deposits in banks (4)
|
2,489 | 46 | 3.72 | 2,516 | 55 | 4.42 | |||||||||||||||||||||||||||||
|
MBS (5)
|
20,515 | 435 | 4.27 | 19,698 | 469 | 4.80 | |||||||||||||||||||||||||||||
|
Other investments (5)
|
8,951 | 179 | 4.04 | 8,486 | 192 | 4.56 | |||||||||||||||||||||||||||||
| Loans to other FHLBanks | 17 | - | 3.65 | 10 | - | 4.38 | |||||||||||||||||||||||||||||
| Total interest-earning assets | 140,487 | 2,777 | 3.98 | 137,014 | 3,145 | 4.63 | |||||||||||||||||||||||||||||
| Other assets | 563 | 532 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 141,050 | $ | 137,546 | |||||||||||||||||||||||||||||||
| Liabilities and Capital: | |||||||||||||||||||||||||||||||||||
| Term deposits | $ | 120 | 2 | 3.77 | $ | 134 | 3 | 4.58 | |||||||||||||||||||||||||||
|
Other interest bearing deposits (4)
|
930 | 14 | 3.10 | 857 | 16 | 3.85 | |||||||||||||||||||||||||||||
| Discount Notes | 35,431 | 647 | 3.68 | 20,775 | 447 | 4.34 | |||||||||||||||||||||||||||||
| Unswapped fixed-rate Bonds | 13,503 | 254 | 3.80 | 12,196 | 191 | 3.16 | |||||||||||||||||||||||||||||
| Unswapped adjustable-rate Bonds | 67,932 | 1,258 | 3.73 | 85,106 | 1,881 | 4.46 | |||||||||||||||||||||||||||||
| Swapped Bonds | 14,770 | 272 | 3.71 | 10,107 | 217 | 4.32 | |||||||||||||||||||||||||||||
| Mandatorily redeemable capital stock | 93 | 4 | 7.40 | 29 | 1 | 8.70 | |||||||||||||||||||||||||||||
| Other borrowings | - | - | - | 6 | - | 4.39 | |||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 132,779 | 2,451 | 3.72 | 129,210 | 2,756 | 4.30 | |||||||||||||||||||||||||||||
| Other liabilities | 1,337 | 1,454 | |||||||||||||||||||||||||||||||||
| Total capital | 6,934 | 6,882 | |||||||||||||||||||||||||||||||||
| Total liabilities and capital | $ | 141,050 | $ | 137,546 | |||||||||||||||||||||||||||||||
| Net interest rate spread | 0.26 | % | 0.33 | % | |||||||||||||||||||||||||||||||
|
Net interest income and net interest margin (6)
|
$ | 326 | 0.47 | % | $ | 389 | 0.57 | % | |||||||||||||||||||||||||||
| Average interest-earning assets to interest-bearing liabilities | 105.81 | % | 106.04 | % | |||||||||||||||||||||||||||||||
(1)Amounts used to calculate average rates are based on dollars in thousands. Accordingly, recalculations based upon the disclosed amounts in millions may not produce the same results.
(2)Interest on Advances includes prepayment fees of $3 million for the six months ended June 30, 2026. Advance prepayment fees for the six months ended June 30, 2025 totaled less than $1 million.
(3)Non-accrual loans are included in average balances used to determine average rate.
(4)The average balance amounts include the rights or obligations to cash collateral, which are included in the fair value of derivative assets or derivative liabilities on the Statements of Condition at period end.
(5)Includes available-for-sale securities based on their amortized costs. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity for available-for-sale securities.
(6)Net interest margin is net interest income as a percentage of average total interest-earning assets.
Rates on our interest-bearing assets and liabilities generally decreased in the three and six months ended June 30, 2026 compared to the same periods of 2025, as these assets and liabilities have repriced to the lower interest rates. However, the average rate on mortgage loans held for portfolio increased due to a higher volume of loan purchases during 2025 and the first half of 2026 at interest rates above the average rate of the legacy portfolio.
