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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.03pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
+0.01pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.06pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adverse+1
limitation+1
loss+1
critical+1
disaster+1
Positive rising
enhancements+1
Risk Factors (Item 1A)
5,244 words
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
disclosed+2
unable+1
circumvention+1
poses+1
Positive rising
stable+2
greatest+1
MD&A (Item 7)
16,619 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion summarizes some of the more important risks that the Bank faces. This discussion is not exhaustive, and there may be other risks that the Bank faces, which are not described below. These risks should be read in conjunction with the other information included in this Report, including, without limitation, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , the Financial Statements and Supplemental Data , and “Special Cautionary Notice Regarding Forward-looking Statements.” The risks described below, if realized, could negatively impact the Bank’s business operations, financial condition, and future results of operations and, among other things, could result in the Bank’s inability to pay dividends on, and/or repurchase or redeem, its capital stock.
Business and Regulatory Risk
A prolongeddownturn in the economy, including the U.S. housing market and related U.S. government monetary policies, could adversely affect the Bank’s business activities and results of operations.
The Bank’s business and results of operations are sensitive to the U.S. economy and the U.S. housing market. A prolonged period of slow growth in the U.S. economy, deterioration in general economic conditions, or a downturn in the housing market could adversely affect the Bank’s members, particularly those whose businesses are concentrated in the mortgage industry. For example, if home prices decline, the value of collateral securing member credit to the Bank may decline, which could in turn increase the possibility of under-collateralization and the risk of loss if the Bank member defaults. Deterioration in the residential or commercial mortgage markets could also affect the value of collateral securing the Bank’s assets increasing the risk of loss due to credit impairment. Negative trends, volatility and uncertainty in global economic and political conditions can significantly affect U.S. economic conditions and financial markets and could influence business activities, member borrowing activity, and the Bank’s lending and investment patterns.
In addition, the Bank’s businesses and results of operations could be significantly affected by the monetary and fiscal policies of the U.S. government and its agencies, including the Federal Reserve and the U.S. Treasury. The Federal Reserve Board’s policies directly and indirectly influence interest rates on our assets and liabilities and could adversely affect the demand for advances and for consolidated obligations as well as the financial condition and results of operations of the Bank.
The Bank is subject to a complex body of laws and regulations, which could change or be applied in a manner detrimental to the Bank’s operations.
The FHLBanks are GSEs, organized under the authority of the FHLBank Act, and governed by federal laws and regulations as adopted and applied by the FHFA. Congress may amend the FHLBank Act or amend or adopt other statutes in ways that significantly affect the rights and obligations of the FHLBanks and the way the FHLBanks carry out their housing finance mission and business operations. FHFA, within its statutory authority, may issue regulations that impact the Bank’s securities, businesses and/or operations. New or modified legislation enacted by Congress or changes to regulatory requirements applied or imposed by the FHFA or other financial services regulators could have a negative effect on the Bank’s debt securities, ability to conduct business and on the cost of doing business. Reform of the federal support of U.S. housing finance and changes to requirements impacting FHLBank members, including capital requirements, asset composition tests and collateralization of advances, may, if implemented, directly and indirectly impact FHLBanks and other GSEs that support the U.S. housing market. Legislation and regulations affecting the Bank’s investors, dealers of consolidated obligations, and Bank’s members, including related to capital, liquidity and asset requirements may also potentially impact the Bank’s business and earnings ability. Changes to valuation methods of Bank-issued debt securities and its collateralization by Bank members, and other measures
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targeting Fannie Mae and Freddie Mac, including an end to the ongoing conservatorship of those institutions by the FHFA, may, if implemented, directly and indirectly impact FHLBanks and other GSEs that support the U.S.
Changes or inconsistency in statutory or regulatory requirements, or their application, could result in an increase in the Bank’s cost of funding and regulatory compliance, a change in membership or permissible business activities, Bank’s or member additional liquidity and capital requirements, and/or a decrease in the size, scope, or nature of the Bank’s lending or investment activities, any of which could negatively impact the Bank’s financial condition and results of operations.
The Bank notes continuing developments in the FHFA and the current federal executive administration’s areas of focus and regulatory priorities that may result in potential changes in the Bank’s regulatory environment , including without limitation, as discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments . The Bank cannot predict changes in legislative or regulatory requirements or guidance or the effect of any new legislation or regulations, or how they might impact the Bank’s business or operations. The Bank also cannot predict the federal executive administration’s or the FHFA actions on U.S. housing finance and GSEs, including actions taken relating to large institutional investor purchases of single family homes, actions regarding the revision or end of conservatorships of Fannie Mae and Freddie Mac or potential reforms or enhancements to their capital structure, the imposition of new requirements or limitations on their existing authorities or changes in the nature of their government backed guarantees, or any corresponding impacts to the FHLBank System, the secondary mortgage and mortgage-backed securities market, or the mortgage industry. Any such changes, as well as any resulting increased scrutiny of the Bank and the FHLBank System and its mission and activities, however, could materially affect the Bank’s business operations, results of operations and reputation, and the value of FHLBank membership.
Competition for advances and refinancing risk on short-term advances could have an adverse effect on earnings.
The Bank operates in a highly competitive environment. Advances are the Bank’s primary product offering and represented 65.0 percent of the Bank’s total assets for the year ended December 31, 2025. Demand for advances is affected by, among other factors, the cost and availability of other sources of liquidity for the Bank’s members, including deposits. The Bank competes with other suppliers of wholesale funding, both secured and unsecured. Such other suppliers may include the U.S. government, investment banks, commercial banks and, in certain circumstances, other FHLBanks with which members have a relationship through affiliates. Large institutions may also have independent access to the national and global credit markets. From time to time, these alternative funding sources may offer more favorable lending terms and collateralization practices than the Bank does on its advances. Changes made by the Bank to lower pricing of its advances or to its collateralization practices to compete with these alternative funding sources may decrease the Bank’s profitability on advances, while pricing increases used to help sustain income may render the Bank less competitive. A failure by the Bank to manage pricing could have a material impact on the Bank’s financial condition and results of operations, including dividend yields to members.
The Bank is exposed to risks because of member concentration.
The Bank is subject to member concentration risk as a result of the Bank’s reliance on a relatively small number of member institutions for a large portion of the Bank’s total advances and resulting interest income. The Bank may only accept members within the Bank’s regulatory district that meet regulatory eligibility criteria, which restricts its ability to expand its membership. The Bank’s largest borrower as of December 31, 2025, was Truist Bank, which accounted for $31.5 billion, or 33.1 percent of the Bank’s total advances then outstanding. In addition, as of December 31, 2025, 10 of the Bank’s member institutions (which includes Truist Bank) collectively accounted for $68.7 billion, or 72.3 percent, of the Bank’s total advances then outstanding. The financial services industry continues to experience consolidation, which may impact Bank’s members. If one or more of the Bank’s largest borrowers ceased membership, or if the Bank were to experience a decrease in the amount of business with one or more of its largest borrowers, whether as the result of a merger or other transaction that displaces advance demand, or as a result of other market conditions, competition or otherwise, the Bank’s financial condition and results of operations could be negatively affected.
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Liquidity Risk
The Bank’s funding depends upon its ability to regularly access the capital markets.
The Bank’s primary source of funds is from the sale of consolidated obligations in the capital markets, including the short-term discount note market. The Bank’s ability to obtain funds through the sale of consolidated obligations depends in part on prevailing conditions in the capital markets (including investor demand), such as the effects of any reduced liquidity in financial markets, which are beyond the Bank’s control. The failure to obtain such funds on terms and conditions favorable to the Bank could adversely impact the Bank’s ability to manage its liquidity. Moreover, i f the Bank is unable to issue consolidated obligations and other sources of contingent liquidity were either not available or were not available in sufficient quantities, the Bank’s ability to meet its obligations, including meeting members’ demand for funding, and otherwise conduct its operations would be compromised.
The Bank also competes with Fannie Mae, Freddie Mac, other GSEs, and the U.S. Treasury, as well as corporate and supranational entities for funds raised through the issuance of debt. Increases in the supply of competing debt products may, in the absence of increased investor demand, result in higher debt costs, which could negatively affect the Bank’s financial condition and results of operations.
Compliance with regulatory contingency liquidity requirements could restrict investment activities and adversely impact net interest income.
Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called consolidated obligations, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, so the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank complies with regulatory liquidity requirements, which are designed to provide sufficient liquidity and to protect against temporary disruptions in the capital markets that affect the FHLBank System's access to funding. Additionally, the FHFA increased liquidity contingency requirements aimed at enabling the Bank to provide advances and letters of credit for members during a sustained capital markets disruption and which therefore may require the Bank to hold an increased amount of liquid assets, which could hinder the Bank’s ability to meet its core mission asset ratio, and could reduce the Bank’s ability to invest in higher-yielding assets and adversely impact net interest income. Refer to Item 1. Business. Overview for further discussion of the Bank’s core mission asset ratio .
Market Risk
Changes in interest rates or an inability to successfully manage interest-rate risk could have a significant adverse effect on the Bank’s earnings.
Like many financial institutions, the Bank realizes income primarily from the spread between interest earned on the Bank’s outstanding advances and investments and interest paid on the Bank’s borrowings and other liabilities. Although the Bank uses a number of measures to monitor and manage changes in interest rates, the Bank may experience “gaps” in the interest-rate sensitivities of its assets and liabilities resulting from duration mismatches and the unpredictability of the financial markets. The existence of gaps in interest-rate sensitivities means that either the Bank’s interest-bearing liabilities will be more sensitive to changes in interest rates than its interest-earning assets, or vice versa. In either case, if interest rates move contrary to the Bank’s position, any such gap could adversely affect the net present value of the Bank’s interest-sensitive assets and liabilities, which could negatively affect the Bank’s financial condition and results of operations.
The Bank’s businesses and results of operations are affected by the fiscal and monetary policies of the U.S. government, foreign governments and their agencies. The Federal Reserve Board’s policies directly and indirectly influence interest rates and the yield on the Bank’s interest-earning assets and the cost of interest-bearing liabilities, and Bank’s cost of funding, which could affect the success of the Bank’s asset and liability management activities and negatively affect the Bank’s financial condition and results of operations. In addition, the FHLBanks currently play a predominant role as lenders in the federal funds market; therefore, disruption in the federal funds market or any related regulatory or policy change may adversely affect the Bank’s cash management activities, results of operations, and reputation. Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net Interest Income for further discussion of the Bank’s yield on assets and interest-rate spread.
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The Bank relies upon derivative instruments to reduce its interest-rate risk associated with certain assets and liabilities on the Bank's balance sheet, including MBS and advances, and the Bank may be required to change its investment strategies and advance product offerings if it is not able to enter into effective derivative instruments on acceptable terms.
The Bank uses derivative instruments to attempt to reduce its interest-rate risk. The Bank determines the nature and quantity of hedging transactions based on various factors, including market conditions and the expected volume and terms of advances. As a result, the Bank's effective use of these instruments depends on the ability of the Bank to determine the appropriate hedging positions in light of the Bank's assets, liabilities, and prevailing and anticipated market conditions. In addition, the effectiveness of the Bank's hedging strategy depends upon the Bank's ability to enter into these instruments with acceptable parties, upon terms satisfactory to the Bank, and in the quantities necessary to hedge the Bank's corresponding financial instruments.
If the Bank is unable to manage its hedging positions properly or is unable to enter into hedging instruments on acceptable terms, the Bank may be unable to manage its interest-rate and other risks or may be required to change its investment strategies and advance product offerings, which could affect the Bank's financial condition and results of operations. The Bank’s financial condition and results of operations could also be adversely affected if derivative counterparties or clearing participants to whom the Bank has exposure fail.
Prepayment or refinancing of mortgage assets could affect earnings.
The Bank invests in MBS and has at times invested in whole mortgage loans. Changes in interest rates can significantly increase prepayment and the velocity of prepayment of these assets, which could affect the Bank’s earnings. In the Bank’s experience, it is difficult to hedge prepayment risk in mortgage loans. Therefore, prepayments of mortgage assets could have an adverse effect on the income of the Bank.
The Bank may not be able to pay dividends or to repurchase or redeem members’ capital stock consistent with past practice.