Volume/Rate Analysis
Changes in both average balances (volume) and interest rates influence changes in net interest income, as shown in the following table.
| (In millions) |
Three Months Ended
June 30, 2026 over 2025
|
Six Months Ended
June 30, 2026 over 2025
|
|||||||||||||||||||||||||||||||||
|
Volume (1)(3)
|
Rate (2)(3)
|
Total |
Volume (1)(3)
|
Rate (2)(3)
|
Total | ||||||||||||||||||||||||||||||
| Increase (decrease) in interest income | |||||||||||||||||||||||||||||||||||
| Advances | $ | (48) | $ | (155) | $ | (203) | $ | (105) | $ | (291) | $ | (396) | |||||||||||||||||||||||
| Mortgage loans held for portfolio | 17 | 8 | 25 | 32 | 15 | 47 | |||||||||||||||||||||||||||||
| Securities purchased under agreements to resell | 13 | (6) | 7 | 20 | (10) | 10 | |||||||||||||||||||||||||||||
| Federal funds sold | 52 | (29) | 23 | 80 | (53) | 27 | |||||||||||||||||||||||||||||
| Interest-bearing deposits in banks | - | (4) | (4) | - | (9) | (9) | |||||||||||||||||||||||||||||
| MBS | 9 | (28) | (19) | 19 | (53) | (34) | |||||||||||||||||||||||||||||
| Other investments | 6 | (11) | (5) | 10 | (23) | (13) | |||||||||||||||||||||||||||||
| Total | 49 | (225) | (176) | 56 | (424) | (368) | |||||||||||||||||||||||||||||
| Increase (decrease) in interest expense | |||||||||||||||||||||||||||||||||||
| Term deposits | - | - | - | - | (1) | (1) | |||||||||||||||||||||||||||||
| Other interest-bearing deposits | 1 | (2) | (1) | 1 | (3) | (2) | |||||||||||||||||||||||||||||
| Discount Notes | 165 | (35) | 130 | 276 | (76) | 200 | |||||||||||||||||||||||||||||
|
Unswapped fixed-rate Bonds
|
11 | 19 | 30 | 22 | 41 | 63 | |||||||||||||||||||||||||||||
|
Unswapped adjustable-rate Bonds
|
(176) | (150) | (326) | (346) | (277) | (623) | |||||||||||||||||||||||||||||
| Swapped Bonds | 39 | (16) | 23 | 89 | (34) | 55 | |||||||||||||||||||||||||||||
|
Mandatorily redeemable capital stock
|
1 | - | 1 | 3 | - | 3 | |||||||||||||||||||||||||||||
| Total | 41 | (184) | (143) | 45 | (350) | (305) | |||||||||||||||||||||||||||||
|
Increase (decrease) in net interest income
|
$ | 8 | $ | (41) | $ | (33) | $ | 11 | $ | (74) | $ | (63) | |||||||||||||||||||||||
(1)Volume changes are calculated as the change in volume multiplied by the prior year rate.
(2)Rate changes are calculated as the change in rate multiplied by the prior year average balance.
(3)Changes that are not identifiable as either volume-related or rate-related, but rather are equally attributable to both volume and rate changes, have been allocated to the volume and rate categories based upon the proportion of the absolute value of the volume and rate changes.
Effect of the Use of Derivatives on Net Interest Income
The following tables show the impact on net interest income from the effect of derivatives and hedging activities. As noted above, gains (losses) on hedged items and derivatives in qualifying fair value hedge relationships are recorded in interest income or expense. In addition, for derivatives designated as a fair value hedge, the net interest settlements of interest receivables or payables and the price alignment amount related to such derivatives are recognized as adjustments to the interest income or expense of the designated hedged item. As such, all the effects on earnings of derivatives qualifying for fair value hedge accounting are reflected in net interest income. The effect on earnings from derivatives not receiving fair value hedge accounting is provided in the "Non-Interest Income (Loss)" section below.