The Bank’s board of directors may declare dividends on the Bank’s capital stock, payable to members, from the Bank’s unrestricted retained earnings and current net earnings. The Bank’s ability to pay dividends and to repurchase or redeem capital stock is subject to compliance with statutory and regulatory liquidity and capital requirements. The Bank’s financial management policy addresses regulatory guidance issued to all FHLBanks regarding retained earnings. It requires the Bank to establish a target amount of retained earnings by considering factors such as forecasted income, mark-to-market adjustments on derivatives, market risk, operational risk, and credit risk, all of which may be influenced by events beyond the Bank’s control. The Bank’s capital plan addresses minimum regulatory capital requirements. Events such as changes in interest rates, collateral value, credit quality of members, changes to regulatory capital requirements, and any future credit losses, may affect the adequacy of the Bank’s retained earnings and may require the Bank to reduce its dividends, suspend dividends altogether, or limit capital stock repurchases and redemptions to achieve and maintain the targeted amount of retained earnings or regulatory capital requirements. These actions could cause a reduction in members’ demand for advances or make it difficult for the Bank to retain existing members or to attract new members.
Credit Risk
The Bank’s exposure to credit risk from secured and unsecured transactions could have an adverse effect on the Bank’s financial condition and results of operations .
The Bank faces credit risk on advances, standby letters of credit, investments, derivatives, and mortgage loan assets. The Bank requires advances and standby letters of credit to be fully secured with eligible collateral. The Bank evaluates the types of collateral pledged by the member and assigns a borrowing capacity to the collateral, based on the risk associated with that type of collateral. If the Bank has insufficient collateral or is unable to liquidate the collateral for the value assigned to it upon payment default or failure of a member, the Bank could experience a credit loss on advances or standby letters of credit, which could adversely affect its financial condition and results of operations.
The Bank assumes secured and unsecured credit risk exposure associated with securities transactions, money market transactions, supplemental mortgage insurance agreements, and derivative contracts. The Bank routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. The insolvency or other inability of a significant counterparty to perform its obligations under a derivative contract or other agreement could have an adverse effect on the Bank’s financial condition and results of operations. The Bank’s credit risk may be exacerbated based on market movements that impact the value of the derivative or collateral
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positions, the failure of a counterparty to return collateral to the Bank, or when the collateral pledged to the Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to the Bank. Any failure to properly perfect the Bank’s security interest in collateral or any disruption in the servicing of collateral in the event of a default could create credit losses for the Bank.
The Bank uses master derivative contracts that contain provisions that require the Bank to net the exposure under all transactions with a counterparty to one amount in order to calculate collateral requirements. Primary exposures to institutional counterparty credit risk are with unsecured money market transactions, including federal funds sold, or short-term investments with domestic and foreign counterparties; derivative counterparties, including Derivative Clearing Organizations and Futures Commission Merchants; and mortgage servicers that service loans purchased under the MPF Program and the Bank’s MPP. The Bank has both direct and indirect exposure to foreign credit risk through their various counterparties. Adverse economic, political, or other trends that may occur within, across, or among various regions or countries could have direct adverse effects on a Bank’s institutional counterparties and on the U.S. economy. Although the Bank attempts to monitor the creditworthiness of all counterparties, it is possible that the Bank may not be able to terminate a master contract with a foreign commercial bank before the counterparty would become subject to an insolvency proceeding.
The Bank is jointly and severally liable for payment of principal and interest on the consolidated obligations issued by the other FHLBanks
Each of the FHLBanks relies upon the issuance of consolidated obligations as a primary source of funds. Consolidated obligations are the joint and several obligations of all the FHLBanks, backed only by the collective financial resources of the FHLBanks. Accordingly, the Bank is jointly and severally liable with the other FHLBanks for the consolidated obligations issued by the FHLBanks through the Office of Finance.
Although it has never occurred, the FHFA may at any time, pursuant to regulation, order an FHLBank to make principal or interest payments due on any consolidated obligation, including of another FHLBank. Pursuant to other arrangements to which the Bank is bound by, an FHLBank may be required to make payment of principal or interest payments due on any consolidated obligation of any other FHLBank upon failure of such FHLBank to meet an obligation. Although the Bank would be entitled to reimbursement from a non-complying FHLBank, the Bank could incur significant liability beyond its primary obligation under consolidated obligations which could negatively impact the Bank’s financial condition and results of operations.
Changes in the Bank’s credit ratings may adversely affect the Bank’s ability to issue consolidated obligations on acceptable terms, and such changes may be outside the Bank’s control due to changes in the U.S. sovereign ratings.
As of December 31, 2025, the Bank has an issuer credit rating of Aaa/P-1 by Moody's Investors Service (Moody’s) and AA+/A-1+ by Standard and Poor's Ratings Services (S&P). The consolidated obligations of the FHLBanks (consolidated bonds and consolidated discount notes) carry credit ratings of AA+/A-1+ by S&P and Aa1/P-1 by Moody’s with stable outlooks. Because of the FHLBanks’ GSE status, the credit ratings of the FHLBank System and the FHLBanks are directly influenced by the sovereign credit of the U.S., which is beyond the Bank’s control. Downgrades or changes in outlook to the U.S. sovereign credit rating have in the past and would likely result in downgrades in the credit ratings and outlook on the Bank and the consolidated obligations of the FHLBanks even though the consolidated obligations are not obligations of the United States. If the U.S. fails to address, based on the credit rating agencies’ criteria, its statutory debt ceiling in a timely manner and continued uncertainty persists relating to the debt limit, these factors individually or collectively could increase the possibility of potential credit-rating downgrades to the U.S. sovereign credit.
These ratings are subject to revision or withdrawal at any time by the rating agencies; therefore, the Bank may not be able to maintain these credit ratings. Negative ratings actions or negative guidance for the Bank, including as a consequence of U.S. debt levels, the U.S. fiscal budget process, and other uncertainties may adversely affect the Bank’s cost of funding and ability to issue consolidated obligations or other financial instruments on acceptable terms, trigger additional collateral requirements under the Bank’s derivative contracts, and reduce the attractiveness of the Bank’s standby letters of credit. This could have a negative impact on the Bank’s financial condition and results of operations, including the Bank’s ability to make advances on acceptable terms, pay dividends, or redeem or repurchase capital stock.
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Operational Risk
The financial models and the underlying assumptions used to value financial instruments and manage risk may materially differ from actual results.
The Bank makes significant use of business and financial models for managing risk. For example, the Bank uses models to measure and monitor exposures to various risks, including interest rate, prepayment, and other market risks, as well as credit risk. The Bank also uses models in determining the fair value of certain financial instruments when independent price quotations are not available or reliable. The degree of judgment in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. If market quotes are not available, fair values are based on discounted cash flows using market estimates of interest rates and volatility, dealer prices or prices of similar instruments. Pricing models and their underlying assumptions are based on the Bank’s best estimates for discount rates, prepayments, market volatility, and other factors. These assumptions may have a significant effect on the reported fair values of assets and liabilities, including derivatives, the related income and expense, and the expected future behavior of assets and liabilities.
While models used by the Bank to value instruments and measure risk exposures are subject to periodic validation by the Bank’s staff and independent parties, rapid changes in market conditions could impact the value of the Bank’s instruments beyond model forecasts, as well as the Bank’s financial condition and results of operations. Models are inherently imperfect predictors of actual results because they are based on assumptions about future performance. Actual results may differ from modeled results primarily due to the timing, magnitude, and frequency of interest rate changes and changes in market conditions and management strategies. Changes in business or financial models or in any of the assumptions, judgments, or estimates used in the models may also cause the results generated by the model to be materially different from actual results.
The Bank employs various strategies to attempt to manage the risks associated with the use of models. If the models are not reliable or the Bank does not use them appropriately, the Bank could make unintended business decisions, including asset and liability management decisions, which could result in a materially adverse financial impact for the Bank.
The Bank relies heavily upon information systems and other technology. Any disruption, failure, cybersecurity incident or threat of or to the Bank’s information systems or other technology or those of critical vendors and third parties could adversely impact the Bank’s business, reputation, financial condition, or results of operations.
The Bank relies heavily upon its own and third-party information systems, critical vendor services and other technology to conduct and manage its business. The Bank’s information systems rely on certain critical vendors to provide technology solutions. Computer systems, software, and networks can be vulnerable to failures and interruptions, including as the result of any cybersecurity threats or incidents (e.g., unauthorized access, misuse, malware or other malicious code, and other events) or other compromises of security, that may derive from human error or misconduct on the part of employees or third parties, other disruptions during the process of upgrading or replacing computer software or hardware, failure to implement key information technology initiatives, or technological . At times, there may be an increased risk of , including as a result of increased capabilities of artificial intelligence or as a result of geopolitical . These , , or could the confidentiality, availability or of information, including personally identifiable information, result in wire transfers, or otherwise the Bank’s ability to conduct and manage its business effectively, including, without , its deposit account management, hedging activities, and activities. The Bank can make no assurance that it or its third-party vendors will be to prevent, timely and address, or mitigate the effects of any such , , or cybersecurity or .
Like many financial institutions, the Bank has seen an increase in cybersecurity risk and threats that did not materialize, in particular involving attempted phishing and social engineering scams. The Bank’s operations rely on the availability and functioning of its main office and off-site backup facilities. The Bank relies on substantial resources and preventive measures to secure the Bank’s systems, including firewalls, email security, and anti-virus solutions. These measures, or the Bank’s system redundancies and other business continuity measures, may be ineffective or insufficient, and the Bank’s business continuity and disaster recovery planning may not be sufficient for all eventualities. A failure or interruption in the Bank’s business continuity, disaster recovery or certain information systems, or a cybersecurity event, could significantly harm the Bank’s reputation, its customer relations, risk management, and profitability, and could result in financial losses, legal and regulatory sanctions, increased costs, reputation or other . As cybersecurity continue to evolve, the Bank may be required to expend significant additional resources to continue to modify or its information security program, to and remediate any information security , or to comply with regulatory requirements.
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Additionally, the Bank relies on the Office of Finance to facilitate the issuance and servicing of its consolidated obligations. A failure or interruption of the Office of Finance's operating systems or other adverse technology incidents could disrupt the Bank’s access to funds, and could significantly harm the Bank’s reputation, its customer relations and profitability, and could result in financial losses. Refer to Item 1C. Cybersecurity for further discussion of the Bank’s cybersecurity risk management and strategy and governance.
The Bank’s controls and procedures may fail or be circumvented, and risk management policies and procedures may be inadequate.
The Bank may fail to identify and manage risks related to a variety of aspects of its business, including operational risk, legal and compliance risk, interest-rate risk, liquidity risk, market risk, and credit risk. The Bank has adopted controls, procedures, policies, and systems to monitor and manage these risks. The Bank’s management cannot provide complete assurance that those controls, procedures, policies, and systems are adequate to identify and manage the risks inherent in the Bank’s business, at all times. In addition, because the Bank’s business continues to evolve, the Bank may fail to fully understand the implications of changes in the business, and therefore, it may fail to enhance the Bank’s risk governance framework to timely or adequately address those changes. Failed or inadequate controls and risk management practices could have an adverse effect on the Bank’s financial condition and results of operations.
Natural disasters, including those resulting from weather-related events, in the Bank’s region could adversely affect the Bank’s operations, profitability and financial condition.
Portions of the Bank’s district, member and collateral locations are subject to risks from hurricanes, tornadoes, floods, wildfires, drought and other natural disasters. The Bank’s district, member and collateral locations include areas designated as Special Flood Hazard Areas (SFHAs) which are deemed particularly vulnerable. The frequency, intensity, and duration of extreme weather-related disaster events have increased. Natural disasters could disrupt, damage or dislocate the facilities or the underlying business of the Bank or Bank’s members, may damage or destroy collateral that members have pledged to secure advances or the mortgages the Bank holds for portfolio, may impact the livelihood of borrowers of the Bank’s members, or otherwise could cause significant economic dislocation in the affected areas. These disasters can also create imbalances on insurance such as insurance, insurance , premium increases, and insurance availability. Therefore, these situations could the Bank’s operations or the operations of third parties on which the Bank relies and could potentially affect the financial condition and results of operations of the Bank.
The inability to attract and retain skilled key individuals could adversely affect the Bank's business and operations.
The Bank relies on key employees for many of its functions and has a relatively small workforce, given the size and complexity of its business. The Bank’s ability to attract and retain such individuals is important for it to conduct its operations and measure and maintain risk and financial controls. Additionally, the Bank must continue to recruit, retain and motivate qualified employees, both to maintain the Bank’s current business and to execute its strategic initiatives, including succession planning. Like many organizations, the Bank has experienced increased competition in its recruitment and retention of employees. If the Bank is unable to recruit, retain, and motivate such employees, its business and financial performance may be adversely affected.
Each FHLBank’s board of directors has the statutory authority and responsibility to select, employ and fix the compensation of its officers and employees in order to help ensure the hiring and retention of qualified staff. However, as the regulator of the FHLBanks, the FHFA has the authority to determine whether compensation paid to any executive officer or director is in its view not reasonable and comparable with compensation for such services in other similar businesses involving similar duties and responsibilities. Depending on how such authority is exercised, the Bank’s ability to recruit and retain qualified executive officers and directors could be adversely affected.