| (In millions) | Advances | Investment Securities | Bonds | Total | |||||||||||||||||||
|
Three Months Ended June 30, 2026
|
|||||||||||||||||||||||
| Gains (losses) on designated fair value hedges | $ | 1 | $ | (1) | $ | (1) | $ | (1) | |||||||||||||||
| Net interest settlements included in net interest income | (7) | 33 | 3 | 29 | |||||||||||||||||||
|
Price alignment amount (1)
|
(1) | (4) | - | (5) | |||||||||||||||||||
| Increase (decrease) to net interest income | $ | (7) | $ | 28 | $ | 2 | $ | 23 | |||||||||||||||
|
Three Months Ended June 30, 2025
|
|||||||||||||||||||||||
| (Amortization)/accretion of hedging activities in net interest income | $ | - | $ | 1 | $ | - | $ | 1 | |||||||||||||||
| Net interest settlements included in net interest income | 34 | 61 | (1) | 94 | |||||||||||||||||||
|
Price alignment amount (1)
|
- | (7) | - | (7) | |||||||||||||||||||
| Increase (decrease) to net interest income | $ | 34 | $ | 55 | $ | (1) | $ | 88 | |||||||||||||||
| (In millions) | Advances | Investment Securities | Mortgage Loans | Bonds | Total | ||||||||||||||||||||||||
|
Six Months Ended June 30, 2026
|
|||||||||||||||||||||||||||||
| (Amortization)/accretion of hedging activities in net interest income | $ | - | $ | 1 | $ | (1) | $ | - | $ | - | |||||||||||||||||||
| Gains (losses) on designated fair value hedges | - | (3) | - | (1) | (4) | ||||||||||||||||||||||||
| Net interest settlements included in net interest income | (15) | 72 | - | 6 | 63 | ||||||||||||||||||||||||
|
Price alignment amount (1)
|
(1) | (8) | - | - | (9) | ||||||||||||||||||||||||
| Increase (decrease) to net interest income | $ | (16) | $ | 62 | $ | (1) | $ | 5 | $ | 50 | |||||||||||||||||||
|
Six Months Ended June 30, 2025
|
|||||||||||||||||||||||||||||
| (Amortization)/accretion of hedging activities in net interest income | $ | (1) | $ | 1 | $ | - | $ | - | $ | - | |||||||||||||||||||
| Gains (losses) on designated fair value hedges | 1 | 2 | - | (1) | 2 | ||||||||||||||||||||||||
| Net interest settlements included in net interest income | 72 | 121 | - | (3) | 190 | ||||||||||||||||||||||||
|
Price alignment amount (1)
|
(2) | (15) | - | - | (17) | ||||||||||||||||||||||||
| Increase (decrease) to net interest income | $ | 70 | $ | 109 | $ | - | $ | (4) | $ | 175 | |||||||||||||||||||
(1) This amount is for derivatives for which variation margin is characterized as a daily settled contract.
We primarily use derivatives to more closely match actual cash flows between assets and liabilities by synthetically converting the fixed interest rates on certain Advances, investments and Consolidated Obligations to adjustable rates tied to an eligible benchmark rate (e.g., the Federal funds effective rate or SOFR). The impact of derivatives on net interest income was less favorable in the three and six months ended June 30, 2026 compared to the same periods of 2025, driven primarily by a decline in average short-term interest rates. These lower rates resulted in net interest settlements being paid rather than received on derivatives related to certain Advances and reduced net interest settlements received on certain investment securities. The fluctuation in net interest income from the use of derivatives was acceptable because it enabled us to lower market risk exposure.
Non-Interest Income (Loss)
Non-interest income (loss) consists of certain gains (losses) on investment securities, derivatives activities, financial instruments held under the fair value option, and other non-interest earning activities. The following tables present the net effect of derivatives and hedging activities on non-interest income (loss). The effects of derivatives and hedging activities on non-interest income (loss) relate only to derivatives not qualifying for fair value hedge accounting.
| (In millions) | Advances | Investment Securities | Mortgage Loans | Bonds | Discount Notes | Other | Total | ||||||||||||||||||||||||||||||||||
|
Three Months Ended June 30, 2026
|
|||||||||||||||||||||||||||||||||||||||||
|
Net effect of derivatives and hedging activities
|
|||||||||||||||||||||||||||||||||||||||||
|
Gains (losses) on derivatives not receiving hedge accounting
|
$ | 1 | $ | 26 | $ | (3) | $ | (6) | $ | - | $ | - | $ | 18 | |||||||||||||||||||||||||||
|
Net interest settlements on derivatives not receiving hedge accounting
|
- | 3 | - | 2 | (1) | - | 4 | ||||||||||||||||||||||||||||||||||
|
Price alignment amount (1)
|
- | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net gains (losses) on derivatives | 1 | 29 | (3) | (4) | (1) | - | 22 | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on trading securities (2)
|
- | (28) | - | - | - | - | (28) | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on financial instruments held under fair value option (3)
|
(1) | - | - | 7 | 3 | - | 9 | ||||||||||||||||||||||||||||||||||
|
Total net effect on non-interest income (loss)
|
$ | - | $ | 1 | $ | (3) | $ | 3 | $ | 2 | $ | - | $ | 3 | |||||||||||||||||||||||||||
|