The following discussion and analysis relates to the Bank’s financial condition as of December 31, 2025 and 2024, and results of operations for the years ended December 31, 2025 and 2024. This section explains the changes in certain key items in the Bank’s financial statements from year to year, the primary factors driving those changes, the Bank’s risk management processes and results, known trends or uncertainties that the Bank believes may have a material effect on the Bank’s future performance, as well as how certain accounting principles affect the Bank’s financial statements. For a discussion on the comparison between
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the results of operations for the years ended 2024 and 2023, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are contained in the Bank’s 2024 Annual Report on Form 10-K, as filed with the SEC on March 7, 2025.
This discussion should be read in conjunction with the Bank’s audited financial statements and related notes for the year ended December 31, 2025 included in Item 8. Financial Statements and Supplementary Data of this Report. Readers also should carefully review “Special Cautionary Notice Regarding Forward-looking Statements” and Item 1A. Risk Factors , for a description of the forward-looking statements in this Report and a discussion of the factors that might cause the Bank’s actual results to differ, perhaps materially, from these forward-looking statements.
Executive Summary
Business Overview
The Bank’s business model is focused on enhancing the total value of the cooperative for its members by serving as their trusted advisor. The Bank is focused on providing value to members by delivering solutions that meet their needs and the communities they serve by enhancing the availability of residential mortgage and community investment credit. The Bank focuses these efforts on offering readily available, competitively priced advances, a potential return on investment, support for community investment activities, and other credit and noncredit products and services. As part of the Bank’s cooperative structure, the Bank has chosen to operate with narrow margins, passing on its low funding costs to members, which causes the Bank’s profitability to be sensitive to changes in market conditions.
The state of the economy and the Bank’s regulatory environment are significant components in determining the Bank’s overall business outlook as they impact advance demand, asset and collateral values, member financial stability, funding costs, and many other facets of the Bank’s operations. External factors such as liquidity levels at member institutions, fiscal and monetary policies, performance of global economies, and regulatory changes could have a significant effect either positive or negative on the Bank’s financial performance.
Interest rates are also a significant factor in the Bank’s business outlook. Changes in interest rates can impact the Bank’s interest rate risk management, profitability, and return on equity (ROE). They can also impact member advance demand, as rate uncertainty can impact deposit levels at the Bank’s members.
Merger activity involving the Bank’s members can impact the Bank’s business outlook. As the financial industry continues to experience consolidation, the Bank’s membership base may decrease, and the Bank’s advance balance and other business could increase or decrease significantly depending upon the size of the financial institutions involved in the merger. While the Bank’s balance sheet is designed to expand and contract based upon advance demand, the Bank is vulnerable to member concentration, as such, the Bank’s business could be affected by this merger activity, including as a result of a single event causing the loss of a member’s business due to acquisition by a non-member.
Financial Condition
The following table presents the Bank’s total assets, total liabilities, and total capital (dollars in millions). These items are discussed in more detail below.
As of December 31,
Change
Amount
Percent
Total assets
Total liabilities
Total capital
• Total assets remained relatively stable compared to December 31, 2024. Advances increased by $9.1 billion, or 10.7 percent, which was offset by a $10.0 billion, or 16.7 percent, decrease in total investments.
• Total liabilities remained relatively stable compared to December 31, 2024.
• Total capital increased primarily due to a $459 million, or 8.93 percent, increase in capital stock primarily due to an increase in advances and a $209 million, or 7.46 percent, increase in retained earnings.
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Results of Operations
The following table presents the Bank’s significant income and expense items for the years presented and provides information regarding the changes during those years (dollars in millions). These items are discussed in more detail below.
Change
For the Years Ended December 31,
Amount
Percent
Amount
Percent
Net interest income
Non-interest income
Non-interest expense
Affordable Housing Program assessment
Net income
• The decrease in net interest income for the year ended December 31, 2025, compared to the same period in 2024 was primarily due to lower interest rates, which impacted income from interest-earning assets more than the expense from interest-bearing liabilities. The impact was partially offset by an increase in average advance and investment balances.
• Average advance balances increased to $100.7 billion for the year ended December 31, 2025, from $98.8 billion for the year ended December 31, 2024.
• The decrease in net income for the year ended December 31, 2025, compared to the same period in 2024 was primarily due to the $109 million decrease in net interest income.
The following table presents the Bank’s significant income ratios for the years presented. These items are discussed in more detail below.
For the Years Ended December 31,
Change
ROE
Average daily SOFR
ROE spread to average daily SOFR
Net yield on interest-earning assets
• The decrease in the ROE for the year ended December 31, 2025, compared to the same period in 2024, was primarily due to a decrease in net income and increase in average total capital outstanding.
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Financial Condition
The following table presents the distribution of the Bank’s total assets, liabilities, and capital (dollars in millions). These items are discussed in more detail below.
As of December 31,
Change
Amount
Percent
of Total
Amount
Percent
of Total
Amount
Percent
Advances
Investment securities
Other investments
Mortgage loans held for portfolio, net
Other assets
Total assets
Consolidated obligations, net:
Discount notes
Bonds
Total consolidated obligations, net
Deposits
Other liabilities
Total liabilities
Capital stock
Retained earnings
Accumulated other comprehensive income
Total capital
* Not meaningful
Advances
T he following table presents the Bank’s advances outstanding by year of maturity and the related weighted-average interest rate (dollars in millions):
As of December 31,
Amount
Weighted-average Interest Rate (%)
Amount
Weighted-average Interest Rate (%)
Due in one year or less
Due after one year through two years
Due after two years through three years
Due after three years through four years
Due after four years through five years
Due after five years through 15 years
Thereafter
Total par value
Deferred prepayment fees
Discounts
Fair value hedging adjustments
Total
Total advances increased by 10.7 percent as of December 31, 2025, compared to December 31, 2024. A significant percentage of advances originated during 2025 and 2024 were short-term advances.
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As of December 31, 2025 and 2024, 35.1 percent and 42.6 percent, respectively, of the Bank’s advances were fixed rate. However, the Bank often simultaneously entered into derivatives with the issuance of advances to convert the rates, in effect, into short-term variable interest rates, primarily based on SOFR. As of December 31, 2025 and 2024, 67.9 percent and 68.3 percent, respectively, of the Bank’s fixed-rate advances were swapped. SOFR-indexed and OIS-indexed advances comprised 78.8 percent and 19.5 percent, respectively of the Bank’s variable-rate advances as of December 31, 2025. The Bank also offers variable-rate advances that may be tied to indices, such as the federal funds rate, prime rate, or constant maturity swap rates.
The Bank’s 10 largest borrowing member institutions had 72.3 percent of the Bank’s total advances outstanding as of December 31, 2025. Further information regarding the Bank’s 10 largest borrowing member institutions and breakdown of their individual advance balances as of December 31, 2025 is contained in Item 1. Business—Credit Products—Advances . The Bank monitors concentration risk and believes it holds sufficient collateral, on a member-specific basis, to secure the advances to all borrowers, including these 10 institutions, and the Bank does not expect to incur any credit losses on these advances.
Investments
The following table presents more detailed information regarding investments held by the Bank (dollars in millions).
As of December 31,
Change
Due in one year or less
Due after one year through five years
Due after five through 10 years
Due after 10 years
Total
Amount
Percent
Investment securities:
Available-for-sale securities:
U.S. Treasury obligations
Mortgage-backed securities:
Government-sponsored enterprises commercial
Total available-for-sale securities
Held-to-maturity securities:
State or local housing agency debt obligations
Government-sponsored enterprises debt obligations
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential
Government-sponsored enterprises residential
Government-sponsored enterprises commercial
Total mortgage-backed securities
Total held-to-maturity securities
Total investment securities
Interest-bearing deposits
Securities purchased under agreements to resell
Federal funds sold
Total other investments
Total investments
Weighted-average yields on (1):
Available-for-sale securities
Held-to-maturity securities
(1) The weighted-average yields on available-for-sale securities and held-to-maturity securities are calculated as the sum of each debt security using the period- end balances multiplied by the coupon rate adjusted by the impact of amortization and accretion of premiums and discounts, divided by the total debt securities in the applicable available-for-sale securities and held-to-maturity securities portfolio.
The FHFA regulations prohibit an FHLBank from purchasing MBS and asset-backed securities if its investment in such securities would exceed 300 percent of the FHLBank’s previous month-end regulatory capital on the day it would purchase the securities. As of December 31, 2025, these investments were 321 percent of the Bank’s regulatory capital. The Bank was in
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compliance with this regulatory requirement at the time of its MBS purchases and is not required to sell any previously purchased MBS. However, the Bank is precluded from purchasing additional MBS until its MBS to regulatory capital declines below 300 percent.
The amount held in other investments varies each day based on the Bank’s liquidity needs as a result of advances demand, the earnings rates, and the availability of high-quality counterparties in the federal funds market.
Mortgage Loans Held for Portfolio
The Bank purchased fixed-rate residential mortgage loans directly from PFIs and through participation in eligible mortgage loans from other FHLBanks. The decrease in mortgage loans held for portfolio from December 31, 2024 to December 31, 2025 was primarily due to the maturity and prepayments of these assets during the year.
The following table presents the Bank’s mortgage loans outstanding by redemption terms (dollars in millions).
As of December 31,
Due in one year or less
Due in one year through five years
Due after five years through 15 years
Thereafter
Total unpaid principal balance
Other adjustment, net (1)
Total mortgage loans held for portfolio
Allowance for credit losses on mortgage loans
Mortgage loans held for portfolio, net
(1) Consists of premiums, discounts, and hedging adjustments.
Members that sold mortgage loans to the Bank were located primarily in the southeastern United States; therefore, the Bank’s conventional mortgage loan portfolio was concentrated in that region as of December 31, 2025 and 2024. The following table presents the percentage of unpaid principal balance of conventional residential mortgage loans held for portfolio for the five largest state concentrations.
As of December 31,
Percent of Total
Percent of Total
Florida
South Carolina
Virginia
Georgia
North Carolina
All other
Total
Deposits
The Bank offers demand and overnight deposit programs to members and qualifying non-members primarily as a liquidity management service. In addition, a member that services mortgage loans may deposit funds in the Bank that are collected in connection with the mortgage loans, pending disbursement of those funds. All the Bank’s deposits are uninsured. For demand deposits, the Bank pays interest at the overnight rate. Most of these deposits represent member liquidity investments, which members may withdraw on demand. Therefore, the total account balance of the Bank’s deposits may fluctuate significantly. As a matter of prudence, the Bank typically invests deposit funds in liquid short-term assets. Member loan demand, deposit flows, and liquidity management strategies influence the amount and volatility of deposit balances carried with the Bank.
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Consolidated Obligations
The Bank funds its assets primarily through the issuance of consolidated obligation bonds and consolidated obligation discount notes. Consolidated obligation issuances financed 91.4 percent of the $146.2 billion in total assets as of December 31, 2025, a slight decrease from the financing ratio of 92.4 percent as of December 31, 2024.
The Bank often simultaneously entered into derivatives with the issuance of fixed-rate consolidated obligation bonds to convert the interest rates, in effect, into short-term variable interest rates, primarily based on SOFR. As of December 31, 2025 and 2024, 92.4 percent and 92.1 percent, respectively, of the Bank’s fixed-rate consolidated obligation bonds were swapped. None of the Bank’s variable-rate consolidated obligation bonds were swapped as of December 31, 2025 and 2024. As of December 31, 2025 and 2024, 89.9 percent and 64.3 percent, respectively, of the Bank’s fixed-rate consolidated obligation discount notes were swapped.
Capital
The FHLBank Act and FHFA regulations specify that each FHLBank must meet certain minimum regulatory capital standards. These regulatory capital requirements, and the Bank’s compliance with these requirements, are presented in detail in Note 9—Capital to the Bank’s 2025 audited financial statements.
Additionally, an FHFA Advisory Bulletin sets forth guidance for each FHLBank to maintain a ratio of at least two percent of capital stock to total assets, measured on a daily average basis at month end. As of December 31, 2025, the Bank was in compliance with this ratio.