Three Months Ended June 30, 2025
|
|||||||||||||||||||||||||||||||||||||||||
|
Net effect of derivatives and hedging activities
|
|||||||||||||||||||||||||||||||||||||||||
|
Gains (losses) on derivatives not receiving hedge accounting
|
$ | (1) | $ | (27) | $ | (1) | $ | - | $ | 1 | $ | - | $ | (28) | |||||||||||||||||||||||||||
|
Net interest settlements on derivatives not receiving hedge accounting
|
1 | 9 | - | (3) | (1) | - | 6 | ||||||||||||||||||||||||||||||||||
|
Price alignment amount (1)
|
- | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net gains (losses) on derivatives | - | (18) | (1) | (3) | - | - | (22) | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on trading securities (2)
|
- | 17 | - | - | - | - | 17 | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on financial instruments held under fair value option (3)
|
1 | - | - | 1 | (3) | - | (1) | ||||||||||||||||||||||||||||||||||
|
Total net effect on non-interest income (loss)
|
$ | 1 | $ | (1) | $ | (1) | $ | (2) | $ | (3) | $ | - | $ | (6) | |||||||||||||||||||||||||||
| (In millions) | Advances | Investment Securities | Mortgage Loans | Bonds | Discount Notes | Other | Total | ||||||||||||||||||||||||||||||||||
|
Six Months Ended June 30, 2026
|
|||||||||||||||||||||||||||||||||||||||||
|
Net effect of derivatives and hedging activities
|
|||||||||||||||||||||||||||||||||||||||||
|
Gains (losses) on derivatives not receiving hedge accounting
|
$ | 2 | $ | 39 | $ | (5) | $ | (14) | $ | (5) | $ | - | $ | 17 | |||||||||||||||||||||||||||
|
Net interest settlements on derivatives not receiving hedge accounting
|
1 | 7 | - | 2 | (1) | - | 9 | ||||||||||||||||||||||||||||||||||
|
Price alignment amount (1)
|
- | - | - | - | - | (1) | (1) | ||||||||||||||||||||||||||||||||||
| Net gains (losses) on derivatives | 3 | 46 | (5) | (12) | (6) | (1) | 25 | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on trading securities (2)
|
- | (51) | - | - | - | - | (51) | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on financial instruments held under fair value option (3)
|
(3) | - | - | 16 | 7 | - | 20 | ||||||||||||||||||||||||||||||||||
|
Total net effect on non-interest income (loss)
|
$ | - | $ | (5) | $ | (5) | $ | 4 | $ | 1 | $ | (1) | $ | (6) | |||||||||||||||||||||||||||
|
Six Months Ended June 30, 2025
|
|||||||||||||||||||||||||||||||||||||||||
|
Net effect of derivatives and hedging activities
|
|||||||||||||||||||||||||||||||||||||||||
|
Gains (losses) on derivatives not receiving hedge accounting
|
$ | (3) | $ | (73) | $ | (4) | $ | 1 | $ | (2) | $ | - | $ | (81) | |||||||||||||||||||||||||||
|
Net interest settlements on derivatives not receiving hedge accounting
|
2 | 17 | - | (3) | 1 | - | 17 | ||||||||||||||||||||||||||||||||||
|
Price alignment amount (1)
|
- | - | - | - | - | (1) | (1) | ||||||||||||||||||||||||||||||||||
| Net gains (losses) on derivatives | (1) | (56) | (4) | (2) | (1) | (1) | (65) | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on trading securities (2)
|
- | 64 | - | - | - | - | 64 | ||||||||||||||||||||||||||||||||||
|
Gains (losses) on financial instruments held under fair value option (3)
|
3 | - | - | (1) | 2 | - | 4 | ||||||||||||||||||||||||||||||||||
|
Total net effect on non-interest income (loss)
|
$ | 2 | $ | 8 | $ | (4) | $ | (3) | $ | 1 | $ | (1) | $ | 3 | |||||||||||||||||||||||||||
(1)This amount is for derivatives for which variation margin is characterized as a daily settled contract.
(2)Includes only those gains (losses) on trading securities that have an assigned economic derivative; therefore, this line item may not agree to the Statements of Income.
(3)Includes only those gains or losses on financial instruments held at fair value that have an economic derivative "assigned."
The decrease in earnings from the net effect of derivatives and hedging activities in the six months ended June 30, 2026 compared to the same period of 2025 was primarily due to lower interest rates, which reduced net interest settlements received on certain investment securities.
We elect to use the fair value option for certain financial instruments that either do not qualify for hedge accounting or may be at risk for not meeting hedge effectiveness requirements. Because we generally hold these derivatives and the related financial instruments to maturity, any unrealized gains or losses are expected to reverse in future periods.
In the tables above, "Gains (losses) on trading securities" consist of fixed-rate U.S. Treasury and GSE obligations that have been swapped to a variable rate. Trading securities are recorded at fair value, with changes in fair value reported in non-interest income (loss). There are a number of factors that affect the fair value of these securities, such as changes in interest rates, the passage of time, and volatility. By hedging these trading securities, the gains or losses on these trading securities will generally be offset by the gains or losses on the associated interest rate swaps.