Under the Bank’s financial management policy, the Bank’s targets were to maintain (1) a capital-to-assets ratio of 4.50 percent to 6.00 percent; (2) a retained earnings account balance equal to the restricted retained earnings account balance, plus extremely stressed scenario losses; and (3) unrestricted retained earnings greater than the retained earnings target. The Bank believes that daily excess stock repurchases and reasonable quarterly dividends give members greater certainty of a return of their principal or the receipt of a dividend, which in turn may have a positive impact on members’ appetite for advances. The Bank seeks to pay an amount of dividends each quarter that are consistent with an attractive rate of return on capital to its member shareholders relative to an established benchmark after providing for retained earnings as discussed above. The Bank uses SOFR as the benchmark index for its dividend spreads. The Bank’s ability to maintain dividends depends on the Bank’s actual performance, its ability to maintain adequate retained earnings, other factors described in Item 1A. Risk Factors , and the discretion of the Bank’s board of directors. Information about dividends paid by the Bank during 2025, 2024, and 2023, is contained in Note 9—Capital to the Bank’s 2025 audited financial statements.
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Results of Operations
The following is a discussion and analysis of the Bank’s results of operations for the years ended December 31, 2025 and 2024.
Net Interest Income
The primary source of the Bank’s earnings is net interest income. Net interest income equals interest earned on assets (including member advances, mortgage loans, MBS held in portfolio, and other investments), less the interest expense incurred on liabilities (including consolidated obligations, deposits, and other borrowings). Also included in net interest income are miscellaneous related items such as prepayment fees, the amortization of debt issuance discounts, concession fees, and certain derivative instruments and hedging activities related adjustments.
The following table presents key components of net interest income for the years presented (dollars in millions):
For the Years Ended December 31,
Interest income:
Advances
Investments
Mortgage loans
Total interest income
Interest expense:
Consolidated obligations
Interest-bearing deposits
Total interest expense
Net interest income
When an advance is prepaid, the Bank could suffer lower future income if the principal portion of the prepaid advance is reinvested in lower-yielding assets. To protect against this risk, the Bank charges a borrower a prepayment fee when the borrower prepays certain advances before the original maturity, which makes the Bank financially indifferent to a borrower’s decision to prepay an advance. The Bank records prepayment fees net of basis adjustments, which are primarily related to hedging activities included in the carrying value of the advance, as interest income on advances on the Statements of Income.
The following table presents the components of net advances prepayment fees for the years presented (dollars in millions):
For the Years Ended December 31,
Gross amount of prepayment fees received from advance borrowers
Gross amount of prepayment credits paid to advance borrowers
Hedging fair value adjustments on prepaid advances
Other
Net advances prepayment fees
The following tables present the change in interest income and expense due to volume or rate variance for the years ended December 31, 2025, 2024, and 2023 (dollars in millions). The interest-rate spread is affected by the inclusion or exclusion of net interest income or expense associated with the Bank’s derivatives. If the derivatives do not qualify for fair-value hedge accounting under GAAP, the interest income or expense associated with the derivatives is excluded from net interest income and from the calculation of interest-rate spread and is recorded in “Non-interest income.” Amortization associated with hedging-related basis adjustments is also reflected in net interest income, which affects interest-rate spread.
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The net yield on interest-earning assets was 55 basis points, 64 basis points, and 50 basis points for 2025, 2024, and 2023, respectively.
For the Years Ended December 31,
Change due to
Average Balance
Interest
Yield/
Rate
Average Balance
Interest
Yield/
Rate
Volumes (6)
Rate (6)
Net Change
Assets
Interest-bearing deposits (1)
Securities purchased under agreements to resell
Federal funds sold
Investment securities (2)
Advances (3)
Mortgage loans (4)
Loans to other FHLBanks
Total interest-earning assets
Non-interest-earning assets
Total assets
Liabilities and Capital
Interest-bearing deposits (5)
Consolidated obligations, net:
Discount notes
Bonds
Other borrowings
Total interest-bearing liabilities
Non-interest-bearing liabilities
Total capital
Total liabilities and capital
Interest-rate spread
Average interest-earning assets to interest-bearing liabilities
Net yield on interest-earning assets (7)
Changes in net interest income
(1) Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.
(2) Includes available-for-sale securities at amortized cost.
(3) Interest income and average yield include net prepayment fees on advances that were not material for the reported periods.
(4) Nonperforming mortgage loans are included in average balances used to determine average rate.
(5) Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.
(6) Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is calculated as the change in rate multiplied by the
previous volume. The rate/volume change, calculated as the change in rate multiplied by the change in volume, is allocated between volume change and rate
change at the ratio each component bears to the absolute value of its total.
(7) Calculated as interest earnings divided by total-earning assets, with net interest earnings equaling the difference between total interest earned and total
interest paid.
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For the Years Ended December 31,
Change due to
Average Balance
Interest
Yield/
Rate
Average Balance
Interest
Yield/
Rate
Volumes (6)
Rate (6)
Net Change
Assets
Interest-bearing deposits (1)
Securities purchased under agreements to resell
Federal funds sold
Investment securities (2)
Advances (3)
Mortgage loans (4)
Loans to other FHLBanks
Total interest-earning assets
Non-interest-earning assets
Total assets
Liabilities and Capital
Interest-bearing deposits (5)
Consolidated obligations, net:
Discount notes
Bonds
Other borrowings
Total interest-bearing liabilities
Non-interest-bearing liabilities
Total capital
Total liabilities and capital
Interest-rate spread
Average interest-earning assets to interest-bearing liabilities
Net yield on interest-earning assets (7)
Changes in net interest income
(1) Includes amounts recognized for the right to reclaim cash collateral paid under master netting agreements with derivative counterparties.
(2) Includes available-for-sale securities at amortized cost.
(3) Interest income and average yield include net prepayment fees on advances that were not material for the reported periods.
(4) Nonperforming mortgage loans are included in average balances used to determine average rate.
(5) Includes amounts recognized for the right to return cash collateral received under master netting agreements with derivative counterparties.
(6) Volume change is calculated as the change in volume multiplied by the previous rate, while rate change is calculated as the change in rate multiplied by the
previous volume. The rate/volume change, calculated as the change in rate multiplied by the change in volume, is allocated between volume change and rate
change at the ratio each component bears to the absolute value of its total.
(7) Calculated as interest earnings divided by total-earning assets, with net interest earnings equaling the difference between total interest earned and total
interest paid.
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Derivatives and Hedging Activity
As discussed above, net interest income includes components of hedging activity. When hedging relationships qualify for hedge accounting, the interest components of the hedging derivatives will be reflected in interest income or expense. Fair value gains and losses of derivatives and hedged items designated in fair value hedging relationships are also recognized in interest income or interest expense. When a hedging relationship is discontinued, the cumulative fair value adjustment on the hedged item will be amortized into interest income or expense over the remaining life of the asset or liability.
The following tables present the net effect of derivatives and hedging activity on the Bank’s results of operations for the years presented (dollars in millions):
For the Year Ended December 31, 2025
Advances
Investments
Consolidated
Obligation
Bonds
Consolidated
Obligation
Discount
Notes
Total
Net interest income:
Amortization or accretion of hedging activities
Net changes in fair value hedges
Net interest settlements on derivatives (1)
Price alignment amount (2)
Amortization or accretion of inactive hedging relationships
Total effect on net interest income
Effect on non-interest income:
Gains on derivatives not receiving hedge accounting including net interest settlements
For the Year Ended December 31, 2024
Advances
Investments
Consolidated
Obligation
Bonds
Consolidated
Obligation
Discount
Notes
Total
Net interest income:
Amortization or accretion of hedging activities
Net changes in fair value hedges
Net interest settlements on derivatives (1)
Price alignment amount (2)
Amortization or accretion of inactive hedging relationships
Total effect on net interest income
Effect on non-interest income:
Gains on derivatives not receiving hedge accounting including net interest settlements
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For the Year Ended December 31, 2023
Advances
Investments
Consolidated
Obligation
Bonds
Consolidated
Obligation
Discount
Notes
Balance Sheet
Total
Net interest income:
Amortization or accretion of hedging activities
Net changes in fair value hedges
Net interest settlements on derivatives (1)
Price alignment amount (2)
Amortization or accretion of inactive hedging relationships
Total effect on net interest income
Effect on non-interest income:
(Losses) gains on derivatives not receiving hedge accounting including net interest settlements
(1) Represents interest income or expense on derivatives included in net interest income.
(2) This amount is for derivatives for which variation margin is characterized as daily settled contract.
Non-Interest Expense and AHP Assessment
The following table presents non-interest expense and AHP assessment for the years presented (dollars in millions):
For the Years Ended December 31,
Change
Non-interest expense:
Compensation and benefits
Cost of quarters
Other operating expenses
Total operating expenses
Federal Housing Finance Agency and Office of Finance
Voluntary housing and community investment
Other
Total non-interest expense
Affordable Housing Program assessment
Total non-interest expense and AHP assessment
The Bank records statutory AHP assessment expense at a rate of 10 percent of income before assessment, excluding interest expense on mandatorily redeemable capital stock.
In addition to the statutory AHP assessment, the Bank may make voluntary contributions to the AHP or other housing and community initiatives, collectively referred to as voluntary contributions. Beginning in 2024, the Bank set a commitment to attain voluntary contributions at a minimum of five percent of its prior year’s annual income subject to assessment and prior year’s voluntary contributions. Income subject to assessment is defined as the Bank’s net income before assessments, plus interest expense related to mandatorily redeemable capital stock. Voluntary contributions reduce net income subject to assessments, and therefore reduce statutory AHP expense. As such, the Bank has committed to make supplemental voluntary contributions to AHP by an amount that equals what the statutory AHP assessment would be in the absence of these effects.
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The following table presents the calculation of the net income subject to assessment, adjusted for voluntary contributions fulfillment to show how the bank’s supplemental voluntary AHP contribution restores the AHP amounts to 10 percent of the Bank’s earnings absent the Bank’s voluntary commitment fulfillment (dollars in millions):
For the Years Ended December 31,
Net income subject to statutory assessment
Adjustment:
Voluntary housing and community investment recognized in Statements of Income (1)
Supplemental voluntary AHP contributions for the current year (2)
Net income subject to assessment, as adjusted (3)
10 percent of net income subject to assessment, as adjusted
Statutory AHP assessment
Supplemental voluntary AHP contributions for the current year (2)
Total statutory AHP assessment and supplemental voluntary AHP contributions for the current year
(1) Excludes supplemental AHP contributions for the current year.
(2) Equals 10 percent of voluntary housing and community investment.
(3) Represents the calculated amount of earnings that would be available for AHP assessment if the Bank had not made the voluntary contributions,
which reduce net income before assessments which, in turn, reduces the statutory AHP assessment.
The following table presents the calculation of the voluntary contribution target of the Bank (dollars in millions):
For the Years Ended December 31,
Prior year’s net income subject to statutory assessment
Voluntary commitment percentage
Unadjusted voluntary contribution commitment
Adjustment for supplemental voluntary AHP contributions for the prior year
Voluntary contribution commitment target
The following table presents the fulfillment of voluntary contribution target of the Bank (dollars in millions):
For the Years Ended December 31,
Voluntary housing and community investment recognized in Statements of Income
Supplemental voluntary AHP contributions for the current year (1)
Voluntary contribution fulfillment
Prior year’s net income subject to statutory assessment
Prior year’s voluntary housing and community investment
Total prior year’s income subject to five percent commitment target
Actual fulfillment percentage (2)
(1) Equals 10 percent of voluntary housing and community investment.
(2) Calculated as voluntary contribution fulfillment divided by total prior year’s income subject to five percent commitment target.
Refer to Note 8—Affordable Housing Program and Voluntary Contributions to the Bank’s 2025 audited financial statements for additional information about the Bank’s voluntary programs.
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Additional Financial Data.
The following table presents additional financial data for the last five fiscal years (dollars in millions).
As of or for the Years Ended December 31,
Statements of Condition (as of year end)
Total assets
Advances
Investments (1)
Mortgage loans held for portfolio, net
Consolidated obligations, net (2)
Total capital stock Class B putable
Retained earnings
Accumulated other comprehensive income (loss)
Total capital
Statements of Income (for the year ended)
Net interest income
Standby letters of credit fees
Net income
Performance Ratios (%)
Return on equity (3)
Return on assets (4)
Net yield on interest-earning assets
Interest-rate spread
Regulatory capital ratio (as of year end) (5)
Total average equity to average assets
Dividend payout ratio (6)
(1) Investments consist of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, and securities classified as available-for-sale and held-to-maturity.
(2) The amounts presented are the Bank’s primary obligations on consolidated obligations outstanding. The par value of the other FHLBanks’ outstanding consolidated obligations for which the Bank is jointly and severally liable was as follows (dollars in millions):
December 31, 2025
December 31, 2024
December 31, 2023
December 31, 2022
December 31, 2021
(3) Calculated as net income, divided by average total equity.
(4) Calculated as net income, divided by average total assets.
(5) Regulatory capital ratio is regulatory capital, which does not include accumulated other comprehensive (loss) income, but does include mandatorily redeemable capital stock, as a percentage of total assets as of year end.
(6) Calculated as dividends declared during the year, divided by net income during the year.
Liquidity and Capital Resources
Liquidity is necessary to satisfy members’ borrowing needs on a timely basis, repay maturing and called consolidated obligations, and meet other obligations and operating requirements. Many members rely on the Bank as a source of standby liquidity, so the Bank attempts to be in a position to meet member funding needs on a timely basis. The Bank is required to maintain liquidity in accordance with the FHLBank Act, FHFA regulations, and policies established by the Bank’s management and board of directors. In addition, the FHFA, at times, has issued guidance and expectations to the FHLBanks related to liquidity.
Sources of Liquidity
The Bank’s principal source of liquidity is consolidated obligation debt instruments. To provide additional liquidity, the Bank also may use other short-term borrowings, such as federal funds purchased, securities sold under agreements to repurchase, and
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loans from other FHLBanks. The Bank’s consolidated obligations are not obligations of the U.S. and are not guaranteed by either the U.S. or any government agency, but have historically received the same credit rating as the government bond credit rating of the United States. As a result, the Bank generally has comparatively stable access to funding through a diverse investor base at relatively favorable spreads to U.S. Treasury rates. The Bank’s income and liquidity would be adversely affected if it were not able to access the capital markets at competitive rates for an extended period.
The Bank’s short-term funding is generally driven by member advance demand and is achieved through the issuance of consolidated discount notes and short-term consolidated bonds. Access to short-term debt markets has been reliable because investors, driven by increased liquidity preferences and risk aversion, including the effects of SEC money market fund reforms, have often sought the Bank’s short-term debt as an asset of choice.
The Bank is focused on maintaining an adequate liquidity balance and a funding balance between its financial assets and financial liabilities. The Bank monitors the funding balance between financial assets and financial liabilities and is committed to prudent risk management practices. In managing and monitoring the amounts of assets that require refunding, the Bank considers contractual maturities of its financial assets, as well as certain assumptions regarding expected cash flows (i.e., estimated prepayments and scheduled amortizations). External factors including Bank member borrowing needs, supply and demand in the debt markets, and other factors may also affect the liquidity balances and the funding balance between financial assets and financial liabilities.
Contingency plans are in place that prioritize the allocation of liquidity resources in the event of operational disruptions at the Bank or the Office of Finance. Under the FHLBank Act, the Secretary of Treasury has the authority, at their discretion, to purchase consolidated obligations up to an aggregate amount of $4.0 billion. No borrowings under this authority have been outstanding since 1977.
Liquidity Reserves for Deposits
FHFA regulations require the Bank to hold a total amount of obligations of the United States, deposits in eligible banks or trust companies, or advances with maturities not exceeding five years, in an amount not less than the amount of total member deposits. The Bank has complied with this requirement throughout 2025.
Operational Liquidity
In order to ensure adequate operational liquidity (generally, the ready cash and borrowing capacity available to meet the Bank’s intraday needs) each day, Bank policy establishes a daily liquidity target based upon member deposit levels and current day liability maturities and asset settlements. The Bank has met this liquidity requirement throughout 2025.
Additional Liquidity Guidance
The FHFA issued an Advisory Bulletin on FHLBank liquidity (Liquidity Guidance AB) that communicates the FHFA’s expectations with respect to the maintenance of sufficient liquidity to enable the Bank to provide advances and standby letters of credit for members during a sustained capital market disruption, assuming no access to capital markets and assuming renewal of all maturing advances for a period of between ten to thirty calendar days. The FHFA periodically issues supervisory letters that identify thresholds for measures of liquidity within the established ranges set forth in the Liquidity Guidance AB.
The Liquidity Guidance AB’s measurements of liquidity include a cash flow scenario, on a daily basis, that projects forward the number of days for which the Bank should maintain positive cash balances, assuming the renewal of all maturing advances and the maintenance of a liquidity reserve for outstanding letters of credit. The measurements of liquidity also include a funding gap measurement of the difference between assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of the Bank’s total assets to reduce the liquidity risks associated with a mismatch in asset and liability maturities, including an undue reliance on short-term debt funding, which may increase debt rollover risk. The Liquidity Guidance AB permits an FHLBank to temporarily decrease its liquidity position, in a safe and sound manner, below the stated regulatory levels, as necessary for providing unanticipated extensions of advances to members or draws on letters of credit to beneficiaries. The Bank has met this liquidity requirement as directed by the FHFA throughout 2025.
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Summary of Cash Flows
The following table presents a summary of net cash provided by (used in) the Bank’s operating, investing, and financing activities (dollars in millions):
For the Years Ended December 31,
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net change in cash and due from banks
The primary drivers that can impact net operating cash flows are fluctuations in net income and changes in certain adjustments to net income which may include amortization, accretion, derivative and hedging activities, and other adjustments. Cash flows related to investing and financing activities primarily relate to providing liquidity for various Bank-related activities. The Bank’s primary uses of liquidity are advance originations and consolidated obligation payments. Other uses of liquidity are investment purchases and dividends.
Off-balance Sheet Commitments
The Bank’s primary off-balance sheet commitments are as follows:
• the Bank’s joint and several liability for all FHLBank consolidated obligations; and
• the Bank’s outstanding commitments arising from standby letters of credit.
As of December 31, 2025, the FHLBanks had $1,151.8 billion in aggregate par value of consolidated obligations issued and outstanding, $134.1 billion of which was attributable to the Bank. Should an FHLBank be unable to satisfy its payment obligation under a consolidated obligation for which it is the primary obligor, any of the other FHLBanks, including the Bank, can be called upon to repay all or any part of such payment obligation, as determined or approved by the FHFA. No FHLBank has ever defaulted on its principal or interest payments under any consolidated obligation, and the Bank has never been required to make payments under any consolidated obligation because of the failure of another FHLBank to meet its obligations. As of December 31, 2025 and 2024, the FHFA was not required to allocate any obligation among the FHLBanks and the Bank currently believes the likelihood it would have to pay any amounts beyond those for which it is primarily liable is remote. Accordingly, the Bank has not recognized a liability for its joint and several obligations related to other FHLBanks’ consolidated obligations as of December 31, 2025 and 2024.
The Bank generally requires standby letters of credit to contain language permitting the Bank, upon annual renewal dates and prior notice to the beneficiary, to choose not to renew the standby letter of credit, which effectively terminates the standby letter of credit prior to its scheduled final expiration date. Based on the creditworthiness of the member applicant and appropriate additional fees, the Bank may issue standby letters of credit that have terms longer than one year without annual renewals or that have no stated maturity and are subject to renewal on an annual basis.
Commitments to extend credit, including standby letters of credit, are agreements to lend. The Bank issues a standby letter of credit on behalf of a member in exchange for a fee. A member may use these standby letters of credit to facilitate a financing arrangement. Management regularly reviews its standby letter of credit pricing in light of several factors, including the Bank’s potential liquidity needs related to draws on its standby letters of credit. Based on management’s credit analyses and collateral requirements, the Bank did not deem it necessary to have an allowance for credit losses for these unfunded standby letters of credit as of December 31, 2025.
Refer to Note 14—Commitments and Contingencies to the Bank’s 2025 audited financial statements for more information about the Bank’s outstanding standby letters of credit.
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Critical Accounting Estimates
The preparation of the Bank’s financial statements in accordance with GAAP requires management to make a number of judgments and assumptions that impacts the Bank’s financial condition and results of operations. Several of the Bank’s accounting estimates are inherently subject to valuation assumptions and other subjective assessments and are more critical than others to the Bank’s results. The critical accounting estimates relating to the fair value measurement of interest-rate related derivatives and associated hedged items are generally considered to be the most critical because it requires management’s subjective and complex judgments about matters, including forward interest-rate assumptions, that are inherently uncertain. 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. Actual results could differ materially from these estimates under different assumptions or conditions.
Derivative instruments are carried at fair value on the Statements of Condition. Any change in the fair value of a derivative is recorded each period in current period earnings. Therefore, the assumptions and judgment most critical to the application of this accounting policy are those affecting the estimation of fair values of derivative instruments and the related hedged items, which may have a significant impact on the Bank’s financial condition and results of operations. A majority of the Bank’s derivatives are structured to offset some or all of the risk exposure inherent in its lending, investment, and funding activities. The Bank seeks to utilize hedging techniques that are effective under the hedge accounting requirements; however, in some cases, the Bank has elected to enter into derivatives that are economically effective at reducing risk but do not meet hedge accounting requirements (non-qualifying hedge). Non-qualifying hedges introduce the potential for considerable income variability from period to period. Specifically, a mismatch can exist between the timing of income and expense recognition from assets or liabilities and the income effects of derivative instruments positioned to mitigate market risk and cash flow variability. Therefore, during periods of significant changes in interest rates and other market factors, reported earnings may exhibit considerable variability. The total notional amount of derivatives was $110.0 billion as of December 31, 2025, of which 99.95 percent were designated as hedging instruments, and the fair value of derivative assets and liabilities as of December 31, 2025 was $334 million and $4 million, respectively.
The Bank bases the fair values of derivatives on instruments with similar terms or market prices, when available. However, active markets do not exist for many of the Bank’s derivatives. Consequently, fair values for these instruments are generally estimated using standard valuation techniques such as discounted cash flow analysis, which uses observable market inputs, such as discount rate, forward interest rates, and volatility assumptions. Observable market inputs are actively quoted and can be validated to external sources. Refer to Note 13—Estimated Fair Values to the Bank’s 2025 audited financial statements for further discussion regarding valuation methodologies and primary inputs used to develop the fair value measurement for these instruments.
A hedging relationship is created from the designation of a derivative financial instrument as hedging the Bank’s exposure to changes in the fair value of a financial instrument. Fair value hedge accounting allows for the offsetting fair value of the hedged risk in the hedged item to also be recorded in current period earnings. Perfectlyeffective hedges that use interest-rate swaps as the hedging instrument and that meet certain stringent criteria can qualify for “shortcut” fair value hedge accounting. Shortcut hedge accounting allows for the assumption of no ineffectiveness, which means that the change in fair value of the hedged item can be assumed to be equal to the change in fair value of the derivative. The Bank does not apply shortcut hedge accounting.
For derivative transactions that potentially qualify for long-haul fair value hedge accounting treatment, management must assess how effective the derivatives have been, and are expected to be, in hedging offsetting changes in the estimated fair values attributable to the risks being hedged in the hedged items. Quantitative hedge effectiveness testing is performed at the inception of the hedging relationship and on an ongoing basis for long-haul fair value hedges. The Bank performs testing at hedge inception based on regression analysis of the hypothetical performance of the hedging relationship using historical market data. The Bank then perform regression testing on an ongoing basis using accumulated actual values in conjunction with hypothetical values. For the hedging relationship to be considered effective, results must fall within established tolerances. If the hedge fails effectiveness testing, the hedge no longer qualifies for hedge accounting and the derivative is marked to estimated fair value through current period earnings without any offsetting change in estimated fair value related to the hedged item.
Recently Issued But Not Yet Adopted Accounting Standards
See Note 2—Summary of Significant Accounting Policies to the Bank’s 2025 audited financial statements for a discussion of recently issued but not yet adopted accounting standards.
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Legislative and Regulatory Developments
Certain significant legislative and regulatory actions and developments are summarized below.
The Bank is subject to various legal and regulatory requirements and priorities. Certain actions, regulatory priorities, and areas of focus, such as deregulation, by the federal executive administration have changed and continue to change the regulatory environment. For example, the FHFA repealed the Fair Lending, Fair Housing, and Equitable Housing Finance Plans regulation applicable to the FHLBanks, effective March 9, 2026, citing the federal executive administration’s deregulatory priorities. Furthermore, during 2025, withdrawals and rescissions of certain rules, proposed rules, and advisory, regulatory, or technical guidance, have affected, and likely will continue to affect, certain aspects of the Bank’s business operations. These changes could have impact on the Bank’s financial condition, results of operations, and reputation.
On January 20, 2026, the federal executive administration issued an executive order that seeks to restrict acquisitions by large institutional investors of single-family homes. Among other things, the executive order directs certain agencies, including the FHFA, to issue guidance to (i) prevent agencies and government-sponsored enterprises from providing for, approving, insuring, guaranteeing, securitizing, or facilitating the acquisition by a large institutional investor of a single-family home that could otherwise be purchased by an individual owner-occupant, or disposing of federal assets in a manner that transfers a single-family home to a large institutional investor; and (ii) promote sales to individual owner-occupants, including through anti-circumvention provisions, first-look policies, and disclosure requirements. The executive order also calls for legislative recommendations to codify related policies and directs certain agencies to conduct reviews and consider additional measures to combat speculation by large institutional investors in single-family housing markets. The Bank is unable to predict the nature of the guidance, measures or recommendations, or how each may impact the Bank’s business.