As noted above, the fluctuation in earnings from the use of derivatives was acceptable because it enabled us to lower market risk exposure.
Non-Interest Expense
Non-interest expense for the six months ended June 30, 2026 totaled $86 million, an increase of $5 million compared to the same period of 2025. Our business is designed to support significant changes in asset levels without having to undergo material changes in staffing, operations, risk practices, or overall resource needs.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT
Market Risk
Market Value of Equity and Duration of Equity
Two key measures of long-term market risk exposure are the sensitivities of the market value of equity and the duration of equity to changes in interest rates and other variables, as presented in the following tables for various instantaneous and permanent interest rate shocks (in basis points). Market value of equity represents the difference between the market value of total assets and the market value of total liabilities, including off-balance sheet items. The duration of equity provides an estimate of the change in market value of equity to further changes in interest rates.
Market Value of Equity
|
Interest Rate Scenarios
|
|||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Down 300 | Down 200 | Down 100 | Flat Rates | Up 100 | Up 200 | Up 300 | ||||||||||||||||||||||||||||||||||
| Month-End Results | |||||||||||||||||||||||||||||||||||||||||
| June 30, 2026 | |||||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | $ | 7,411 | $ | 7,425 | $ | 7,400 | $ | 7,304 | $ | 7,229 | $ | 7,172 | $ | 7,115 | |||||||||||||||||||||||||||
| % Change from Flat Case | 1.5 | % | 1.7 | % | 1.3 | % | - | (1.0) | % | (1.8) | % | (2.6) | % | ||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Market Value of Equity | $ | 6,159 | $ | 6,211 | $ | 6,220 | $ | 6,161 | $ | 6,102 | $ | 6,078 | $ | 6,064 | |||||||||||||||||||||||||||
| % Change from Flat Case | - | % | 0.8 | % | 1.0 | % | - | (1.0) | % | (1.3) | % | (1.6) | % | ||||||||||||||||||||||||||||
Duration of Equity
|
Interest Rate Scenarios
|
|||||||||||||||||||||||||||||||||||||||||
| (In years) | Down 300 | Down 200 | Down 100 | Flat Rates | Up 100 | Up 200 | Up 300 | ||||||||||||||||||||||||||||||||||
| Month-End Results | |||||||||||||||||||||||||||||||||||||||||
| June 30, 2026 | (1.3) | (0.3) | 1.0 | 1.3 | 0.9 | 0.8 | 0.8 | ||||||||||||||||||||||||||||||||||
| December 31, 2025 | (0.8) | (0.6) | 0.4 | 1.3 | 0.6 | 0.3 | 0.2 | ||||||||||||||||||||||||||||||||||
The mortgage assets portfolio normally accounts for the majority of our market risk exposure because of prepayment volatility that we cannot completely hedge while maintaining sufficient net spreads. The overall market risk exposure to changing interest rates was well within policy limits during the periods presented. At June 30, 2026, market risk exposure to falling and rising rate shocks remained stable.
Based on the totality of our risk analysis, we expect that overall profitability, defined as the level of ROE compared with short-term market rates, will be competitive over the long term unless interest rates increase by large amounts in a short period of time. Substantial declines in long-term interest rates could decrease income temporarily before reverting to average levels. This temporary reduction in income would be driven by additional recognition of mortgage asset premiums as the incentive for borrowers to refinance results in faster than anticipated repayments of those mortgage assets. However, we believe the mortgage assets portfolio will continue to provide an acceptable risk-adjusted return consistent with our risk appetite philosophy.
Capital Adequacy
Retained Earnings
We must hold sufficient capital to protect against exposure to various risks, including market, credit, and operational risks. We regularly conduct a variety of measurements and assessments for capital adequacy. At June 30, 2026, our capital management policy set forth approximately $625 million as the minimum amount of retained earnings we believe is necessary to mitigate impairment risk. Our total retained earnings were $2.0 billion on June 30, 2026, which exceeds the policy minimum.
Market Capitalization Ratio
The market capitalization ratio provides a point-in-time indication of the FHLB's liquidation or franchise value and can also serve as a measure of realized or potential market risk exposure. The market value of equity (i.e., total capital) relative to the
par value of regulatory capital stock (which is GAAP capital stock and mandatorily redeemable capital stock) was 130 percent at June 30, 2026. A value below 100 percent could indicate that, in the remote event of an immediate liquidation scenario involving redemption of all capital stock, capital stock may be returned to stockholders at a value below par. The market capitalization ratio at June 30, 2026 continued to be above our policy requirement.