Considering the changes in the regulatory environment, there is uncertainty with respect to the ultimate result of future regulatory actions and the impact they may have on the Bank and the FHLBank System. The Bank continues to monitor these actions as they evolve and to evaluate their potential impact on the Bank. For a discussion of related risks, please refer to Item 1A — Risk Factors .
Risk Management
The Bank’s lending, investment and funding activities, and use of derivative hedge instruments expose the Bank to a number of risks. The Bank’s robust risk management framework is designed to ensure appropriate balance of return for the risks assumed. The Bank’s risk management framework consists of risk governance, risk appetite, and risk management policies. In addition to the established risk appetite and the RMP the Bank is also subject to FHFA regulations and policies regarding risk management.
The Bank’s board of directors and management recognize that risks are inherent to the Bank’s business model and that the process of establishing a risk appetite does not imply that the Bank seeks to mitigate or eliminate all risk. By defining and managing to a specific risk appetite, the board of directors and management ensure that there is a common understanding of the Bank’s desired risk profile, which enhances strategic and tactical decisions. Additionally, the Bank aspires to achievebest practices in governance, ethics, and compliance. and sustain a corporate culture that supports transparency, integrity, and adherence to legal and ethical obligations.
Risk appetite is the level and type of risk the Bank is willing to accept in the pursuit of its mission, business, and strategic objectives. The Bank’s board of directors and management have established a risk appetite statement and risk metrics for controlling and escalating actions based on the following seven continuing objectives that represent the foundation of the Bank’s strategic and tactical planning:
Capital Adequacy - maintain adequate levels of capital components (retained earnings and capital stock) that protect against the risks inherent in the Bank’s business activities and provide sufficient resiliency to withstand potential stressed scenarios.
Market Risk/Earnings - produce a competitive return on equity, while providing attractive and reliable access to funding for advance products, and maintenance of retained earnings in excess of stressed retained earnings targets within a conservative risk management framework.
Liquidity Risk - maintain sufficient liquidity and funding sources to allow the Bank to meet its operational and member liquidity needs under all reasonable economic and operational situations.
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Credit and Concentration Risk - minimize credit losses by managing credit and collateral risk exposures within acceptable parameters. Achieve this objective through data-driven analysis and counterparty-specific analysis (and when appropriate perform member-specific and counterparty specific analysis), monitoring, and verification to ensure appropriate controls and that monitoring is consistent with managing existing credit and collateral risk exposures. Monitor through enhanced reporting any elevated risk concentration and manage and mitigate the increased risk.
Governance/Compliance/Lega l - comply fully with all applicable laws and regulations and manage all legal risks effectively and efficiently.
Mission/Business Model - deliver financial services and consistent access to funds in the size, cost and structure members desire, helping them to manage risk and extend credit in their communities while achieving the Bank’s affordable housing and community development goals and providing value to members through payment of dividends and the repurchasing of excess stock.
Operations - deliver an employee value proposition that allows the Bank to attract, engage, develop and retain staff to meet the evolving needs of the Bank’s key stakeholders and effectively manage enterprise-wide risks. Manage the key risks associated with operational availability and resiliency of critical systems and services, the integrity and security of the Bank's information, and the alignment of technology investment with key business objectives through enterprise-wide risk management practices and governance based on industry standards. Manage the key risks associated with cyber security threats.
The board and management recognize risk and risk producing events are dynamic and ever-present. Accordingly, reporting, analyzing and mitigating risks are paramount to successful corporate governance. The corresponding risk appetite metrics and monitoring analysis are adopted to reflect the board’s risk appetite statement and the appropriate thresholds that will trigger action and reporting.
The RMP also governs the Bank’s approach to managing the above risks. The Bank’s board of directors reviews the RMP annually and approves amendments to the RMP from time to time as necessary. To promote compliance with the RMP, the Bank has established internal management committees to provide oversight of these risks. The Bank produces a comprehensive risk assessment report on an annual basis that is reviewed by the board of directors.
Market Risk
General
The Bank is exposed to market risk because changes in interest rates and spreads can have a direct effect on the value of the Bank’s assets and liabilities. As a result of the volume of its interest-earning assets and interest-bearing liabilities, the interest-rate risk component of market risk has the greatest impact on the Bank’s financial condition and results of operations.
Interest rates are impacted by various factors, including the economic environment and other aspects affecting the financial and banking industry.
Interest-rate risk represents the risk that the aggregate market value or estimated fair value of the Bank’s asset, liability, and derivative portfolios will decline as a result of interest-rate volatility or that net earnings will be affected significantly by interest-rate changes. Interest-rate risk can occur in a variety of forms including repricing risk, yield-curve risk, basis risk, and option risk. The Bank faces repricing risk whenever an asset and a liability reprice at different times and with different rates, resulting in interest-margin sensitivity to changes in market interest rates. Yield-curve risk reflects the possibility that changes in the shape of the yield curve may affect the market value of the Bank’s assets and liabilities differently because a liability used to fund an asset may be short-term, while the asset is long-term, or vice versa. Basis risk occurs when yields on assets and costs on liabilities are based on different bases, such SOFR versus the Bank’s cost of funds. Different bases can move at different rates or in different directions, which can cause erratic changes in revenues and expenses. Option risk is presented by the optionality that is embedded in some assets and liabilities. Mortgage assets represent the primary source of option risk.
The primary goal of the Bank’s interest-rate risk measurement and management efforts is to control the above risks through prudent asset-liability management strategies so that the Bank may provide members with dividends that are consistently competitive with existing market interest rates on alternative short-term and variable-rate investments. The Bank attempts to manage interest-rate risk exposure by using appropriate funding instruments and hedging strategies. Hedging may occur at the
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micro level, for one or more specifically identified transactions, or at the macro level. Management evaluates the Bank’s macro hedge position and funding strategies on a daily basis and makes adjustments, as necessary.
The Bank measures its potential market risk exposure in a number of ways. These include asset, liability, and equity duration analyses; and earnings forecast scenario analyses that reflect repricing gaps. The Bank establishes tolerance limits for these financial metrics and uses internal models to measure each of these risk exposures at least monthly.
Use of Derivatives
The Bank enters into derivatives to reduce the interest-rate risk exposure inherent in otherwise unhedged assets and funding positions and attempts to do so in the most cost-efficient manner. The Bank does not engage in speculative trading of these instruments. The Bank’s derivative positions may include interest-rate swaps, options, swaptions, interest-rate cap and floor agreements, and forward contracts. These derivatives are used to adjust the effective maturity, repricing frequency, or option characteristics of financial instruments to achieve risk-management objectives. Within its risk management strategy, the Bank uses derivative financial instruments in the following two ways:
• As a fair-value hedge of an underlying financial instrument or a firm commitment.
For example, the Bank uses derivatives to reduce the interest-rate net sensitivity of consolidated obligations, advances, and investments by, in effect, converting them to a short-term interest rate. The Bank also uses derivatives to manage embedded options in assets and liabilities and to hedge the market value of existing assets and liabilities. The Bank’s management reevaluates its hedging strategies from time to time and may change the hedging techniques used or adopt new strategies as deemed prudent.
• As an asset-liability management tool, for which hedge accounting is not applied (non-qualifying hedge).
The Bank may enter into derivatives that do not qualify for hedge accounting. As a result, the Bank recognizes the change in fair value and interest income or expense of these derivatives in the “Non-interest income” section of the Statements of Income with no offsetting fair-value adjustments of the hedged asset, liability, or firm commitment. Consequently, these transactions can introduce earnings volatility.
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The following table presents the notional amounts of derivative financial instruments (dollars in millions). The category “Fair value hedges” represents hedge strategies for which hedge accounting is achieved. The category “Non-qualifying hedges” represents hedge strategies for which the derivatives are not in designated hedging relationships that formally meet the hedge accounting requirements under GAAP.
Converts the advance’s fixed rate to a variable-rate index and offsets option risk in the advance.
Fair value
hedges
Pay fixed with embedded features, receive variable interest-rate swap (non-callable)
Reduces interest-rate sensitivity and repricing gaps by converting the advance’s fixed rate to a variable-rate index and/or offsets embedded option risk in the advance.
Fair value
hedges
Total
Investments
Pay fixed, receive variable interest-rate swap
Converts the investment’s fixed rate to a variable-rate index.
To offset interest-rate swaps executed with members by executing interest-rate swaps with derivatives counterparties.
Non-qualifying
hedges
Total notional amount
Interest-rate Risk Exposure Measurement
The Bank measures interest-rate risk exposure by various methods. The primary methods used are (1) calculating the effective duration of assets, liabilities, and equity under various scenarios; and (2) calculating the theoretical market value of equity. Effective duration, normally expressed in years or months, measures the price sensitivity of the Bank’s interest-bearing assets and liabilities to changes in interest rates. As effective duration lengthens, market-value changes become more sensitive to interest-rate changes. The Bank employs sophisticated modeling systems to measure effective duration.
Effective duration of equity aggregates the estimated sensitivity of market value for each of the Bank’s financial assets and liabilities to changes in interest rates. Effective duration of equity is computed by taking the market value-weighted effective duration of assets, less the market value-weighted effective duration of liabilities, and dividing the remainder by the market value of equity. Market value of equity is not indicative of the market value of the Bank as a going concern or the value of the
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Bank in a liquidation scenario. An effective duration gap is the measure of the difference between the estimated effective durations of portfolio assets and liabilities and summarizes the extent to which the estimated cash flows for assets and liabilities are matched, on average, over time and across interest-rate scenarios.
A positiveeffective duration of equity or a positiveeffective duration gap results when the effective duration of assets is greater than the effective duration of liabilities. A negativeeffective duration of equity or a negativeeffective duration gap results when the effective duration of assets is less than the effective duration of liabilities. A positiveeffective duration of equity or a positiveeffective duration gap generally indicates that the Bank has some exposure to interest-rate risk in a rising rate environment, and a negativeeffective duration of equity or a negativeeffective duration gap generally indicates some exposure to interest-rate risk in a declining interest-rate environment. Higher effective duration numbers, whether positive or negative, indicate greatervolatility of market value of equity in response to changing interest rates.
Bank policy requires the Bank to maintain its effective duration of equity within a range of plus five years to minus five years, assuming current interest rates, and within a range of plus seven years to minus seven years, assuming an instantaneous parallel increase or decrease in market interest rates of 200 basis points.
The following table presents the Bank’s effective duration exposure measurements as calculated in accordance with Bank policy (in years). The Bank’s effective duration exposure measurements as of December 31, 2024 have been updated from the values previously disclosed due to model input updates.
As of December 31,
Down 200 Basis
Points
Base Case
Up 200 Basis Points
Down 200 Basis
Points
Base Case
Up 200 Basis Points
Assets
Liabilities
Equity
Effective duration gap
The Bank uses both sophisticated computer models and an experienced professional staff to measure the amount of interest-rate risk in the balance sheet, thus allowing management to monitor the risk against policy and regulatory limits. Management regularly reviews the major assumptions and methodologies used in the Bank’s models and will make adjustments to the Bank’s assumptions and methodologies in response to rapid changes in economic conditions.
The prepayment risk in both advances and investment assets can significantly affect the Bank’s effective duration of equity and effective duration gap. Current regulations require the Bank to mitigate advance prepayment risk by establishing prepayment fees that make the Bank financially indifferent to a borrower’s decision to prepay an advance unless the advance contains explicit par value prepayment options. Bank policy establishes these prepayment fees.
The prepayment options embedded in mortgage loan and mortgage security assets may shorten or lengthen both the actual and expected cash flows when interest rates change. Current FHFA policies limit this source of interest-rate risk by limiting the types of MBS the Bank may own to those with defined estimated average life changes under specific interest-rate shock scenarios. These limits do not apply to mortgage loans purchased from members. The Bank typically hedges mortgage prepayment uncertainty by using callable debt as a funding source and by using interest-rate cap, floor, and swaption transactions. The Bank also uses derivatives to reduce effective duration and option risks for investment securities other than MBS. Effective duration and option risk exposures are measured on a regular basis for all investment assets under alternative rate scenarios.
The Bank also analyzes its interest-rate risk and market exposure by evaluating the theoretical market value of equity. The market value of equity represents the net result of the present value of future cash flows discounted to arrive at the theoretical market value of each balance sheet item. By using the discounted present value of future cash flows, the Bank is able to factor in the various maturities of assets and liabilities, similar to the effective duration analysis discussed above. The difference between the market value of total assets and the market value of total liabilities is the market value of equity. A more volatile market value of equity under different shock scenarios tends to result in a higher effective duration of equity, indicating increased sensitivity to interest rate changes.
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The following table presents the Bank’s market value of equity measurements as calculated in accordance with Bank policy (dollars in millions). The Bank’s market value of equity measurements as of December 31, 2024 have been updated from the values previously disclosed due to model input updates.
As of December 31,
Down 200 Basis
Points
Base Case
Up 200 Basis Points
Down 200 Basis
Points (1)
Base Case
Up 200 Basis Points
Assets
Liabilities
Equity
Under the Bank’s RMP, the Bank’s market value of equity must not decline by more than 15 percent, assuming an immediate, parallel, and sustained interest-rate shock of 200 basis points in either direction.
If effective duration of equity or market value of equity is approaching the boundaries of the Bank’s RMP ranges, management will initiate remedial action or review alternative strategies at the next meeting of the board of directors or appropriate committee thereof.
The scenarios above generally include numerous assumptions, including those related to changes in the balance sheet, interest rates, and prepayment trends. Such assumptions may change through time as a result of a host of factors, including changes in the balance sheet as well as the interest-rate environment. The modeling process is performed in a manner consistent with the Bank’s policies and procedures with results reviewed on an on-going basis by the Bank. While all of the above estimates are reflective of the general interest-rate sensitivity of the Bank, market conditions, the realized growth and remixing of the balance sheet, as well as the broader macroeconomic environment could all have a significant impact on the Bank’s assets, liabilities and equity.
Liquidity Risk
Liquidity risk is the risk that the Bank will be unable to meet its obligations as they come due or meet the credit needs of its members and borrowers in a timely and cost-efficient manner. The Bank’s objective is to meet operational and member liquidity needs under all reasonable economic and operational situations. The Bank uses liquidity to absorb fluctuations in asset and liability balances and to provide an adequate reservoir of funding to support attractive and stable advance pricing. The Bank meets its liquidity needs from both asset and liability sources.
To address liquidity risk, the Bank uses cash flow scenario analysis and maturity gap analysis in compliance with regulatory requirements to confirm that the Bank has sufficient liquidity reserves, as discussed in further detail in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources above.
Credit Risk
The Bank faces credit risk primarily with respect to its advances, investments, derivatives, and mortgage loan assets.
Advances
Secured advances to member financial institutions account for the largest category of Bank assets; thus, advances are a major source of the Bank’s credit risk exposure. The Bank uses a risk-focused approach to credit and collateral underwriting. The Bank attempts to reduce credit risk on advances by monitoring the creditworthiness of borrowers, the Bank’s exposure to a particular member, and the quality and value of the assets that borrowers pledge as eligible collateral.
The Bank determines the credit risk rating for its members by evaluating each institution’s overall financial health, taking into account the quality of assets, earnings, liquidity, and capital position. Prior to November 1, 2025, the Bank assigned each borrower that is an insured depository institution a credit risk rating from 101 to 104 by utilizing an internal model (101 being the least amount of credit risk and 104 being the greatest amount of credit risk). The Bank assigned each borrower that is an insurance company a credit risk rating from 101 to 104 by utilizing an external model. The Bank assigned each borrower that is not an insured depository institution or an insurance company (including housing associates, community development financial institutions, and corporate credit unions) a credit risk rating from 101 to 104 based on an internal risk matrix developed for each entity type.
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Beginning on November 1, 2025, the Bank no longer assigned each borrower a credit risk rating from 101 to 104, and transitioned to a 10 point credit risk scale rating borrowers from one to 10 according to the relative credit risk that such borrower poses to the Bank (one being the least amount of credit risk and 10 being the greatest amount of the credit risk). In general, a rating of 101 in the previous rating system equates to ratings of one through four in the new rating system, a rating of 102 equates to ratings of five through six, a rating of 103 equates to a rating of seven, and a rating of 104 equates to ratings of eight through 10.
In general, borrowers with the greatest amount of credit risk may have more restrictions on the types of collateral they may use to secure advances, may be required to maintain higher collateral maintenance levels and deliver loan collateral, may be restricted from obtaining further advances, and may face more stringent collateral reporting requirements. At times, based upon the Bank’s assessment of a borrower and its collateral, the Bank may place more restrictive requirements on a borrower than those generally applicable to borrowers with the same rating. Management and the board also monitor the Bank’s concentration in secured credit and standby letters of credit exposure to individual borrowers.
The following table presents the number of borrowers and the par value of advances outstanding to borrowers with the specified ratings as of the specified dates (dollars in millions).
As of December 31, 2025
Rating
Number of Borrowers
Par Value of Outstanding Advances
Total
As of December 31, 2024
Rating
Number of Borrowers
Par Value of Outstanding Advances
Total
The Bank establishes a credit limit for each borrower. The credit limit is not a committed line of credit, but rather an indication of the borrower’s general borrowing capacity with the Bank. The Bank determines the credit limit in its sole and absolute discretion by evaluating a wide variety of factors that indicate the borrower’s overall creditworthiness. The credit limit is generally expressed as a percentage of the borrower’s total assets. Credit exposure is defined as the borrower’s total liabilities to the Bank, which includes the face amount of outstanding standby letters of credit, the par value of outstanding advances, and the total exposure of the Bank to the borrower under any derivative contract. Generally, borrowers are held to a credit limit of no more than 30 percent. However, the Bank’s board of directors may approve a higher limit at its discretion, and such borrowers may be subject to certain additional collateral reporting and maintenance requirements. The Bank had no borrowers with a credit limit higher than 30 percent as of December 31, 2025.
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The Bank obtains collateral on advances to protect againstlosses, but FHFA regulations permit the Bank to accept only certain types of collateral. The Bank secures priority interest in the collateral it receives from its members through contractual agreements and by timely perfecting its interest in accordance with applicable laws and regulations. Each borrower must maintain an amount of qualifying collateral that, when discounted to the lendable collateral value (LCV), is equal to at least 100 percent of the borrower’s outstanding par value of all advances and other liabilities from the Bank. The LCV is the value that the Bank assigns to each type of qualifying collateral for purposes of determining the amount of credit that such qualifying collateral will support. For each type of qualifying collateral, the Bank discounts the market value of the qualifying collateral to calculate the LCV. The Bank regularly reevaluates the appropriate level of discounting. The Bank had rights to collateral on a borrower-by-borrower basis with an estimated value equal to or greater than its outstanding extension of credit as of December 31, 2025 and December 31, 2024. The following table presents information about the types of collateral held for the Bank’s advances (dollars in millions).
Total Par Value of
Outstanding
Advances
LCV of Collateral Pledged by Members
First Mortgage Collateral (%)
Securities Collateral (%)
Other Real
Estate Related Collateral (%)
As of December 31, 2025
As of December 31, 2024
For purposes of determining each member’s LCV, the Bank estimates the current market value of all residential first mortgage loans, commercial real estate loans, home equity loans, and lines of credit pledged as collateral based on information provided by the member on its loan portfolio or on individual loans through the regular collateral reporting process. The estimated market value is discounted to account for the (1) price volatility of loans, (2) model data uncertainty, and (3) estimated liquidation and servicing costs in the event of the member’s default. Market values, and thus LCVs, change monthly. The use of this market-based valuation methodology allows the Bank to establish its collateral discounts with greater precision and to provide greatertransparency with respect to the valuation of collateral pledged for advances and other credit products offered by the Bank.
In its history, the Bank has never experienced a credit loss on an advance. In consideration of this and the Bank’s policies and practices detailed above, the Bank has not established an allowance for credit losses on advances as of December 31, 2025 and 2024.
Investments
The Bank is subject to credit risk on investments consisting of investment securities, interest-bearing deposits, securities purchased under agreements to resell, and federal funds sold. These investments are generally transacted with government agencies and large financial institutions that are considered to be of investment quality. The FHFA defines investment quality as a security with adequate financial backing, so that full and timely payment of principal and interest on such security is expected, and there is minimal risk that the timely payment of principal and interest would not occur because of adverse changes in economic and financial conditions during the projected life of the security.
In addition to FHFA regulations, the Bank has established guidelines approved by its board of directors regarding unsecured extensions of credit, with respect to term limits and eligible counterparties.
FHFA regulations prohibit the Bank from investing in any of the following securities:
• instruments, such as common stock, that represent an ownership interest in an entity, other than stock in small business investment companies, or certain investments targeted to low-income people or communities;
• instruments issued by non-U.S. entities, other than those issued by U.S. branches and agency offices of foreign commercial banks;
• debt instruments that are not of investment quality, other than certain investments targeted to low-income people or communities and instruments that the Bank determined became less than investment quality because of developments or events that occurred after purchase by the Bank;
• whole mortgages or other whole loans, other than the following: (1) those acquired under the Bank’s mortgage purchase programs; (2) certain investments targeted to low-income people or communities; (3) certain marketable direct obligations of state, local, or tribal government units or agencies that are of investment quality; (4) MBS or asset-backed securities that are backed by manufactured housing loans or home equity loans; and (5) certain foreign housing loans that are authorized under section 12(b) of the FHLBank Act;
• interest-only and principal-only stripped securities;
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• residual-interest or interest-accrual classes of CMOs and REMICs;
• fixed-rate or variable-rate MBS, CMOs, and REMICs that are at rates equal to their contractual cap on the trade date and that have average lives that vary by more than six years under an assumed instantaneous interest-rate change of 300 basis points; and
• non-U.S. dollar denominated securities.
FHFA regulations do not permit the Bank to rely exclusively on Nationally Recognized Statistical Rating Organization (NRSRO) ratings with respect to its investments. The Bank is required to make a determination of whether a security is of investment quality based on its own documented analysis, which includes the NRSRO rating as one of the factors that is assessed to determine investment quality. The Bank monitors the financial condition of investment counterparties to ensure that they are in compliance with the Bank’s RMP and FHFA regulations. Unsecured credit exposure to any counterparty is limited by the credit quality and capital of the counterparty and by the capital of the Bank. On a regular basis, management produces financial monitoring reports detailing the financial condition of the Bank’s counterparties. These reports are reviewed by the Bank’s board of directors. In addition to the Bank’s RMP and regulatory requirements, the Bank may limit or suspend overnight and term trading. Limiting or suspending counterparties limits the pool of available counterparties, shifts the geographical distribution of counterparty exposure, and may reduce the Bank’s overall investment opportunities.
The Bank only enters into investments with U.S. counterparties or U.S. branch offices of foreign banks that have been approved by the Bank through its internal approval process, but the Bank may still have exposure to foreign entities if a counterparty’s parent entity is located in another country. The following tables present the Bank’s gross exposure, by instrument type, according to the location of the parent company of the counterparty (dollars in millions).
As of December 31, 2025
Federal Funds Sold
Interest-bearing
Deposits
Net Derivative Exposure (1)
Total
Australia
Canada
Finland
France
Germany
United States of America
Total
As of December 31, 2024
Federal Funds Sold
Interest-bearing
Deposits
Net Derivative Exposure (1)
Total
Australia
Canada
Finland
France
Germany
Japan
Netherlands
Sweden
United States of America
Total
(1) Amounts do not reflect collateral; see the table under Risk Management–Credit Risk–Derivatives below for a breakdown of the credit ratings of and the Bank’s credit exposure to derivative counterparties, including net exposure after collateral.
The Bank’s unsecured credit exposure to non-U.S. government and non-U.S. government agency counterparties in its investment portfolio increased to $11.0 billion as of December 31, 2025, from $8.6 billion as of December 31, 2024. As of December 31, 2025, Australia & New Zealand Banking Group (Australia) and Landesbank Hessen-Thuringen Girozentrale (Germany) each accounted for more than 10 percent of this exposure and together represented 26.8 percent of the total unsecured credit exposure to non-U.S. government or non-U.S. government agency counterparties. The total unsecured credit portfolio as of December 31, 2025, consisted primarily of federal funds sold with overnight maturities.
The Bank’s RMP permits the Bank to invest in U.S. government or any U.S. government agency (i.e., Fannie Mae, Freddie
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Mac and Ginnie Mae) obligations including the following: (1) CMOs and REMICS that are backed by U.S. agencies; and (2) other MBS, CMOs, and REMICS that are of sufficient investment quality, which typically have the highest ratings issued by S&P or Moody’s at the time of purchase. In addition to NRSRO ratings, the Bank considers a variety of credit quality factors when analyzing potential investments, such as collateral performance, marketability, asset class considerations, local and regional economic conditions, and the financial health of the underlying issuer.