Credit Risk
Overview
We believe our risk management practices, discussed below, minimize residual credit risk levels. At June 30, 2026, we had no loan loss reserves or impairment recorded for Credit Services, investments and derivatives and had a minimal amount of credit risk exposure in the MPP.
Credit Services
Overview: The objective of our credit risk management activities is to equalize risk exposure across members and counterparties to a zero level of expected losses. This approach is consistent with our conservative risk management principles and desire to have no residual credit risk related to Advances and Letters of Credit.
Internal Credit Ratings: We perform credit underwriting of our members and nonmember institutions and assign them an internal credit rating. These credit ratings are based on internal and third-party ratings models, credit analyses and consideration of credit ratings from independent credit rating organizations. Credit ratings are used in conjunction with other measures of credit risk in managing secured credit risk exposure.
Collateral: We require each member to provide a security interest in eligible collateral before it can undertake any secured borrowing. The estimated value of pledged collateral is discounted in order to offset market, credit, and liquidity risks that may affect the collateral's realizable value in the event it must be liquidated. At June 30, 2026, total eligible pledged collateral of $542.5 billion resulted in total borrowing capacity of $400.8 billion of which $138.1 billion was used to support outstanding Advances and Letters of Credit. Borrowers often pledge collateral in excess of their collateral requirement to demonstrate access to liquidity and to have the ability to borrow additional amounts in the future. Over-collateralization by one member is not applied to another member.
MPP
Overview: The residual amount of credit risk exposure to loans in the MPP is minimal, based on the same factors described in the 2025 Annual Report on Form 10-K.
Credit Performance: The table below provides an analysis of conventional mortgage loans that are seriously delinquent or in the process of foreclosure, along with the national average serious delinquency rate.
| Conventional Loan Delinquencies | |||||||||||
| (Dollars in millions) | June 30, 2026 | December 31, 2025 | |||||||||
|
Serious delinquencies - unpaid principal balance (1)
|
$ | 10 | $ | 10 | |||||||
|
Serious delinquency rate (2)
|
0.1 | % | 0.1 | % | |||||||
|
National average serious delinquency rate (3)
|
1.1 | % | 1.0 | % | |||||||
(1)Includes conventional loans that are 90 days or more past due or where the decision of foreclosure or a similar alternative such as pursuit of deed-in-lieu has been reported.
(2)Serious delinquencies expressed as a percentage of the total conventional loan portfolio.
(3)National average number of fixed-rate prime and subprime conventional loans that are 90 days or more past due or in the process of foreclosure is based on the most recent national delinquency data available. The June 30, 2026 rate is based on March 31, 2026 data.
Overall, the MPP has experienced a minimal amount of delinquencies, with serious delinquency rates continuing to be well below national averages. This further supports our view that the portfolio is comprised of high-quality, well-performing loans.
Credit Losses: Residual credit risk exposure depends on the actual and potential credit performance of the loans compared to their equity and available credit enhancements (primary mortgage insurance (PMI) and the Lender Risk Account (LRA)). The LRA is a hold back of a portion of the initial purchase price to cover potential credit losses. Our available credit enhancements at June 30, 2026 were able to cover nearly all of the estimated gross credit losses.
Separate from our allowance for credit losses analysis, we regularly analyze potential adverse scenarios of lifetime credit risk exposure for the loans in the MPP. Even under severely adverse macroeconomic scenarios, we expect credit losses to remain low.
Investments
Liquidity Investments: We hold liquidity investments that can be converted to cash and may be unsecured, guaranteed or supported by the U.S. government, or secured (i.e., collateralized). For unsecured liquidity investments, we invest in the instruments of investment-grade rated institutions, have appropriate and conservative limits on dollar and maturity exposure to each institution, and have strong credit underwriting practices, including active monitoring of credit quality of our counterparties and of the environment in which they operate. In addition, we believe the portion of our liquidity investments for which the investments are secured with collateral (secured resale agreements) present no credit risk exposure to us.
The following table presents the carrying value of liquidity investments outstanding in relation to the counterparties' lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The ratings displayed in this table should not be taken as an indication of future ratings.
| (In millions) | June 30, 2026 | ||||||||||||||||
| Long-Term Rating | |||||||||||||||||
| AA | A | Total | |||||||||||||||
| Unsecured Liquidity Investments | |||||||||||||||||
| Interest-bearing deposits | $ | - | $ | 2,620 | $ | 2,620 | |||||||||||
| Federal funds sold | 5,054 | 6,190 | 11,244 | ||||||||||||||
| Total unsecured liquidity investments | 5,054 | 8,810 | 13,864 | ||||||||||||||
| Guaranteed/Secured Liquidity Investments | |||||||||||||||||
| Securities purchased under agreements to resell | 4,450 | - | 4,450 | ||||||||||||||
| U.S. Treasury obligations | 7,800 | - | 7,800 | ||||||||||||||
| GSE obligations | 1,320 | - | 1,320 | ||||||||||||||
| Total guaranteed/secured liquidity investments | 13,570 | - | 13,570 | ||||||||||||||
| Total liquidity investments | $ | 18,624 | $ | 8,810 | $ | 27,434 | |||||||||||
From time to time, some counterparties used to transact our securities purchased under agreements to resell are not rated by an NRSRO because they are not issuers of debt or are otherwise not required to be rated by an NRSRO. However, each of the counterparties are considered to have the equivalent of at least an investment grade rating based on our internal ratings resulting from a fundamental credit analysis. Securities purchased under agreements to resell are secured by the following types of collateral: U.S. Treasury obligations, U.S. agency/GSE obligations, or U.S. agency/GSE MBS. At June 30, 2026, the collateral received had long-term credit ratings of AA, based on the lowest long-term credit ratings of the issuer as provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services.
The following table presents the lowest long-term credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services of our unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty's immediate parent for U.S. branches and agency offices of foreign commercial banks. Our internal ratings of these investments may differ from those obtained from Standard & Poor's, Moody's, and/or Fitch Advisory Services. The ratings displayed in this table should not be taken as an indication of future ratings.
| (In millions) | June 30, 2026 | ||||||||||||||||
| Counterparty Rating | |||||||||||||||||
| Domicile of Counterparty | AA | A | Total | ||||||||||||||
| Domestic | $ | - | $ | 2,820 | $ | 2,820 | |||||||||||
|
U.S. branches and agency offices of foreign commercial banks:
|
|||||||||||||||||
| Canada | 1,500 | 1,250 | 2,750 | ||||||||||||||
| Germany | - | 1,950 | 1,950 | ||||||||||||||
| Australia | 1,700 | - | 1,700 | ||||||||||||||
| Sweden | 1,300 | - | 1,300 | ||||||||||||||
| United Kingdom | - | 1,200 | 1,200 | ||||||||||||||
| France | - | 940 | 940 | ||||||||||||||
| Netherlands | - | 650 | 650 | ||||||||||||||
| Finland | 554 | - | 554 | ||||||||||||||
|
Total U.S. branches and agency offices of foreign commercial banks
|
5,054 | 5,990 | 11,044 | ||||||||||||||
| Total unsecured investment credit exposure | $ | 5,054 | $ | 8,810 | $ | 13,864 | |||||||||||
We are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities. Furthermore, we restrict a significant portion of unsecured lending to overnight maturities, which further limits credit risk exposure.
MBS:
GSE MBS
At June 30, 2026, $21.5 billion of MBS held were GSE securities issued by Fannie Mae and Freddie Mac, which provide credit safeguards by guaranteeing either timely or ultimate payments of principal and interest.
MBS Issued by Other Government Agencies
We also invest in MBS issued and guaranteed by Ginnie Mae. These investments totaled $0.8 billion at June 30, 2026. We believe that the strength of Ginnie Mae's guarantee and backing by the full faith and credit of the U.S. government is sufficient to protect us against credit losses on these securities.
Derivatives
Credit Risk Exposure: We mitigate most of the credit risk exposure resulting from derivative transactions through collateralization or use of daily settled contracts. The table below presents the lowest long-term counterparty credit ratings provided by Standard & Poor's, Moody's, and/or Fitch Advisory Services for derivative positions to which we had credit risk exposure at June 30, 2026. The ratings displayed in this table should not be taken as an indication of future ratings.