The following table presents information on the credit ratings of the Bank’s investments held as of December 31, 2025 (dollars in millions), based on their credit ratings as of December 31, 2025. The credit ratings reflect the lowest long-term credit ratings as reported by an NRSRO.
As of December 31, 2025
Investment Grade
AAA
BBB
Total
Investment securities:
State or local housing agency debt obligations
Government-sponsored enterprises debt obligations
U.S. Treasury obligations
Mortgage-backed securities:
U.S. agency obligations-guaranteed residential
Government-sponsored enterprises residential
Government-sponsored enterprises commercial
Total mortgage-backed securities
Total investment securities
Other investments:
Interest-bearing deposits
Securities purchased under agreements to resell
Federal funds sold
Total other investments
Total carrying value
Securities Purchased Under Agreements to Resell
Securities purchased under agreements to resell are considered collateralized financing arrangements and effectively represent short-term loans transacted with counterparties that the Bank considers to be of investment quality. The terms of these loans are structured such that if the fair value of the underlying securities decreases below the fair value required as collateral, the counterparty must place an equivalent amount of additional securities as collateral or remit an equivalent amount of cash. If an agreement to resell is deemed to be impaired, the difference between the fair value of the collateral and the amortized cost of the agreement is recognized in earnings.
Available-for-sale Securities
Available-for-sale securities are evaluated at the individual security level for impairment on a quarterly basis by comparing the security’s fair value to its amortized cost. Accrued interest receivable is reported separately on the Statements of Condition. Impairment exists when the fair value of the investment is less than its amortized cost (i.e., in an unrealized loss position). In assessing whether a credit loss exists on an impaired security, the Bank considers whether there would be a shortfall in receiving all cash flows contractually due. In the case of U.S. obligations, they carry an explicit U.S. government guarantee and GSE securities are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs. Thus, the Bank considers the risk of nonpayment to be zero. When a shortfall is considered possible, the Bank compares the present value of cash flows to be collected from the security with the amortized cost basis of the security. If the present value of cash flows is less than amortized cost, an allowance for credit losses is recorded with a corresponding adjustment to the provision (reversal) for credit losses. The allowance is limited by the amount of the unrealized loss. The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately. If management intends to sell an impaired security classified as available-for-sale, or more likely than not will be required to sell the security before expected recovery of its amortized cost basis, any allowance for credit losses is written off and the amortized cost basis is written down to the security’s fair value at the reporting date with any incremental impairment reported in earnings. If management does not intend to sell an impaired security classified as available-for-sale and it is not more likely than not that management will be required to sell the debt security, then the credit portion of the difference is recognized as an allowance for credit losses and any remaining difference between the security’s fair value and amortized cost
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is recorded as net unrealized gains (losses) on available-for-sale securities within other comprehensive income (loss). The Bank has not established an allowance for credit loss on any of its available-for-sale securities as of December 31, 2025.
Held-to-maturity Securities
Held-to-maturity securities are evaluated quarterly for expected credit losses on a pool basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. If applicable, an allowance for credit losses is recorded with a corresponding credit loss expense (or reversal of credit loss expense). The allowance for credit losses excludes uncollectible accrued interest receivable, which is measured separately.
The Bank evaluates its held-to-maturity securities for impairment on a collective, or pooled basis unless an individual assessment is deemed necessary because the securities do not possess similar risk characteristics. The Bank has not established an allowance for credit loss on any of its held-to-maturity securities as of December 31, 2025 because the securities: (1) were all highly-rated and/or had short remaining terms to maturity, (2) had not experienced, nor did the Bank expect, any payment default on the instruments, (3) in the case of U.S. obligations, they carry an explicit U.S. government guarantee such that the Bank considers the risk of nonpayment to be zero, and (4) in the case of GSE securities, they are purchased under an assumption that the issuers’ obligation to pay principal and interest on those securities will be honored, taking into account their status as GSEs.
Derivatives
The Bank is subject to credit risk due to the risk of nonperformance by counterparties to its derivative transactions. The amount of credit risk on derivatives depends on the extent to which netting procedures, collateral requirements, and other credit enhancements are used and are effective in mitigating the risk. The Bank manages credit risk through credit analysis, collateral management, and other credit enhancements. The Bank is also required to follow the requirements set forth by applicable regulations.
The Bank’s over-the-counter derivative transactions may either be (1) uncleared derivatives, which are executed bilaterally with a counterparty; or (2) cleared derivatives, which are cleared through a clearing agent with a Clearinghouse. Once a derivative transaction has been accepted for clearing by a Clearinghouse, the derivative transaction is novated, and the executing counterparty is replaced with the Clearinghouse as the counterparty.
For uncleared derivatives, the Bank is subject to nonperformance by counterparties. The Bank generally requires collateral on uncleared derivative transactions. A counterparty must deliver collateral to the Bank if the total market value of the Bank’s exposure to that counterparty rises above a specific trigger point. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its uncleared derivatives as of December 31, 2025.
If the counterparty has an NRSRO rating, the net exposure after collateral is treated as unsecured credit, consistent with the Bank’s RMP and FHFA regulations. If the counterparty does not have an NRSRO rating, the Bank requires collateral for the full amount of the exposure.
For cleared derivatives, the Bank is subject to credit risk due to nonperformance by the Clearinghouse and clearing agent. The requirement that the Bank post initial and variation margin through the clearing agent, to the Clearinghouse, exposes the Bank to institutional credit risk in the event that the clearing agent or the Clearinghouse fails to meet its obligations. The use of cleared derivatives mitigates credit risk exposure because a central counterparty is substituted for individual counterparties, and collateral is posted daily for changes in the value of cleared derivatives through a clearing agent. This does introduce, however, a risk of concentration among the limited number of Clearinghouses and clearing agents. The Bank actively monitors Clearinghouses and clearing agents. An annual review of the Bank’s Clearinghouses is performed, and the Bank also monitors its exposure to Clearinghouses on a monthly basis. The Bank utilized two approved Clearinghouses, CME Clearing and LCH Ltd. The Bank also monitors the clearing agents through its unsecured credit system, and the Bank subjects these clearing agents to the same limits as other bilateral derivative counterparties. The parent companies of the clearing agents are monitored through annual reviews, as well as through the Bank’s daily monitoring tools, which include reviewing equity triggers, debt triggers, and credit default swap spread triggers. In addition, exposures to the clearing agents are monitored daily on a swap counterparty report. The Bank currently has two approved clearing agents, Morgan Stanley & Co. LLC and Goldman Sachs & Co. The Bank does not anticipate any credit losses on its cleared derivatives as of December 31, 2025.
The contractual or notional amount of derivative transactions reflects the involvement of the Bank in the various classes of financial instruments; however, the Bank’s maximum credit risk with respect to derivative transactions is the estimated cost of replacing the derivative transactions if there is default, less the value of any related collateral, including initial and variation
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margin. In determining maximum credit risk, the Bank considers accrued interest receivables and payables, as well as the netting requirements to net assets and liabilities.
The following table presents the derivative positions with counterparties to which the Bank had credit exposure as of December 31, 2025 (dollars in millions). The credit ratings reflect the lowest long-term credit rating by an NRSRO.
As of December 31, 2025
Notional Amount
Net Derivatives Fair Value Before Collateral
Cash Collateral Pledged To (From) Counterparty
Net Credit Exposure to Counterparties
Non-member counterparties:
Asset positions with credit exposure:
Double-A
Single-A
Cleared derivatives
Liability positions with credit exposure:
Single-A
Total derivative positions with counterparties to which the Bank had credit exposure
Mortgage Loan Programs
The Bank seeks to manage the credit risk associated with the MPP and the MPF Program by maintaining underwriting and eligibility standards and structuring possible losses into several layers to be shared with the PFIs.
Mortgage loans purchased under the MPP and MPF Program must comply with the underwriting and eligibility standards set forth in applicable MPP guidelines or MPF Program guidelines. In both MPP and MPF Program, the Bank and PFIs share the risk of losses on mortgage loans by structuring potential losses on conventional mortgage loans into layers with respect to each master commitment and in compliance with the applicable regulations governing the purchase of mortgage loans by the Bank.
The following table presents the Bank’s credit ratios for mortgage loans held for portfolio, along with each component of the ratio’s calculation (dollars in millions):
As of December 31,
Average mortgage loans held for portfolio outstanding during the year (1)
Mortgage loans held for portfolio (1)
Nonaccrual loans (1)
Allowance for credit losses on mortgage loans held for portfolio
Net charge-offs
Ratios (%)
Net charge-offs to average mortgage loans held for portfolio outstanding during the year
Allowance for credit losses to mortgage loans held for portfolio
Nonaccrual loans to mortgage loans held for portfolio
Allowance for credit losses to nonaccrual loans
(1) Represents unpaid principal balance.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. Operational risk for the Bank also includes reputation and legal risks associated with business practices or market conduct that the Bank may undertake. Operational risk inherently is greatest where transaction processes include numerous processing steps, require greater subjectivity, or are non-routine. The Bank operates in a complex business environment and is subject to numerous regulatory requirements.
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The Bank identifies risk through daily operational monitoring, independent reviews, and the strategic planning and risk assessment programs that both consider the operational risk ramifications of the Bank’s business strategies and environment. The Bank has established comprehensive financial and operating policies and procedures to mitigate the likelihood of loss resulting from the identified operational risks. In addition, the Bank’s Operational Risk Committee is responsible for overseeing the Bank’s risk management policies, procedures, strategies, and activities related to operational risks, including overseeing the monitoring process and review of risk assessments. This oversight also includes compliance risk and reputational risk. The Bank effects related changes in processes, information systems, lines of communication, and other internal controls as deemed appropriate in response to identified or anticipated increases in operational risk.
The board of directors, through EROC, oversees enterprise risk management, operations, information technology, and other related matters. In addition, the Bank’s internal Enterprise Risk Committee (ERC) is responsible for the management and oversight of the Bank’s risk management programs and practices. Additionally, the Bank’s Internal Audit department, which reports directly to the Audit Committee of the Bank’s board of directors, regularly tests compliance with the policies and procedures related to managing operational risks.
Cyber-Related Risks.
The efficiencies offered by information technology (IT) are necessary components of Bank operations. The IT architecture supports multiple operating systems, database structures, and virtualized servers to support business applications that are a mixture of vendor-licensed and in-house developed. Cybersecurity threats can result in damage to the Bank’s physical facilities, technology systems, and/or the Bank’s intangible assets. Successful attacks can have a financial, legal, and reputational impact on the Bank as well as disrupt the Bank’s ability to serve its members.
The Bank’s board of directors, through EROC, oversees the major dimensions of the Bank’s information technology program including management of information systems through specialized management committees and other policies and procedures to ensure alignment with the Bank’s strategic plan, risk management activities, and operational performance standards, as discussed in further detail in Item 1C. Cybersecurity .
Business Risk
Business risk is the risk of an adverse effect on the Bank’s profitability resulting from external factors that may occur in both the short- and the long-term. Business risk includes political, strategic, reputation, and regulatory events that are beyond the Bank’s control. In particular, during 2025, and continuing into 2026, the Bank faces business risk, which may include changes in:
• the overall economy;
• the financial services industry or the Bank’s competitive environment; and
• legislation, regulation, or congressional scrutiny affecting the Bank or its members.
For discussion of the Bank’s competition for advances, see Item 1. Business — Competition above. For discussion of recent regulatory activity that may have a material impact on the Bank’s operations, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Developments . The Bank attempts to mitigate these risks through long-term strategic planning and through continually monitoring economic indicators and the external environment.
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Cyclicality and Seasonality
The Bank’s business and the demand for advances from the Bank are generally not subject to the effects of cyclical or seasonal variations, although the Bank’s advance demand may vary based upon fluctuations of its members’ consumer credit liquidity needs.
Effects of Inflation
The majority of the Bank’s assets and liabilities are, and will continue to be, monetary in nature. Although interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services, higher rates of inflation generally result in corresponding increases in interest rates. Inflation, coupled with increasing interest rates, generally has the following effects on the Bank:
• the cost of the Bank’s funds and operating overhead increases;
• the yield on variable-rate assets held by the Bank increases;
• the fair value of fixed-rate investments and mortgage loans held in portfolio decreases; and
• mortgage loan prepayment rates decrease and result in lower levels of mortgage loan refinance activity, which may result in the reduction of Bank advances to members as increased rates tend to slow home sales.
Conversely, lower rates of inflation or deflation have the opposite effects of the above on the Bank and its holdings.