|
(In millions)
|
Total Notional | Net Derivatives Fair Value Before Collateral | Cash Collateral Pledged to (from) Counterparties |
Non-cash Collateral Pledged to (from) Counterparties
|
Net Credit Exposure to Counterparties | |||||||||||||||||||||||||||
| Nonmember counterparties: | ||||||||||||||||||||||||||||||||
| Asset positions with credit exposure: | ||||||||||||||||||||||||||||||||
| Uncleared derivatives: | ||||||||||||||||||||||||||||||||
| A-rated | $ | 7,986 | $ | 34 | $ | (29) | $ | - | $ | 5 | ||||||||||||||||||||||
| Total uncleared derivatives | 7,986 | 34 | (29) | - | 5 | |||||||||||||||||||||||||||
|
Cleared derivatives (1)
|
54,429 | 28 | - | 909 | 937 | |||||||||||||||||||||||||||
|
Total derivative positions with credit exposure to nonmember counterparties
|
62,415 | 62 | (29) | 909 | 942 | |||||||||||||||||||||||||||
|
Member institutions (2)
|
161 | 1 | - | - | 1 | |||||||||||||||||||||||||||
| Total | $ | 62,576 | $ | 63 | $ | (29) | $ | 909 | $ | 943 | ||||||||||||||||||||||
(1)Represents derivative transactions cleared with LCH Ltd. and CME Clearing, the FHLB's clearinghouses. LCH Ltd. is rated AA- by Standard & Poor's, and CME Clearing is not rated, but its parent company, CME Group Inc., is rated AA- by Standard & Poor's and Fitch Ratings.
(2)Represents Mandatory Delivery Contracts.
Our exposure to cleared derivatives is primarily associated with the requirement to post initial margin through the clearing agent to the Derivatives Clearing Organizations. We may pledge both cash and non-cash (i.e., securities) as collateral to satisfy this initial margin requirement. However, the use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties.
Our net exposure to uncleared derivatives is managed to acceptable credit risk levels due to the contractual collateral provisions in these derivatives.
Although we cannot predict if we will realize credit risk losses from any of our derivative counterparties, we believe that all of the counterparties will be able to continue making timely interest payments and satisfy the terms and conditions of their derivative contracts with us.
Liquidity Risk
Liquidity Overview
We strive to be in a liquidity position at all times to meet the borrowing needs of our members and to meet all current and future financial commitments. This objective is achieved by managing liquidity positions to maintain stable, reliable, and cost-effective sources of funds while taking into account market conditions, member demand, and the maturity profile of assets and liabilities. At June 30, 2026, our liquidity position complied with the FHLBank Act, Finance Agency regulations, and internal policies.
The FHLBank System's primary source of funds is the sale of Consolidated Obligations in the capital markets. Our ability to obtain funds through the sale of Consolidated Obligations at acceptable interest costs depends on the financial market's perception of the riskiness of the Obligations and on prevailing conditions in the capital markets, particularly the short-term capital markets. The System's favorable debt ratings, which take into account our status as a GSE, and our effective risk management practices are instrumental in ensuring stable and satisfactory access to the capital markets.
During the first six months of 2026, access to funding markets remained stable, and our ability to issue debt to support operations was sufficient. We believe there is a low probability of a liquidity or funding crisis in the System that would impair
our ability to participate, on a cost-effective basis, in issuances of debt, service outstanding debt, maintain adequate capitalization, or pay competitive dividends.
Liquidity risk includes the risk that the System could have difficulty rolling over short-term Obligations when market conditions change, also called refinancing risk. The System has a large reliance on short-term funding; therefore, it has a sharp focus on managing liquidity risk to very low levels. Access to short-term debt markets has been reliable, and investors have had a strong demand for debt maturing in one year or less. We believe our liquidity position, as well as that of the System, continued to be strong during the first six months of 2026.
Liquidity Management and Regulatory Requirements
We manage liquidity risk by ensuring compliance with our regulatory liquidity requirements and regularly monitoring other metrics.
The Finance Agency establishes the expectations with respect to the maintenance of sufficient liquidity without access to the capital markets for a specified number of days and generally assumes that all Advance maturities are renewed. We were in compliance with these liquidity requirements at all times during the first six months of 2026.
The Finance Agency also provides guidance related to asset/liability maturity funding gap limits. Funding gap metrics measure the difference between assets and liabilities that are scheduled to mature during a specified period of time and are expressed as a percentage of total assets. During the six months ended June 30, 2026, we operated within the Finance Agency's asset/liability maturity funding gap limits.
To support our member deposits, we also must meet a statutory deposit reserve requirement. The sum of our investments in obligations of the United States, deposits in eligible banks or trust companies, and Advances with a final maturity not exceeding five years (i.e., eligible deposit reserves) must equal or exceed the current amount of member deposits. At June 30, 2026, we had eligible deposit reserves in excess of our total member deposits.
Operational Risks
There were no material developments regarding our operational risk exposure during the first six months of 2026.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes in the first six months of 2026 to our critical accounting estimates. Our critical accounting estimates are described in detail in our 2025 Annual Report on Form 10-K.
Federal Home Loan Bank of Cincinnati published this content on August 11, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 11, 2026 at 17:23 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]